EXHIBIT 10.4


 


Note:  This exhibit reflects an amendment to Section
14 of this long-term performance plan to provide that certain adjustments shall
be mandatory.


 


IBM 1997 Long-Term Performance Plan


 


1. Objectives.


 


The IBM 1997
Long-Term Performance Plan (the “Plan”) is designed to attract, motivate and
retain selected employees of, and other individuals providing services to, the
Company. These objectives are accomplished by making long-term incentive and
other awards under the Plan, thereby providing Participants with a proprietary
interest in the growth and performance of the Company.


 


2.
Definitions.


 


(a) “Awards” —
The grant of any form of stock option, stock appreciation right, stock or cash
award, whether granted singly, in combination or in tandem, to a Participant
pursuant to such terms, conditions, performance requirements, limitations and
restrictions as the Committee may establish in order to fulfill the objectives
of the Plan.


 


(b) “Award
Agreement” — An agreement between the Company and a Participant that sets forth
the terms, conditions, performance requirements, limitations and restrictions
applicable to an Award.


 


(c) “Board” — The
Board of Directors of International Business Machines Corporation (“IBM”).


 


(d) “Capital
Stock” or “stock” — Authorized and issued or unissued Capital Stock of IBM, at
such par value as may be established from time to time.


 


(e) “Code” — The
Internal Revenue Code of 1986, as amended from time to time.


 


(f) “Committee”
— The committee designated by the Board to administer the Plan.


 


(g) “Company”
— IBM and its affiliates and subsidiaries including subsidiaries of
subsidiaries and partnerships and other business ventures in which IBM has an
equity interest.


 


(h) “Fair
Market Value” — The average of the high and low prices of Capital Stock on the
New York Stock Exchange for the date in question, provided that, if no sales of
Capital Stock were made on said exchange on that date, the average of the high
and low prices of Capital Stock as reported for the most recent preceding day
on which sales of Capital Stock were made on said exchange.


 

















 


(i) “Participant”
— An individual to whom an Award has been made under the Plan. Awards may be
made to any employee of, or any other individual providing services to, the
Company. However, incentive stock options may be granted only to individuals
who are employed by IBM or by a subsidiary corporation (within the meaning of
Section 424(f) of the Code) of IBM, including a subsidiary that becomes such
after the adoption of the Plan.


 


3. Capital
Stock Available for Awards.


 


The number of
shares that may be issued under the Plan for Awards granted wholly or partly in
stock during the term of the Plan is 25,148,227. Shares of Capital Stock may be
made available from the authorized but unissued shares of the Company or from
shares held in the Company’s treasury and not reserved for some other purpose.
For purposes of determining the number of shares of Capital Stock issued under
the Plan, no shares shall be deemed issued until they are actually delivered to
a Participant, or such other person in accordance with Section 10. Shares
covered by Awards that either wholly or in part are not earned, or that expire
or are forfeited, terminated, canceled, settled in cash, payable solely in cash
or exchanged for other awards, shall be available for future issuance under
Awards. Further, shares tendered to or withheld by the Company in connection
with the exercise of stock options, or the payment of tax withholding on any
Award, shall also be available for future issuance under Awards.


 


4.
Administration.


 


The Plan shall
be administered by the Committee, which shall have full power to select
Participants, to interpret the Plan, to grant waivers of Award restrictions, to
continue, accelerate or suspend exercisability, vesting or payment of an Award
and to adopt such rules, regulations and guidelines for carrying out the Plan
as it may deem necessary or proper. These powers include, but are not limited
to, the adoption of modifications, amendments, procedures, subplans and the
like as are necessary to comply with provisions of the laws and regulations of
the countries in which the Company operates in order to assure the viability of
Awards granted under the Plan and to enable Participants regardless of where employed
to receive advantages and benefits under the Plan and such laws and
regulations.


 


5. Delegation
of Authority.


 


The Committee
may delegate to officers of the Company its duties, power and authority under
the Plan pursuant to such conditions or limitations as the Committee may
establish, except that only the Committee or the Board may select, and grant
Awards to, Participants who are subject to Section 16 of the Securities
Exchange Act of 1934.


