Company Name: International Business Machines Corporation
Public Availability Date: December 29, 2003Document Sections: INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
November 11, 2003 Securities and Exchange Commission Office of Chief Counsel Division of Corporation Finance 450 Fifth Street, N.W. Washington, D.C. 20549 Subject: 2004 IBM Stockholder Proposal of Mr. Ed Foster Ladies and Gentlemen: Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, I am
enclosing six copies of this letter together with a proposal and statement in
support thereof, attached as Exhibit A hereto (the "Proposal"), which Proposal
was received by the Company on February 28, 2003. The Proposal, submitted by Mr.
Ed Foster (the "Proponent") to the International Business Machines Corporation
(the "Company" or "IBM"), constitutes a revision to an earlier e-mail submission
of the Proponent, dated February 13, 2003 (See Exhibit B). As explained in
detail below, the Proposal was submitted to the Company in response to the
Company's February 20, 2003 request that the Proponent: (i) reduce the number of
proposals he originally submitted to a single proposal, and (ii) provide IBM
with proper proof of his beneficial ownership of IBM common stock in accordance
with Rule 14a-8, since the Proponent was not an IBM stockholder of record. IBM believes that the Proposal may properly be omitted from the proxy materials
for IBM's annual meeting of stockholders scheduled to be held on April 27, 2004
(the "2004 Annual Meeting") for the reasons discussed below. To the extent that
the reasons for omission stated in this letter are based on matters of law,
these reasons are the opinion of the undersigned as an attorney licensed and
admitted to practice in the State of New York. THE PROPOSAL MAY BE OMITTED UNDER RULES 14a-8(b)(1), (b)(2) and (f) BECAUSE THE
PROPONENT FAILED TO PROVIDE THE INFORMATION REQUIRED UNDER SUCH RULE REGARDING
HIS ELIGIBILITY TO SUBMIT A PROPOSAL, DESPITE THE TIMELY AND SPECIFIC REQUEST OF
THE COMPANY FOR THE PROPONENT TO FURNISH SUCH REQUIRED INFORMATION. On February 13, 2003, the Proponent sent an e-mail to IBM's Chairman and CEO,
Samuel J. Palmisano, containing multiple stockholder proposals he wanted to have
included in the Company's 2004 proxy materials (See Exhibit B). The Proponent had earlier filed similar proposals to be considered for the 2003
proxy statement, which were untimely. Because those their untimely submission,
the Company sought and received no-action relief from the staff for such earlier
submissions under Rule 14a-8(e)(2). See International Business Machines
Corporation (March 6, 2003) (proposals of Mr. Foster which were submitted for
the 2003 proxy statement relating to executive compensation and option repricing
were properly excluded under 14a-8(e)(2), with staff waiving the 80 day
requirement under 14a-8(j)(1)1 (See Exhibit C). Promptly upon receipt of the Proponent's February 13, 2003 e-mail, the Company
examined the submission for consideration for the 2004 proxy statement. We noted
certain deficiencies. In addition to the fact that it contained multiple
proposals, we also concluded that additional information was required from the
Proponent to determine his actual eligibility to submit a proposal for the 2004
proxy. In this connection, the Proponent had provided no information to the
Company regarding his ownership of IBM common stock, as required under Rule
14a-8, and we found no evidence of record ownership. The Company therefore timely wrote to the Proponent. By letter dated February
20, 2003, we courteously noted that we could not find him listed as a
stockholder of record, and requested from him proof of his beneficial ownership
in IBM in accordance with the SEC's regulations. A copy of the Company's
February 20 letter to the Proponent, timely issued pursuant to Rule 14a-8(f)(1),
is attached as Exhibit D hereto. Specifically, in the Company's letter, we noted in the third paragraph that: ...[I]n order to be eligible to submit a proposal for consideration at IBM's
2004 Annual Meeting, the SEC regulations require that you must have continuously
held at least $2,000 in market value, or 1% of the company's securities entitled
to be voted on the proposal at the meeting for at least one year by the date you
submit the proposal. You must continue to hold those securities through the date
of the meeting. Following receipt of your e-mail, we diligently searched our
books and records, but were unable to find you listed as a current recordholder
of IBM stock. In this connection, we note that you had three separate accounts
of record over the years with IBM, the last of which was closed in January 2002.
