FOR THE PORTION OF THE TERM
IN 2006 SHALL BE PRORATED BASED ON THE NUMBER OF DAYS IN THE FULL YEAR WORKED BY
EXECUTIVE.
IN ADDITION, THE COMMITTEE (OR THE BOARD) MAY DETERMINE, IN ITS
DISCRETION, TO INCREASE EXECUTIVE'S ANNUAL TARGET INCENTIVE OPPORTUNITY OR
PROVIDE AN ADDITIONAL ANNUAL INCENTIVE OPPORTUNITY, IN EXCESS OF THE ANNUAL
TARGET INCENTIVE OPPORTUNITY, PAYABLE FOR PERFORMANCE IN EXCESS OF OR IN
ADDITION TO THE PERFORMANCE REQUIRED FOR PAYMENT OF THE ANNUAL TARGET INCENTIVE
AMOUNT.
ANY ANNUAL INCENTIVE COMPENSATION PAYABLE TO EXECUTIVE SHALL BE PAID IN
ACCORDANCE WITH THE COMPANY'S USUAL PRACTICES WITH RESPECT TO PAYMENT OF
INCENTIVE COMPENSATION TO SENIOR EXECUTIVES (EXCEPT TO THE EXTENT DEFERRED UNDER
SECTION 5(D)).
5.
LONG-TERM COMPENSATION, INCLUDING RESTRICTED STOCK, STOCK
OPTIONS, AND BENEFITS, DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT.
(A)
EXECUTIVE COMPENSATION PLANS.
EXECUTIVE SHALL PARTICIPATE DURING
THE TERM IN LONG-TERM INCENTIVE EXECUTIVE COMPENSATION PLANS AND PROGRAMS ONLY
TO THE EXTENT SPECIFIED IN THIS SECTION 5.
IN CONNECTION WITH ANY SUCH
PARTICIPATION, FOR PURPOSES OF ELIGIBILITY AND BENEFIT PARTICIPATION LEVELS
UNDER THESE PROGRAMS THAT ARE NOT TAX-QUALIFIED OR OTHERWISE SUBJECT TO
NONDISCRIMINATION REQUIREMENTS UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"), EXECUTIVE SHALL BE GIVEN FULL
3
SERVICE CREDIT FOR SERVICE WITH IBM CORPORATION ("PAST SERVICE CREDIT") AND,
WITH RESPECT TO ANY OTHER PLANS AND/OR PROGRAMS, PAST SERVICE CREDIT SO LONG AS
THE TAX QUALIFIED AND/OR NON-DISCRIMINATORY STATUS IS NOT JEOPARDIZED.
EXECUTIVE'S PARTICIPATION IN LONG-TERM INCENTIVE EXECUTIVE COMPENSATION PROGRAMS
DURING THE TERM SHALL CONSIST OF THE FOLLOWING:
(I)
THE COMPANY SHALL GRANT EXECUTIVE AS OF JANUARY 1, 2005 45,833
RESTRICTED STOCK UNITS ("RSUS") PURSUANT TO AND SUBJECT TO THE TERMS OF THE
COMPANY'S AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN, EFFECTIVE JULY 20,
1999, AS AMENDED FROM TIME TO TIME ("1998 PLAN") (THE "RETENTION GRANT").
THE
RETENTION GRANT, IF NOT PREVIOUSLY FORFEITED, SHALL VEST AS TO 33,333 RSUS ON
THE FIRST ANNIVERSARY OF THE DATE OF GRANT (OR THE EARLIER TERMINATION OF
EXECUTIVE WITHOUT CAUSE OR FOR GOOD REASON) AND SHALL VEST AS TO 12,500 RSUS ON
MARCH 31, 2006 (OR THE EARLIER TERMINATION OF EXECUTIVE WITHOUT CAUSE OR FOR
GOOD REASON).
OTHER PROVISIONS OF THIS AGREEMENT NOTWITHSTANDING, THE RSUS
SUBJECT TO THE RETENTION GRANT SHALL BE FORFEITED IF EXECUTIVE VOLUNTARILY
TERMINATES HIS EMPLOYMENT HEREUNDER PRIOR TO THE VESTING DATE OF SUCH RSUS,
OTHER THAN A TERMINATION BY EXECUTIVE FOR GOOD REASON.
(II)
EXECUTIVE WILL NOT BE ELIGIBLE TO RECEIVE AN AWARD OF RESTRICTED
STOCK UNITS ("PERS") UNDER THE PERFORMANCE-BASED RESTRICTED STOCK PROGRAM FOR
YEARS AFTER 2004, BUT WILL BE ENTITLED TO RECEIVE PERS FOR THE 2004 PERFORMANCE
YEAR IN ACCORDANCE WITH THE TERMS OF SUCH PROGRAM.
(III)
FOR PURPOSES OF THE VESTING OF ANY RSUS, PERS, STOCK OPTIONS AND
ANY OTHER EQUITY AWARD OUTSTANDING AND HELD BY EXECUTIVE AT JANUARY 1, 2005,
SERVICE AS EXECUTIVE CHAIRMAN HEREUNDER SHALL BE TREATED AS CONTINUING
EMPLOYMENT.
ALL PREVIOUSLY UNVESTED PERS GRANTED UNDER THE PERFORMANCE-BASED
RESTRICTED STOCK PROGRAM AND ALL PREVIOUSLY UNVESTED STOCK OPTIONS SHALL VEST AT
MARCH 31,