Document:

Exhibit 10.1

 

Sixteenth Amendment

To

Second Amended and Restated

Limited Partnership Agreement

 

Of

Corporate Office Properties, L.P.

 

This Sixteenth Amendment (the Amendment) to the Second Amended and
Restated Limited Partnership Agreement Of Corporate Office Properties, L.P., a
Delaware limited partnership (the Partnership), is made and entered into as of
April 15th, 2004, by the undersigned.

 

Recitals

 

A.                                   The
Partnership is a limited partnership organized under the Delaware Revised
Uniform Limited Partnership Act and governed by that certain Second Amended and
Restated Limited Partnership Agreement dated as of December 7, 1999 (the
Partnership Agreement).

 

B.                                     The sole general partner of the Partnership is Corporate Office
Properties Trust, a real estate investment trust formed under the laws of the
State of Maryland (the General Partner).

 

C.                                     Pursuant
to Section 11.1 (b) (iii), the General Partner desires to amend the
Partnership Agreement to reflect the admission, substitution, termination
and/or withdrawal of various limited partners in accordance with the terms of
the Partnership Agreement.

 

NOW THEREFORE, the General Partner, intending to be legally bound,
hereby amends the Partnership Agreement as follows, effective as of the date
first set forth above.

 

1.                                       Exhibit 1,
Schedule of Partners, as attached hereto and by this reference made a part
hereof, is hereby substituted for and intended to replace any prior Exhibit 1
attached to a prior Amendment to the Partnership Agreement, and as attached
hereto shall be a full and complete listing of all the general and limited
partners of the Partnership as of the date of this Amendment, same being
intended and hereby superceding all prior Exhibit 1 listings.

 

In Witness Whereof, the General Partner has executed this Amendment as
of the day and year first above written.

 

	
   

  	
  Corporate Office Properties Trust, a

  
	
   

  	
  Maryland Real Estate Investment Trust

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Roger A. Waesche, Jr.

  	
   

  
	
   

  	
   

  	
  Roger A. Waesche, Jr.

  
	
   

  	
   

  	
  Executive Vice President

  

 

 

SCHEDULE OF PARTNERS

 

	
   

  	
   

  	
  Partnership
  Units

  	
   

  
	
  General Partner

  	
   

  	
   

  	
   

  
	
  Corporate Office Properties Trust

  	
   

  	
  28,947,655

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Limited Partners
  and Preferred Limited Partners

  	
   

  	
   

  	
   

  
	
  Jay H. Shidler

  	
   

  	
  452,878

  	
   

  
	
  Shidler Equities, L.P.

  	
   

  	
  2,995,439

  	
   

  
	
  Clay W. Hamlin, III

  	
   

  	
  566,492

  	
   

  
	
  LBCW Limited Partnership

  	
   

  	
  3,161,427

  	
   

  
	
  Robert L. Denton

  	
   

  	
  414,910

  	
   

  
	
  James K. Davis

  	
   

  	
  51,589

  	
   

  
	
  John E. De B. Blockey, Trustee of the John
  E. de B. Blockey Living Trust dated 9/12/88

  	
   

  	
  300,625

  	
   

  
	
  Frederick K. Ito Trust

  	
   

  	
  29,140

  	
   

  
	
  June Y. I. Ito Trust

  	
   

  	
  29,135

  	
   

  
	
  RP Investments, LLC

  	
   

  	
  200,000

  	
   

  
	
  Denise J. Liszewski

  	
   

  	
  30,333

  	
   

  
	
  Samuel Tang

  	
   

  	
  4,389

  	
   

  
	
  Laswrence J. Taff

  	
   

  	
  13,733

  	
   

  
	
  Kimberly F. Acquino

  	
   

  	
  5,874

  	
   

  
	
  M.O.R. XXIX Associates Limited Partnership

  	
   

  	
  148,381

  	
   

  
	
  M.O.R. 44 Gateway Associates Limited
  Partnership

  	
   

  	
  1

  	
   

  
	
  John Parsinen

  	
   

  	
  90,000

  	
   

  
	
  M.O.R. Commons Limited Partnership

  	
   

  	
  7

  	
   

  
	
  John Edward De Burgh Blockey and Sandar
  Juanita Blockey

  	
   

  	
  50,476

  	
   

  
	
  Anthony Muscatello

  	
   

  	
  90,905

  	
   

  
	
  Lynn Hamlin

  	
   

  	
  121,411

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  37,704,800

  	
   

  

 

 

Exhibit
1 Addendum

 

	
  Series

  Preferred

  Units

  	
   

  	
  Preferred
  Limited

  Partner

  	
   

  	
  No. of

  Preferred 

  Units

  	
   

  	
  Liquidation

  Preference

  Per

  Preferred

  Unit

  	
   