 

















 


6. Awards.


 


The Committee
shall determine the type or types of Award(s) to be made to each Participant
and shall set forth in the related Award Agreement the terms, conditions,
performance requirements, and limitations applicable to each Award. Awards may
include but are not limited to those listed in this Section 6. Awards may be
granted singly, in combination or in tandem. Awards may also be made in
combination or in tandem with, in replacement or payment of, or as alternatives
to, grants, rights or compensation earned under any other plan of the Company,
including the plan of any acquired entity. During any five-year period, no
Participant may receive, under the Plan, stock options or stock appreciation
rights with respect to an aggregate of more than 2,500,000 shares.


 


(a) Stock
Option — A grant of a right to purchase a specified number of shares of Capital
Stock the exercise price of which shall be not less than 100% of Fair Market
Value on the date of grant of such right, as determined by the Committee,
provided that, in the case of a stock option granted retroactively in tandem
with or as substitution for another award granted under any plan of the
Company, the exercise price may be the same as the purchase or designated price
of such other award. A stock option may be in the form of an incentive stock option
(“ISO”) which, in addition to being subject to applicable terms, conditions and
limitations established by the Committee, complies with Section 422 of the
Code. The number of shares of stock that shall be available for issuance under
ISO’s granted under the Plan is limited to ten million.


 


(b) Stock
Appreciation Right — A right to receive a payment, in cash and/or Capital
Stock, equal in value to the excess of the Fair Market Value of a specified
number of shares of Capital Stock on the date the stock appreciation right
(SAR) is exercised over the grant price of the SAR, which shall not be less
than 100% of the Fair Market Value on the date of grant of such SAR, as
determined by the Committee, provided that, in the case of a SAR granted
retroactively in tandem with or as substitution for another award granted under
any plan of the Company, the grant price may be the same as the exercise or
designated price of such other award.


 


(c) Stock
Award — An Award made in stock and denominated in units of stock. The maximum
number of shares of Capital Stock that may be issued under Stock Awards shall
not exceed 20% of the aggregate number of shares available for issuance under
Awards. All or part of any stock award may be subject to conditions established
by the Committee, and set forth in the Award Agreement, which may include, but
are not limited to, continuous service with the Company, achievement of
specific business objectives, increases in specified indices, attaining growth
rates, and other comparable measurements of the Company performance. An Award
made in stock or denominated in units of stock that is subject to restrictions
on transfer and/or forfeiture provisions may be referred to as an Award of “Restricted
Stock,” “Restricted Stock Units” or “Long-Term Performance Incentive” units.


 

















 


(d) Cash Award
— An Award denominated in cash with the eventual payment amount subject to
future service and such other restrictions and conditions as may be established
by the Committee, and as set forth in the Award Agreement, including, but not
limited to, continuous service with the Company, achievement of specific
business objectives, increases in specified indices, attaining growth rates,
and other comparable measurements of Company performance.


 

















 


At the Company’s
1995 Annual Meeting, shareholders approved terms adopted by the Committee under
which long-term incentive compensation payable under the Company’s 1994
Long-Term Performance Plan would qualify for an exception from the limitations
on deductibility set forth in section 162(m) of the Code. The Committee shall
continue to make long-term performance incentive awards under the Plan pursuant
to those terms. The foregoing shall not preclude the Committee from making
other compensation payments under different terms even if they do not qualify
for tax deductibility under section 162(m).


 


7. Payment of
Awards.


 


Payment of
Awards may be made in the form of cash, stock or combinations thereof and may
include such restrictions as the Committee shall determine. Further, with
Committee approval, payments may be deferred, either in the form of
installments or as a future lump-sum payment, in accordance with such
procedures as may be established from time to time by the Committee. Any
deferred payment, whether elected by the Participant or specified by the Award
Agreement or the Committee, may require the payment to be forfeited in
accordance with the provisions of Section 13. Dividends or dividend equivalent
rights may be extended to and made part of any Award denominated in stock or
units of stock, subject to such terms, conditions and restrictions as the
Committee may establish. The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments and dividend
equivalents for deferred payments denominated in stock or units of stock. At
the discretion of the Committee, a Participant may be offered an election to
substitute an Award for another Award or Awards of the same or different type.


