Document:

Exhibit 10.1

 

Note: 
This exhibit reflects an amendment to Section 13(b) of this
long-term performance plan to provide that the Rescission Period shall mean
that period of time established by the Committee which shall not be less than 6
months after any exercise, payment or delivery pursuant to an Award.  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 1999 Long-Term
Performance Plan

 

1. Objectives.

 

The IBM 1999 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.

 

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(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.

 

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 118,671,300.
In addition, any shares previously authorized by stockholders for awards under
prior Company long-term performance plans which are still available for
issuance or which either wholly or in part were not earned or that expired or
were forfeited, terminated, canceled, settled in cash, payable solely in cash
or exchanged for other awards shall be available for issuance under the Plan.
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, except that

 

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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
10,000,000 shares. With regard to any “covered employee” (as defined by section 162(m)
of the Code), the maximum number of shares of Capital Stock or share
equivalents of Capital Stock (stock units) that can be earned by any
Participant for any Performance Period is 400,000 shares, subject to adjustment
for changes in corporate capitalization, such as a stock split, and if an Award
is denominated in cash rather than in shares of Capital Stock or stock units,
the share equivalent for purposes of the maximum will be determined by dividing
the highest amount that the Award could be under the formula for such
Performance Period by the closing price of a share of Capital Stock on the
first trading day of the Performance Period.

 

(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.

 

(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 the Company, achievement of specific business objectives, increases in
specified indices, attaining

 

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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 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.

 

(e) Performance Criteria under section 162(m) of the Code for
Long-Term Performance Incentive Awards—The performance criteria for Long-Term
Performance Incentive Awards (whether such Awards take the form of stock, stock
units or equivalents or cash) made to any “covered employee” (as defined by
section 162(m) of the Code) shall consist of objective tests based on one
or more of the following: earnings, cash flow, customer satisfaction, revenues,
financial return ratios, market performance, shareholder return and/or value,
operating profits (including EBITDA), net profits, earnings per share, profit
returns and margins, stock price and working capital. Performance criteria may
be measured solely on a corporate, subsidiary or business unit basis, or a
combination thereof. Further, performance criteria may reflect absolute entity
performance or a relative comparison of entity performance to the performance
of a peer group of entities or other external measure of the selected
performance criteria. The formula for any Award may include or exclude items to
measure specific objectives, such as losses from discontinued operations,
extraordinary gains or losses, the cumulative effect of accounting changes,
acquisitions or divestitures, foreign exchange impacts and any unusual,
nonrecurring gain or loss. Nothing herein shall preclude the Committee from
making any payments or granting any Awards whether or not such payments or
Awards qualify for tax deductibility under section 162(m) of the Code.

 

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.

 

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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.

 

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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.

 

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(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 Rescission Period, then any exercise, payment or delivery may be
rescinded within two years after such exercise, payment or delivery.  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. 
As used herein, Rescission Period shall mean that period of time established
by the Committee which shall not be less than 6 months after any exercise,
payment or delivery pursuant to an Award.

 

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.

 

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(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
requisite vote of the stockholders of the Company.

 

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IBM 1999 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 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.

 

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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, 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 four other highest compensated officers
for that year. 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 will be treated as qualified performance-based
compensation and therefore will 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 be treated as
qualified performance-based awards.

 

10Exhibit 10.2

 

Note:  This exhibit reflects an amendment to
Section 13(b) of this long-term performance plan to provide that the
Rescission Period shall mean that period of time established by the Committee
which shall not be less than 6 months after any exercise, payment or delivery
pursuant to an Award.  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.

 

 

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.

 

2

 

(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.

 

3

 

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 Rescission Period, then any exercise, payment or
delivery may be rescinded within two years after such exercise, payment or
delivery.  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.  As used herein, Rescission Period shall mean
that period of time established by the Committee which shall not be less than 6
months after any exercise, payment or delivery pursuant to an Award.

 

4

 

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

 

5

 

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.

 

6

 

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.

 

7

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