I am therefore now formally requesting from you proof of your IBM stockholdings,
as required under the SEC's rules and regulations, and as fully described for
your reference in this letter. The Company then went on to set out, in detail, what the Proponent had to do to
establish the proper proof of his claim of IBM stock ownership under the
regulations. In pertinent part, the Company wrote in the fourth paragraph of our
letter: If in fact you are an IBM stockholder of record, we apologize for not locating
you in our own records. In such case, we will need for you to advise me
precisely how your IBM shares are listed on our records, and to provide the
company with a written statement that you intend to continue to hold the
securities required above through the date of the 2004 meeting of shareholders.
However, if you are not a registered stockholder, please understand that the
company does not know that you are a stockholder, or how many shares you own. In
this case, you must prove your eligibility to the company in one of two ways:
The first way is to submit to the company a written statement from the "record"
holder of your securities (usually a broker or bank) verifying that, at the time
you submitted your proposal, you continuously held the securities for at least
one year. You must also include your own written statement that you intend to
continue to hold the securities through the date of the meeting of shareholders.
(See Exhibit D, emphasis added) Finally, the Company called to the Proponent's attention the Commission's 14-day
time limitation to reply to the Company with all of the required information,
writing in the fifth paragraph: Please note that all of the required documentation set forth in this letter must
be sent to directly to my attention within 14 calendar days of the date you
receive this request, and that the Company reserves the right to omit your
submission under the applicable provisions of Regulation 14A. The Company's letter was promptly dispatched to the Proponent by Airborne
Express on February 19, 2003 (Airborne Tracking # 9474177860) (Exhibit E), and
was delivered to the Proponent in Tucson on February 20, 2003 (Exhibit F). While the Proponent replied to IBM within the 14 day period, as described below,
the Proponent's reply was legally defective and utterly insufficient to prove
his ownership of IBM stock and his entitlement to file a stockholder proposal
under the applicable SEC rules. The Proponent is not an IBM Stockholder of Record In the first place, we wish to make clear that the Proponent is not a
stockholder of record. In the Company's February 20 letter, we informed the
Proponent that he was not listed as a stockholder of record of IBM common stock.
The Company's stock transfer records are maintained by Equiserve Trust Company,
N.A. If the Proponent was, in fact, an IBM stockholder of record, he would be so
listed on our books and records, as maintained by Equiserve. He is not, in fact,
listed as a current IBM stockholder of record. In this connection, we
courteously noted that the Proponent had, in the past, held three separate
accounts of record for IBM common stock, but that the last of these accounts was
closed in January 2002. (See Exhibit D). As a result, that is why we asked the
Proponent to provide proof of any beneficial ownership of IBM shares, in
accordance with Rule 14a-8. In the Proponent's February 28 response, he stated: "Your diligent search for my stock ownership did not take you to the most
obvious location The IBM Saving Plan formerly the IBM TDSP. As the IBM Company
publishes the Summary Annual Report containing details pertaining to the IBM
Savings Plan it can only be assumed that this account information resides
somewhere with the IBM Company." (sic) (See Exhibit A) The Proponent's answer is incorrect as well as insufficient to prove his IBM
stock ownership. Holders of Ownership Interests in the IBM Stock Fund Investment Alternative of
the IBM Savings Plan are not IBM stockholders of record The IBM Savings Plan (previously known as the IBM Tax Deferred Savings Plan) is
a 401(k) arrangement which allows eligible employees to defer a portion of their
pay on a tax-favored basis into a tax exempt trust pursuant to Internal Revenue
Service guidelines. The contributions are invested by the plan trustee in a
selection of investment funds, including an IBM Stock Fund, as directed by the
employee. To the extent the Proponent claims an ownership interest in the IBM Stock Fund
investment alternative under the IBM Savings Plan, it is critically important to
understand that any such ownership interest does not constitute record ownership
in IBM common stock. In this connection, State Street Bank and Trust Company,
the trustee of the Plan, is the sole stockholder of record of IBM shares which
are held in the IBM Stock Fund investment alternative under the IBM Savings