 


8. Stock
Option Exercise.


 


The price at
which shares of Capital Stock may be purchased under a stock option shall be
paid in full in cash at the time of the exercise or, if permitted by the
Committee, by means of tendering Capital Stock or surrendering another Award or
any combination thereof. The Committee shall determine acceptable methods of
tendering Capital Stock or other Awards and may impose such conditions on the
use of Capital Stock or other Awards to exercise a stock option as it deems
appropriate.


 


9. Tax
Withholding.


 


Prior to the
payment or settlement of any Award, the Participant must pay, or make
arrangements acceptable to the Company for the payment of, any and all federal,
state and local tax withholding that in the opinion of the Company is required
by law. The Company shall have the right to deduct applicable taxes from any
Award payment and withhold, at the time of delivery or vesting of shares under
the Plan, an appropriate number of shares for payment of taxes required by law
or to take such other action as may be necessary in the opinion of the Company
to satisfy all obligations for withholding of such taxes.


 

















 


10.
Transferability.


 


No Award shall
be transferable or assignable, or payable to or exercisable by, anyone other
than the Participant to whom it was granted, except (i) by law, will or the
laws of descent and distribution, (ii) as a result of the disability of a
Participant or (iii) that the Committee (in the form of an Award Agreement or
otherwise) may permit transfers of Awards by gift or otherwise to a member of a
Participant’s immediate family and/or trusts whose beneficiaries are members of
the Participant’s immediate family, or to such other persons or entities as may
be approved by the Committee. Notwithstanding the foregoing, in no event shall
ISOs be transferable or assignable other than by will or by the laws of descent
and distribution.


 


11. Amendment,
Modification, Suspension or Discontinuance of the Plan.


 


The Board may
amend, modify, suspend or terminate the Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law. Subject to changes in law or other legal requirements that would permit
otherwise, the Plan may not be amended without the consent of the holders of a
majority of the shares of Capital Stock then outstanding, to (i) increase the
aggregate number of shares of Capital Stock that may be issued under the Plan
(except for adjustments pursuant to Section 14 of the Plan), or (ii) permit the
granting of stock options or SARs with exercise or grant prices lower than
those specified in Section 6.


 


12.
Termination of Employment.


 


If the
employment of a Participant terminates, other than as a result of the death or
disability of a Participant, all unexercised, deferred and unpaid Awards shall
be canceled immediately, unless the Award Agreement provides otherwise. In the
event of the death of a Participant or in the event a Participant is deemed by
the Company to be disabled and eligible for benefits under the terms of the IBM
Long-Term Disability Plan (or any successor plan or similar plan of another
employer), the Participant’s estate, beneficiaries or representative, as the
case may be, shall have the rights and duties of the Participant under the
applicable Award Agreement.


 


13.
Cancellation and Rescission of Awards.


 


(a) Unless the
Award Agreement specifies otherwise, the Committee may cancel, rescind,
suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or
deferred Awards at any time if the Participant is not in compliance with all applicable
provisions of the Award Agreement and the Plan, or if the Participant engages
in any “Detrimental Activity.” For purposes of this Section 13, “Detrimental
Activity” shall include: (i) the rendering of services for any organization or
engaging directly or indirectly in any business which is or becomes competitive
with the Company, or which organization or business, or the rendering of
services to such organization or business, is or becomes 


 

















 


otherwise
prejudicial to or in conflict with the interests of the Company; (ii) the
disclosure to anyone outside the Company, or the use in other than the Company’s
business, without prior written authorization from the Company, of any
confidential information or material, as defined in the Company’s Agreement
Regarding Confidential Information and Intellectual Property, relating to the
business of the Company, acquired by the Participant either during or after
employment with the Company; (iii) the failure or refusal to disclose promptly
and to assign to the Company, pursuant to the Company’s Agreement Regarding
Confidential Information and Intellectual Property, all right, title and
interest in any invention or idea, patentable or not, made or conceived by the
Participant during employment by the Company, relating in any manner to the
actual or anticipated business, research or development work of the Company or
the failure or refusal to do anything reasonably necessary to enable the
Company to secure a patent where appropriate in the United States and in other
countries; (iv) activity that results in termination of the Participant’s
employment for cause; (v) a violation of any rules, policies, procedures or
guidelines of the Company, including but not limited to the Company’s Business
Conduct Guidelines; (vi) any attempt directly or indirectly to induce any
employee of the Company to be employed or perform services elsewhere or any
attempt directly or indirectly to solicit the trade or business of any current
or prospective customer, supplier or partner of the Company; (vii) the
Participant being convicted of, or entering a guilty plea with respect to, a
crime, whether or not connected with the Company; or (viii) any other conduct
or act determined to be injurious, detrimental or prejudicial to any interest
of the Company.


