Document:

Exhibit
10.2

 

Note:  This exhibit reflects an amendment to this
long-term performance plan to remove the following sentence from
Section 6(c):  “The maximum number
of shares of Capital Stock that may be issued under Stock Awards shall not
exceed 20 percent of the aggregate number of shares available for issuance
under Awards.”  The New York Stock
Exchange advised the registrant that such amendment did not require shareholder
approval.  The remaining terms and
conditions of this long-term performance plan were not modified, including the
maximum number of shares that may be issued under the plan as set forth in
Section 3.

 

 

IBM 2001 Long-Term
Performance Plan

 

 

1.
Objectives.

 

The IBM
2001 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.

 

(j)
“Performance Period”  —  A multi-year period of no more than five
consecutive calendar years over which one or more of the performance criteria
listed in Section 6 shall be measured pursuant to the grant of Long-Term
Performance Incentive Awards (whether such Awards take the form of stock, stock
units or equivalents or cash). Performance Periods may overlap one another, but
no two Performance Periods may consist solely of the same calendar years.

 

2

 

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 112,882,869.  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 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.

 

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.

 

(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 ISOs granted under the Plan
is limited to twenty 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.

 

3

 

(c) Stock
Award—An Award made in stock and denominated in units of stock. 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 Company, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and other comparable
measurements of 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 Incentive Program” 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.

 

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.

 

4

 

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.

 

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.

 

5

 

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 ISOs, (iii) for
which Awards may be granted to an individual Participant set forth in Section
6, 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. 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, including the individual Participant
maximums set forth in Section 6 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 Stateof 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

 

6

 

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 Board.

 

 

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 ISOs, 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 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. In order for ISOs to be treated as
described above, the Participant must remain employed by the Company (or a
subsidiary in which the Company holds at least 50 percent of the voting power)
from the ISO grant date until three months before the ISO is exercised. The
three-month period is extended to one year if the Participant’s employment
terminates on account of disability. If the Participant does not meet the
employment requirement, the option will be treated for federal income tax
purposes as an option as described in paragraph 5 below. A Participant who exercises
an ISO might also be subject to an alternative minimum tax.

 

7

 

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.

 

8Exhibit
10.3

 

Note:  This exhibit
reflects an amendment to this long-term performance plan to remove the
following sentence from Section 6(c): 
“The maximum number of shares of Capital Stock that may be issued under
Stock Awards shall not exceed 20 percent of the aggregate number of shares
available for issuance under Awards.” 
The New York Stock Exchange advised the registrant that such amendment
did not require shareholder approval. 
The remaining terms and conditions of this long-term performance plan were
not modified, including the maximum number of shares that may be issued under
the plan as set forth in Section 3.

 

 

 

IBM PWCC Acquisition
Long-Term Performance Plan

 

1. Objectives.

 

The IBM PWCC Acquisition Long-Term Performance Plan (the “Plan”) is designed
to attract, motivate and retain selected employees of, and other individuals
providing services to, the Company in connection with the Company’s acquisition
of certain businesses and assets of PricewaterhouseCoopers. 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 in connection
with the Company’s acquisition of certain businesses and assets of
PricewaterhouseCoopers.

 

(j) “Performance Period” — A
multi-year period of no more than five consecutive calendar years over which
one or more of the performance criteria listed in Section 6 shall be measured
pursuant to the grant of Long-Term Performance Incentive Awards (whether such
Awards take the form of stock, stock units or equivalents or cash). Performance
Periods may overlap one another, but no two Performance Periods may consist
solely of the same calendar years.

 

2

 

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 41,000,000. 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 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.

 

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.

 

(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 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.

 

3

 

(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. 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
Company, achievement of specific business objectives, increases in specified
indices, attaining growth rates, and other comparable measurements of 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 Incentive Program” 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.

 

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.

 

4

 

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.

 

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.

 

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,

 

5

 

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) for
which Awards may be granted to an individual Participant set forth in Section
6, and (iii) 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. 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

 

6

 

under Section 3, including the
individual Participant maximums set forth in Section 6 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

 

7

 

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 is effective as of
July 30, 2002, which is the date of Board approval of the 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, 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. Upon the exercise of a stock
option, 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. 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.

 

8

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