Plan. The Proponent provided nothing from State Street Bank and Trust Company,
the record holder, to prove his own ownership. To ensure there is no confusion on this matter, the Trustee has issued the
following summary of how it holds IBM shares in the Savings Plan: State Street Bank and Trust Company is the Trustee of the IBM Savings Plan. As
Trustee, State Street Bank and Trust Company is the legal shareholder of record
for all shares of IBM common stock held in the IBM Stock Fund. The IBM Stock
Fund is an investment option maintained under the IBM Savings Plan. The assets
in the IBM Stock Fund are primarily invested in IBM common stock. The rights of
plan participants with regard to shares of IBM common stock held in the Fund are
restricted to those rights granted under the Plan. (See Exhibit G). State Street Bank and Trust Company, is the legal shareholder of record for all
shares of IBM common stock held in the IBM Stock Fund investment alternative
under the IBM Savings Plan. Given that State Street Bank and Trust Company is
the sole legal shareholder of record for the IBM Stock Fund, all of the
individual Plan participants under the IBM Stock Fund investment
alternativeincluding the instant Proponenthold beneficial interests in the
assets held by such Fund. There is utterly no merit to the Proponent's assumption that because IBM
publishes a summary annual report for the IBM Savings Plan,2 we should know of
the Proponent's IBM stockholdings under one of the many investment alternatives
thereunder. As noted above, State Street Bank and Trust Company, as the trustee
of the IBM Savings Plan, is the sole record owner of all stock in the IBM Stock
Fund investment alternative under the Savings Plan. Contrary to the Proponent's
belief, the Proponent is not a record owner of IBM Stock. The fact that IBM
publishes an summary annual report for our plans, as required by ERISA, does not
mean that we should be charged with the responsibility of tracking down the
potential beneficial holdings of individual participants in a fund in a plan
where record ownership is held by another person. In this connection, the SEC has made clear that it is up to each individual
beneficial holder of shares to secure, upon the Company's request, proof of
their continuous beneficial holdings from the record holder. The Proponent never
did this. It was precisely because we did not find any evidence of the
Proponent's record ownership that we timely wrote to the Proponent, and sought
out from him proof of any potential beneficial ownership. While the Proponent informed us that he was the owner of shares in the IBM Stock
Fund investment alternative held by State Street (as well as at Charles
Schwabsee infra), this is not enough. The fact that he may have been a
beneficial owner of IBM stock, standing alone, is insufficient. He should have
followed our instructions and furnished proper proof of continuous beneficial
ownership from the record holders of his IBM stock, as set forth in the SEC's
regulations, and as called out to him by the Company in our February 20, 2003
letter. He did not do so. Because of such failure, the Proponent is ineligible
to file a stockholder proposal. The Proponent failed to Provide Any Proper Evidence of Continuous Beneficial
Ownership in IBM Stock 1. The IBM Stock Fund information that was attached was defective In response to the Company's February 20, 2003 request for proper proof of
beneficial ownership, the Proponent stated in his February 28 letter what his
holdings were in the IBM Stock Fund investment alternative as of two points in
time; December 31, 2002 and December 31, 2001. In support of his claim, the
Proponent attached pages from periodic account statements for the calendar
quarters ended 12/31/01 and 12/31/02 respectively. A reading of the Proponent's
account statements show that as of 12/31/02, the Proponent held 1509.632
equivalent IBM shares, and that as of 12/31/01, the Proponent held 1421.97
equivalent IBM shares (See Exhibit H).3 However, this information does not prove
that the Proponent maintained continuous beneficial ownership of IBM stock under
the SEC's regulations. As the Division wrote in Staff Legal Bulletin 14: Do a shareholder's monthly, quarterly or other periodic investment statements
demonstrate sufficiently continuous ownership of the securities? No. A
shareholder must submit an affirmative written statement from the record holder
of his or her securities that specifically. verifies that the shareholder owned
the securities continuously for a period of one year as of the time of
submitting the proposal. (SEC Division of Corporation Finance, Staff Legal Bulletin 14, dated July 13,
2001) The Proponent's submission does not comply with Staff Legal Bulletin 14. It
shows only that he held an interest in the IBM Stock Fund investment alternative
as of the end of 2001 and 2002, as evidenced by the account statements the
Proponent attached to his response letter. Yet, this falls short of proving that