 


(b) Upon
exercise, payment or delivery pursuant to an Award, the Participant shall
certify in a manner acceptable to the Company that he or she is in compliance
with the terms and conditions of the Plan. In the event a Participant fails to
comply with the provisions of paragraphs (a)(i)-(viii) of this Section 13 prior
to, or during the six months after, any exercise, payment or delivery pursuant
to an Award, such exercise, payment or delivery may be rescinded within two
years thereafter. In the event of any such rescission, the Participant shall
pay to the Company the amount of any gain realized or payment received as a
result of the rescinded exercise, payment or delivery, in such manner and on
such terms and conditions as may be required, and the Company shall be entitled
to set-off against the amount of any such gain any amount owed to the
Participant by the Company.


 


14.
Adjustments.


 


In the event of any change in the outstanding
Capital Stock of the Company by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization, merger, or similar
event, the Committee may adjust proportionately: (a) the number of shares of
Capital Stock (i) available for issuance under the Plan, (ii) available for
issuance under ISO’s, (iii) for which Awards may be granted to an individual
Participant, and (iv) covered by outstanding Awards denominated in stock or
units of stock; (b) the exercise and 


 

















 


grant prices related to outstanding Awards;
and (c) the appropriate Fair Market Value and other price determinations for
such Awards. Notwithstanding the foregoing, in the event of any change in the
outstanding Capital Stock of the Company by reason of a stock split or a
reverse stock split, the above-referenced proportionate adjustments, if
applicable, shall be mandatory.


 


In the event
of any other change affecting the Capital Stock or any distribution (other than
normal cash dividends) to holders of Capital Stock, such adjustments in the
number and kind of shares and the exercise, grant and conversion prices of the
affected Awards as may be deemed equitable by the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect to
such event. In the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the Committee
shall be authorized to cause IBM to issue or assume stock options, whether or
not in a transaction to which Section 424(a) of the Code applies, by means of
substitution of new stock options for previously issued stock options or an
assumption of previously issued stock options. In such event, the aggregate
number of shares of Capital Stock available for issuance under Awards under
Section 3 will be increased to reflect such substitution or assumption.


 


15.
Miscellaneous.


 


(a) Any notice
to the Company required by any of the provisions of the Plan shall be addressed
to the chief human resources officer of IBM in writing, and shall become
effective when it is received.


 


(b) The Plan
shall be unfunded and the Company shall not be required to establish any
special account or fund or to otherwise segregate or encumber assets to ensure
payment of any Award.


 


(c) Nothing
contained in the Plan shall prevent the Company from adopting other or
additional compensation arrangements or plans, subject to shareholder approval
if such approval is required, and such arrangements or plans may be either
generally applicable or applicable only in specific cases.


 


(d) No
Participant shall have any claim or right to be granted an Award under the Plan
and nothing contained in the Plan shall be deemed or be construed to give any
Participant the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge any Participant at any
time without regard to the effect such discharge may have upon the Participant
under the Plan. Except to the extent otherwise provided in any plan or in an
Award Agreement, no Award under the Plan shall be deemed compensation for purposes
of computing benefits or contributions under any other plan of the Company.


 


(e) The Plan
and each Award Agreement shall be governed by the laws of the State of New
York, excluding any conflicts or choice of law rule or principle that might
otherwise refer construction or interpretation of the Plan to the substantive 


 

















 


law of another
jurisdiction. Unless otherwise provided in the Award Agreement, recipients of
an Award under the Plan are deemed to submit to the exclusive jurisdiction and
venue of the federal or state courts of New York, County of Westchester, to
resolve any and all issues that may arise out of or relate to the Plan or any
related Award Agreement.


 


(f) In the
event that a Participant or the Company brings an action to enforce the terms
of the Plan or any Award Agreement and the Company prevails, the Participant
shall pay all costs and expenses incurred by the Company in connection with
that action, including reasonable attorneys’ fees, and all further costs and
fees, including reasonable attorneys’ fees, incurred by the Company in
connection with collection.


