Company Name: Int'l. Business Machines Corp.
Public Availability Date: January 17, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
November 13, 2003 U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Subject: 2004 IBM Stockholder Proposal of Ms. Virginia M. Brown
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"). The Proposal,
dated October 21, 2003, was submitted by Ms. Virginia M. Brown (the "Proponent")
to the International Business Machines Corporation (the "Company" or "IBM).
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
HER ELIGIBILITY TO SUBMIT A PROPOSAL DESPITE THE TIMELY AND SPECIFIC REQUEST OF
THE COMPANY FOR THE PROPONENT TO FURNISH SUCH REQUIRED INFORMATION.
Promptly upon receipt of the Proponent's letter and stockholder proposal, the
Company examined the submission. We checked our records and determined that the
Proponent was not an IBM stockholder of record. The Company therefore timely wrote to the Proponent. By letter dated October 28,
2003, we courteously noted that we could not find her listed as a stockholder of
record, and we requested proof of beneficial ownership of IBM stock in
accordance with the SEC's regulations. A copy of the Company's October 28, 2003
letter to the Proponent, timely issued pursuant to Rule 14a-8(f)(1), is attached
as Exhibit B hereto. Specifically, in the Company's letter, we noted in the second paragraph:
"... [P]lease understand that in order to be eligible to submit a proposal for
consideration at our 2004 Annual Meeting, Rule 14a-8 of Regulation 14A of the
United States Securities and Exchange Commission ("SEC") requires 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. Since I could not confirm your
eligibility from the letter you sent to Mr. O'Donnell, I had our stockholder
relations department check with Equiserve, our transfer agent on any IBM
stockholdings of record. Equiserve was not able to confirm your ownership as a
stockholder of record. I am therefore now 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." (See Exhibit B)
The Company then went on to outline, in detail, what the Proponent had to do to
establish the proper proof of IBM stock ownership under the SEC's regulations.
In pertinent part, the Company wrote, in the third paragraph of our letter:
"If you are an IBM stockholder of record under another account which we have
somehow missed, we apologize for not locating you in our own records. If this is
the case, I will need for you to advise IBM 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 requisite IBM securities through the date of
IBM's 2004 annual meeting. 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." (See Exhibit B)
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 fourth paragraph: "Please note that all of the required information set forth in this letter must
be sent directly to me at the address set forth above within 14 calendar days of
the date you receive this request, and that the Company reserves the right to
omit the proposal under the applicable provisions of Regulation 14A."
(See Exhibit B) The Company's letter was promptly dispatched to the Proponent by Airborne
Express on October 28, 2003 (Airborne Tracking # 4356109553) (Exhibit C), and
was delivered to the Proponent in Port Allen, Louisiana on October 29, 2003, as
shown on the Airborne Tracking Results printout. (Exhibit D).
The Proponent promptly replied to IBM, including in her reply a letter, dated
October 31, 2003, from Ms. Charlotte B. Willis, Investment Representative at the
Edward Jones brokerage firm (hereinafter the "Broker Letter") (Exhibit E).
Such reply, while prompt, was legally defective. It did not provide information
sufficient to prove that the Proponent maintained continuous beneficial
ownership of the requisite amount of IBM stock for the relevant period. She is
therefore not eligible to have IBM consider her stockholder proposal under the
applicable SEC rules we pointed out to her. In particular, the October 31, 2003 Broker Letter provides confirmation of only
two facts: (i) that the Proponent purchased 150 shares of IBM on July 10, 2000; and
(ii) that the Proponent held 152.68665 shares of IBM on October 31, 2003.