he maintained continuous beneficial ownership of the minimum amount of IBM
common stock for the one year period before he submitted the Proposal, as
required by Rule 14a-8, and as called out to him by the Company. Based on the
regulations and the multiple staff precedents described below, since the instant
proof is insufficient, it cannot qualify the Proponent to submit a stockholder
proposal under the Commission's rules. 2. The ownership Information regarding IBM stock held at Schwab was also
defective. Similar defective information was provided with respect to the Proponent's
holdings at the Charles Schwab brokerage firm (hereinafter "Schwab"). In a
further attempt to buttress his claim of IBM stock ownership, the Proponent
informed us of an investment account he maintained at Schwab. The Proponent
attached to his February 28, 2003 response letter two monthly account statements
from Schwab. These statements show that he held 300 shares of IBM stock as of
1/31/02, and 201.5042 shares of IBM stock as of 1/31/03 (See Exhibit I). The
Proponent went on to note that during this period of time, his ownership of IBM
stock at Schwab fluctuated, ranging between 100 to 700 shares. For the same
reasons set forth above, this information also fails to meet the requirements of
Staff Legal Bulletin 14. The Proponent's various attachments, as well as Proponent's own statements about
his IBM stock holdingsat both the IBM Savings Plan as well as at Schwabdo not
comport with the SEC's regulations for showing proper proof of continuous
beneficial ownership, as specifically requested of the Proponent by the Company
in our February 20 letter to him. The Proponent has not provided affirmative
written statements from either record holder about his IBM stock ownership.
Furnishing copies of periodic investment statements showing holdings of IBM
stock as of two points in time is not sufficient to establish continuous
beneficial ownership under Rule 14a-8(b)(2) and its predecessor regulation.
Numerous rulings by the staff over the years have held that proof similar to the
documents submitted by the instant Proponent is inadequate. See, e.g.,
Knight-Ridder, Inc. (February 28, 2003 and letters cited therein); The Gap. Inc.
(March 20, 2003); ACLARA Biosciences, Inc., (March 25, 2003). Moreover, written statements or other attestations from the instant stockholder
proponent cannot, in any event, serve to satisfy the Commission's regulatory
requirements for independent corroborative proof of continuous beneficial
ownership. In this connection, the staff has made it clear on numerous occasions
that assertions by a putative beneficial owner as to his/her own stock ownership
and/or the required holding period for such shares cannot serve to establish the
requisite proof of beneficial ownership under Rule 14a-8. See International
Business Machines Corporation (January 22, 2003); AT&T Corp (January 24,
2001)(stockholder's own statements insufficient, even when coupled with
brokerage statements); Oracle Corporation (June 22, 2001); International
Business Machines Corporation (December 16, 1998)(statements by proponent as to
efficacy of his own brokerage documentation determined by staff to be
insufficient to prove that proponent in fact satisfied the continuous minimum
ownership requirement for the one year period required by current Rule
14a-8(b)). The staff has regularly granted no-action relief to other registrants where
proponents have failed, following a timely and proper request by a registrant,
to furnish the full and proper evidence of continuous beneficial ownership
called for under the regulations in a timely fashion. Eastman Kodak Company
(February 5, 2001) (statements deemed insufficient); Bell Atlantic Corporation
(July 21, 1999)(proponent's brokerage documentation found by staff insufficient
to prove continuous beneficial ownership); Skaneateles Bancorp, Inc. (March 8,
1999)(letter by proponent as to stock ownership coupled with broker letter also
properly determined to be insufficient proof of beneficial ownership under Rule
14a-8(b)). The same result should apply here, as nothing comporting with the
Commission's regulations regarding proper proof of beneficial ownership was ever
submitted to IBM by the instant Proponent. Under the Commission's rules, the burden of establishing proof of continuous
beneficial ownership under Rule 14a-8 is on the stockholder proponent, and here,
the instant Proponent failed to meet that burden. Under Rule 14a-8(f), the
Company timely and courteously notified the Proponent that the Company required
proper proof of continuous beneficial ownership of IBM stock, as required by
Rule 14a-8(b), and we further advised specifically what would constitute such
proper proof. The Company also advised the Proponent of the 14 day time period
in the Commission's regulations for furnishing such information to the Company.