  	
  Priority

  Percentage

  Return *

  	
   

  	
  Priority

  	
   

  	
  Conversion

  Factor

  	
   

  	
  Conversion

  Commencement

  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B

  	
   

  	
  General Partner

  	
   

  	
  1,250,000

  	
   

  	
  $

  	
  25

  	
   

  	
  2.50

  	
  %

  	
  Senior

  	
   

  	
  None

  	
   

  	
  N/A

  	
   

  
	
  E

  	
   

  	
  General Partner

  	
   

  	
  1,150,000

  	
   

  	
  $

  	
  25

  	
   

  	
  2.5625

  	
  %

  	
  Senior

  	
   

  	
  None

  	
   

  	
  N/A

  	
   

  
	
  F

  	
   

  	
  General Partner

  	
   

  	
  1,425,000

  	
   

  	
  $

  	
  25

  	
   

  	
  10.25

  	
  %

  	
  Senior

  	
   

  	
  None

  	
   

  	
  N/A

  	
   

  
	
  G

  	
   

  	
  General Partner

  	
   

  	
  2,200,000

  	
   

  	
  $

  	
  25

  	
   

  	
  8

  	
  %

  	
  Senior

  	
   

  	
  None

  	
   

  	
  N/A

  	
   

  
	
  H

  	
   

  	
  General Partner

  	
   

  	
  2,000,000

  	
   

  	
  $

  	
  25

  	
   

  	
  7.5

  	
  %

  	
  Senior

  	
   

  	
  None

  	
   

  	
  N/A

  	
   

  

 

*                                         Priority
Return Percentage is expressed as a percentage of the Liquidation Preference
per Distribution Period.  See
the Agreement for the definitions of “Priority Return Percentage,” “Liquidation
Preference” and “Distribution Period.”Exhibit 10.1

 

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 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.

 

1

 

(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 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

 

2

 

and to enable Participants regardless of
where employed to receive advantages and benefits under the Plan and such laws
and regulations.

 

5. Delegation of Authority.

 

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

 

6. Awards.

 

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

 

3

 

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 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.

 

4

 

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.

 

5

 

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.

 

6

 

12. Termination of Employment.

 

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

 

13. Cancellation and Rescission of Awards.

 

(a) Unless the Award Agreement specifies
otherwise, the Committee may cancel, rescind, suspend, withhold or otherwise
limit or restrict any unexpired, unpaid, or deferred Awards at any  time if the Participant is not in compliance
with all applicable provisions of the Award Agreement and the Plan, or if the
Participant    engages in any
“Detrimental Activity.” For purposes of this Section 13, “Detrimental Activity”
shall include: (i) the rendering of services for any organization or engaging
directly or indirectly in any business which is or becomes competitive with the
Company, or which organization or business, or the rendering of services to
such organization or business, is or becomes otherwise prejudicial to or in
conflict with the interests of the Company; (ii) the disclosure to anyone
outside the Company, or the use in other than the Company’s business, without
prior written authorization from the Company, of any confidential information
or material, as defined in the Company’s Agreement Regarding Confidential Information
and   Intellectual Property, relating to
the business of the Company, acquired by the Participant either during or after
employment with the Company; (iii) the failure or refusal to disclose promptly
and to assign to the Company, pursuant to the Company’s Agreement Regarding
Confidential Information and Intellectual Property, all right, title and
interest in any invention or idea, patentable or not, made or conceived by the
Participant during employment by the Company, relating in any manner to the actual
or anticipated business, research or development work of the Company or the
failure or refusal to do anything reasonably necessary to enable the Company to
secure a patent where appropriate in the United States and in other countries;
(iv) activity that results in termination of the Participant’s employment for
cause; (v) a violation of any rules,   
policies, procedures or guidelines of the Company, including but not
limited to the Company’s Business Conduct Guidelines; (vi) any attempt directly
or indirectly to induce any employee of the Company to be employed or perform
services elsewhere or any attempt directly or indirectly to solicit the trade
or business of any current or prospective customer, supplier or partner of the
Company; (vii) the Participant being convicted of, or entering a guilty plea
with respect to, a crime, whether or not connected with the Company; or (viii)
any other conduct or act determined to be injurious, detrimental or prejudicial
to any interest of the Company.

 

7

 

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

 

14. Adjustments.

 

In the event of any change in the outstanding
Capital Stock of the Company by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization, merger, or similar
event, the Committee may adjust proportionately: (a) the number of shares of
Capital Stock (i) available for issuance under the Plan, (ii) available for
issuance under 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

 

8

 

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.

 

9

 

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

 

10

 

as described in paragraph 5 below. A
Participant who exercises an ISO might also be subject to an alternative
minimum tax.

 

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.

 

11

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