 


(g) The
Committee and any officers to whom it may delegate authority under Section 5
shall have full power and authority to interpret the Plan and to make any
determinations thereunder, including determinations under Section 13, and the
Committee’s or such officer’s determinations shall be binding and conclusive.
Determinations made by the Committee or any such officer under the Plan need
not be uniform and may be made selectively among individuals, whether or not
such individuals are similarly situated.


 


(h) If any
provision of the Plan is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any Award
under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended or limited in scope to conform to applicable laws
or, in the discretion of the Committee, it shall be stricken and the remainder
of the Plan shall remain in full force and effect.


 


(i) The Plan
shall become effective on the date it is approved by the holders of a majority
of the shares of Capital Stock then outstanding.


 

















 


IBM
1997 Long-Term Performance Plan — Federal Income Tax Consequences


 


The Company
has been advised by counsel that, in general, under the Internal Revenue Code,
as presently in effect, a Participant will not be deemed to recognize any
income for federal income tax purposes at the time an option or SAR is granted
or a restricted stock award is made, nor will the Company be entitled to a tax
deduction at that time. However, when any part of an option or SAR is
exercised, when restrictions on restricted stock lapse, or when an unrestricted
stock award is made, the federal income tax consequences may be summarized as
follows:


 


1. In the case
of an exercise of a stock option other than an ISO, the optionee will generally
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares on the exercise date over the option price.


 


2. In the case
of an exercise of a SAR, the Participant will generally recognize ordinary
income on the exercise date in an amount equal to any cash and the fair market
value of any unrestricted shares received.


 


3. In the case
of an exercise of an option or SAR payable in restricted stock, or in the case
of an award of restricted stock, the immediate federal income tax effect for
the recipient will depend on the nature of the restrictions. Generally, the
fair market value of the stock will not be taxable to the recipient as ordinary
income until the year in which his or her interest in the stock is freely
transferable or is no longer subject to a substantial risk of forfeiture.
However, the recipient may elect to recognize income when the stock is
received, rather than when his or her interest in the stock is freely
transferable or is no longer subject to a substantial risk of forfeiture. If
the recipient makes this election, the amount taxed to the recipient as
ordinary income is determined as of the date of receipt of the restricted
stock.


 


4. In the case
of ISO’s, there is generally no tax liability at time of exercise. However, the
excess of the fair market value of the stock on the exercise date over the
option price is included in the optionee’s income for purposes of the
alternative minimum tax. If no disposition of the ISO stock is made before the
later of one year from the date of exercise and two years from the date of
grant, the optionee will realize a long-term capital gain or loss upon a sale
of the stock, equal to the difference between the option price and the sale
price. If the stock is not held for the required period, ordinary income tax
treatment will generally apply to the excess of the fair market value of the
stock on the date of exercise (or, if less, the amount of gain realized on the
disposition of the stock) over the option price, and the balance of any gain or
any loss will be treated as capital gain or loss (long-term or short-term,
depending on whether the shares have been held for more than one year).


 

















 


5. Upon the
exercise of a stock option other than an ISO, the exercise of a SAR, the award
of stock, or the recognition of income on restricted stock, the Company will
generally be allowed an income tax deduction equal to the ordinary income
recognized by a Participant. The Company will not receive an income tax
deduction as a result of the exercise of an ISO, provided that the ISO stock is
held for the required period as described above. When a cash payment is made
pursuant to the Award, the recipient will recognize the amount of the cash
payment as ordinary income, and the Company will generally be entitled to a
deduction in the same amount.


 


6.
Pursuant to section 162(m) of the Code and underlying guidance, the Company may
not deduct compensation of more than $1,000,000 that is paid in a taxable year
to an individual who, on the last day of the taxable year, is the Company’s
chief executive officer or among one of its three other highest compensated
officers for that year, not including the Company’s chief financial officer.
The deduction limit, however, does not apply to certain types of compensation,
including qualified performance-based compensation. The Company believes that
compensation attributable to stock options and stock appreciation rights
granted under the Plan should qualify as performance-based compensation and
therefore should not be subject to the deduction limit. The Plan also
authorizes the grant of long-term performance incentive awards utilizing the
performance criteria set forth in the Plan that may likewise qualify as
performance-based awards.