Having been given a timely, clear and specific request for all of the
information required by the SEC's regulations, the Proponent failed to provide
the information called out by the Company which would prove that the Proponent
continuously held the minimum amount of IBM shares for the requisite period. The fourteen day period under which the Proponent had to furnish the required
information to the Company has expired, and the information that was provided in
response to the Company's request was legally defective. Since the Company made
a timely and appropriate request under Rule 14a-8(f) for the information
required by the regulations, and since we also called out clearly the specific
14 day time limitation for furnishing this information, because the Proponent
failed to respond with the proper information required by Rule 14a-8(b) to prove
his claim of continuous beneficial ownership of IBM stock, IBM now respectfully
requests your advice that the Division will not recommend any enforcement action
to the Commission if IBM omits the instant Proposal from our proxy materials
being prepared for the 2004 Annual Meeting under Rules 14a-8(b) and (f). We are sending the Proponent a copy of this submission, advising him of our
intent to exclude the Proposal from the proxy materials for the 2004 Annual
Meeting. The Proponent is respectfully requested to copy the undersigned on any
response that the Proponent may choose to make to the Commission. If you have
any questions relating to this submission, please do not hesitate to contact the
undersigned at (914) 499-6148. Thank you for your attention and interest in this
matter. Very truly yours, /s/ Stuart S. Moskowitz Senior Counsel copy, with exhibits, to: Mr. Ed Foster 6054 N. Mooncrest Drive Tucson, AZ 85718 -----FOOTNOTES----- 1 In accordance with Rule 14a-8(f), in connection with the proponent's
submission for last season's proxy statement, we did not have to seek out any
information regarding his putative stock ownership, or provide notice of any
other defects in his submission, because that submission was untimely. In this
connection, Rule 14a-8(f) provides that "{a] company need not provide you such
notice of a deficiency if the deficiency cannot be remedied, such as if you fail
to submit a proposal by the company's properly determined deadline." See also
Section C(6)(c) of Staff Legal Bulletin 14. 2 In fact, IBM publishes summary annual reports for all pension and welfare
benefit plans covered by the Employee Retirement Income Security Act ("ERISA").