It is well established that stock ownership of a beneficial holder as of two
points in timehere, July 10, 2000 and October 31, 2003does not and cannot
prove that such beneficial owner maintained continuous beneficial ownership of
stock for at least one year by the date the Proposal was submitted, as set forth
in the Commission's regulations, and as clearly called out to the Proponent by
the Company. As we wrote: "Rule 14a-8 of Regulation 14A of the United States Securities and Exchange
Commission ("SEC") requires 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." (Exhibit B) (emphasis added)
While we have no reason to doubt either of the two facts set forth by Ms. Willis
in the Broker Letter, Ms. Willis did not make any statement about whether the
Proponent maintained continuous beneficial ownership of the stock. For all we
know, the IBM stock bought on July 10, 2000 could have been sold and repurchased
over the years by the beneficial owner, perhaps on multiple occasions. Indeed,
the fact that the Proponent owned 152.68665 shares on October 31, 2003 does not
prove either that she owned any IBM shares on the date she submitted the
Proposal, or that she held the requisite amount of IBM shares for the requisite
period preceding the submission date. IBM should have been timely furnished with
proper documentation from the record holder proving that the Proponent
continuously held at least $2,000 in market value of IBM stock for at least one
year by the date the Proponent submitted the Proposal. Such proof was not
furnished to us, and the time for doing so has now expired.
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. International Business
Machines Corporation (January 22, 2003) (broker letter insufficient);
International Business Machines Corporation (January 8, 2002)(broker letter
insufficient) Oracle Corporation (June 22, 2001)(broker letter insufficient);
Bank of America (February 12, 2001)(broker letter insufficient); Eastman Kodak
Company (February 7, 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.
Under the Commission's rules, the burden of establishing proof of continuous
beneficial ownership under Rule 14a-8 is on the stockholder, and here, the
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 now expired, and the information that was
provided in response to the Company's request was insufficient. 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 her 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 her 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: Ms. Virginia M. Brown
581 Oregon Avenue
Port Allen, Louisiana 70767 [INQUIRY LETTER]
October 21, 2003 Mr. Daniel E. O'Donnell
Vice President and Corporate Secretary
IBM Corporation
1 New Orchard Road
Armonk, NY 10504 Dear Mr. O'Donnell:
I am the owner of 152 shares of IBM. I have owned the shares over one year and
intend to hold them through the time of the next annual meeting. At that
meeting, I wish to propose the following resolution. Resolved: The shareholders request the company to refrain from making direct
charitable contributions. If the company wishes, it could pay a dividend and
send a note to shareholders suggesting they contribute it to their favorite
charity. Supporting Statement Thomas Jefferson once wrote, "To compel a man to furnish contributions of money
for the propagation of opinions which he disbelieves is sinful and tyrannical."
Choice is a popular word in our culture. Nobel prize winning economist and long
time critic of corporate charitable contributions, Milton Friedman, writes about
the importance of choice in his book Free To Chose. By making charitable
contributions at the corporate level we have usurped the right and duty of
individuals to support the charities of their choice. We may also be forcing
thousands of people to support causes they may disagree with on a most profound
level. For example, abortion rights advocates often use the word choice, without
mentioning what the choice is all about, i.e, abortion. Today there are a number
of prominent charities advocating for abortion and, in at least one case,
Planned Parenthood, actually performing abortions. Other charities, often times
involved in research for cures of disease, may advocate the destruction of human
embryos for research purposes. These may be more controversial examples, but
they illustrate the point. Today, many charities are involved in activities that
are divisive and not universally supported. IBM employees and shareholders
represent a broad range of interests. It is truly impossible to be sensitive to
the moral, religious and cultural sensitivities of so many people. Rather than
compel our shareholders to support potentially controversial charitable groups
we should refrain from giving their money away for them. Let each person choose.
The importance of individual choice and the importance of each individual cannot
be underestimated. Sincerely, /s/
Virginia M. Brown
[STAFF REPLY LETTER]
January 7, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: International Business Machines Corporation
Incoming letter dated November 13, 2003 The proposal relates to charitable contributions.
There appears to be some basis for your view that IBM may exclude the proposal
under rule 14a-8(f). The proponent appears to have failed to supply support
sufficiently evidencing that she satisfied the minimum ownership requirement
continuously for the one-year period as of the date that she submitted the
proposal as 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/ Keir D. Gumbs
Special Counsel
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