These summary annual reports provide aggregate information about the overall
financial status of the plans. 3 The Proponent is sensitive to unnecessary disclosure of his own personal
financial information. See the last sentence of Exhibit A. Therefore, to avoid
unnecessary disclosure of the Proponent's other investment interests, as an
accommodation to the Proponent, the Company has redacted information from his
brokerage statements relating to investments other than IBM stock. [APPENDIX]
From: email-sjp@www.ibm.com on 02-13-2003 11:10 AM To: undisclosed-recipients:; cc: Subject: General comments: It becomes increasingly obvious that you do not have the skills to grow revenue
and profit of the IBM Company. Shareholder value continues to decrease under
your leadership and a change is necessary. I am in receipt of a copy of the request to the SEC from Mr. Moskowitz to
exclude from vote at the upcoming shareholder meeting my proposal for reduced
compensation. If this proposal is in fact excluded from the 4/29/03 meeting, then I am
requesting the following to be included for vote at the 2004 meeting. 1)The termination of Mr. Palmisano as Chairman and CEO of the IBM Corp. 2)A compensation change for the IBM CEO and members of the EMC to $1 per year
salary plus a bonus for significant revenue and profit growth. In addition a
repricing of stock options to $130/share. These proposal are to stand and will be considered for termination only if IBM
stock trades at or above $125 per share. These proposal are being submitted at this time to avoid the untimely
technicality refered to in the S. Moskowitz 1/17/03 letter to the SEC. Ed Foster This information has been provided by users of the IBM World Wide Web Home Page
for Office. Originated on: 2003/02/13 16:10:16 CUT Category/Subject: Category: General comments Originated by: ed foster E-Mail: efosteraz@aol.com [INQUIRY LETTER]
Mr. Stuart S. Moskowitz IBM Corporation New Orchard Road Armonk, NY 10504 Re: Your letter dated February 20, 2003 Dear Mr. Moskowitz In response to you letter I am providing you with the following information. Item #1 As much a I believe that the IBM Company would be best served with the
termination or resignation of Mr. Palmisano the probability for such a proposal
passing a shareholder vote is remote. Therefore I wish to submit the following
proposal for shareholder vote at the 2004 annual meeting. I propose a*
comprehensive compensation plan change for the IBM CEO and the IBM EMC to
consist of the following: One dollar in annual salary, plus a bonus payment for
significant annual revenue and net profit growth (both must be achieved to
qualify for any bonus payment) plus re pricing of all stock options to
$130/share (stock options being a major part of the total compensation package).
The bonus structure is to be determine by the Board's Compensation Committee and
submitted to shareholders for approval. Item #2 Your diligent search for my stock ownership did not take you to the most obvious
location The IBM Saving Plan formerly the IBM TDSP. As the IBM Company publishes
the Summary Annual Report containing details pertaining to the IBM Savings Plan
it can only be assumed that this account information resides somewhere with the
IBM Company. Your research should have produced the following: As of 12/31/02 I
held 1509.632 equivalent shares of IBM stock (see attached). As of 12/31/01 I
held 1421.97 equivalent shares of IBM stock (see attached) in the TDSP. However
if that is not sufficient proof of IBM stock ownership I have attached copies of
my Charles Schwab brokerage statements. As of 1/31/02 I held 300 shares of IBM
stock and as of 1/31/03 I held 201.5042 shares of IBM Stock. During that period
ownership ranged between 100 and 700 shares. In addition I plan to continue to
hold the required dollar value of IBM stock through the 2004 shareholder
meeting. I am confident this information satisfies your request and I look forward to
seeing my proposal on the 2004 proxy statement. All financial documents submitted with this letter are confidential and are to
be viewed by no one other than Mr. Stuart S. Moskowitz. Sincerely, /s/ Ed Foster -----FOOTNOTES----- * For your information it is obvious that the SEC is in favor of proposals of
this nature as similar shareholder proposals (#'s 3 and 4) now appear in the
Walt Disney Company 2003 annual meeting announcement and proxy statement.
[STAFF REPLY LETTER]
December 29, 2003 Response of the Office of Chief Counsel Division of Corporation Finance Re: International Business Machines Corporation Incoming letter dated November 11, 2003 The proposal relates to executive compensation and option repricing. There appears to be some basis for your view that IBM may exclude the proposal
under rule 14a-8(f). We note that the proponent failed to supply, within 14 days
of receipt of IBM's request, documentary support sufficiently evidencing that he
satisfied the minimum ownership requirement for the one-year period required by
rule 14a-8(b). Accordingly, we will not recommend enforcement action to the
Commission if IBM omits the proposal from its proxy materials in reliance on
rules 14a-8(b) and 14a-8(f). Sincerely, /s/ John J. Mahon Attorney-Advisor
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