Company Name: Int'l. Business Machines Corp.
Public Availability Date: January 19, 2006
Document Sections:INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 5, 2005 Securities and Exchange Commission
Office of Chief Counsel
Department of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549 Subject: 2006 Stockholder Proposal of the Rossi Family Trust (appointing John Chevedden as proxy) to Implement a "Simple Majority Vote" 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 letter dated October 5, 2005 from Nick Rossi and Emil Rossi, as Trustees of the Jeanne Rossi Family Trust (the "Proponent") attaching a stockholder proposal entitled "Adopt Simple Majority Vote" (hereinafter the "Proposal"). The Rossis have appointed Mr. John Chevedden to act on behalf of the Proponent on all matters with respect to the Proposal. The Proposal and cover letter are attached hereto as Exhibit A. The RESOLVED section of the Proposal asks: "that our Board of Directors take each step necessary for a simple majority vote to apply on each issue that can be subject to shareholder vote to the greatest extent possible." Importantly, the Proposal makes clear, in the fifth paragraph, that: "This Proposal does not address a majority vote standard in director elections which is gaining increased support as a separate topic." (See Exhibit A (emphasis added)) IBM believes the entire Proposal may properly be omitted from the proxy materials for IBM's annual meeting of stockholders scheduled to be held on April 25, 2006 (the "2006 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. I. THE PROPOSAL MAY BE OMITTED FROM THE COMPANY'S PROXY MATERIALS UNDER RULE 14a-8(i)(10) AS SUBSTANTIALLY IMPLEMENTED. BECAUSE IBM HAS REDEEMED ITS PREFERRED STOCK, IT HAS NO OPERATIVE SUPERMAJORITY VOTING PROVISIONS AND THE PROPOSAL IS THEREFORE MOOT. Rule 14a-8(i)(10) authorizes a company to exclude a shareholder proposal from the company's proxy soliciting materials if the company has "substantially implemented"
1 the action requested. As described in detail below, IBM has no operative supermajority voting provisions in any of our governing documents that could be the subject of a stockholder proposal for a "simple majority vote." As such, the Proposal should be excluded under Rule 14a-8(i)(10) as moot. The rationale for a exclusion of a proposal under Rule 14a-8(i)(10) has been described as follows: "A company may exclude a proposal if the company is already doingor substantially doingwhat the proposal seeks to achieve. In that case, there is no reason to confuse shareholders or waste corporate resources in having shareholders vote on a matter that is moot." William Morley, Editor, Shareholder Proposal Handbook, by Broc Romanek and Beth Young (Aspen Law & Business 2003 ed.), Sec. 23.01 [B] at p. 23-4. The proxy rules thus permit a company to exclude from its proxy materials a proposal if management has already implemented the substance of a proposal, making its consideration by its stockholders "moot," or a useless exercise. Regan, R., The Annual Meeting of Shareholders, 12-4th BNA Corporate Practice Series at page A-37 (September 2005). In this connection, the staff has consistently taken the position that shareholder proposals have been "substantially implemented" within the meaning of Rule 14a-8(i)(10) when the company already has implemented the essential objective of the proposal. As described herein, the instant case presents precisely such a situation. Hence, the staff has granted relief and permitted the exclusion of other proposals under Rule 14a-8(i)(10) and its predecessor, Rule 14a-8(c)(10), in cases where the actions requested of the registrant in a stockholder proposal were either duplicative of what the registrant was already doing, or was simply inapplicable to the registrant's activities. A number of recent letters are instructive with respect to the same Proposal seeking a "simple majority vote." In Bristol-Myers Squibb Company (February 14, 2005) a stockholder proposal from Mr. Chevedden for a "simple majority vote" was properly excluded as "substantially implemented" under Rule 14a-8(i)(10) where the registrant was engaged in the process of removing the operative supermajority voting provisions from its governing documents, and was planning to submit a management proposal in its upcoming proxy statement in order to secure the requisite stockholder approval to do so. Similarly, in Allegheny Energy, Inc. (February 14, 2005, reconsideration denied March 9, 2005), a simple majority vote proposal from Mr. Chevedden was properly determined by the staff to be subject to exclusion under Rule 14a-8(i)(10) when the company had taken steps to eliminate the operative supermajority voting provisions from its governing documents. See also Electronic Data Systems Corporation (January 24, 2005)(simple majority vote proposal properly omitted under Rule 14a-8(i)(10) as "substantially implemented" when registrant represented that stockholders would have the opportunity to vote on eliminating the supermajority provision from its certificate of incorporation); and The Home Depot, Inc. (March 28, 2002)(to same effect). The case for the exclusion of the instant Proposal under Rule 14a-8(i)(10) is even more compelling, as we have already redeemed the only stock which ever had such a voting provision associated with it. In this connection, prior to July 3, 2001, IBM had a single series of callable preferred stock, the Series A 7 1/2% Preferred Stock (hereinafter "the Preferred Stock"). The Provisions relating to the Preferred Stock, which are fully set forth in Article FOUR, Section 3 of our Certificate of Incorporation, includes a limited supermajority class voting provision.
2 However, IBM redeemed all of the Preferred Stock on July 3, 2001 (Exhibit B), and upon such redemption, by operation of law, all provisions relating to the Preferred Stockincluding the limited class voting provisionwere of no further force and effect whatsoever. Since all of the provisions relating to the Preferred Stock are now legally defunct, IBM has no supermajority voting provisions in any of our governing documents that the Proposal could seek to lower to a "simple majority vote." As such, the instant Proposal should excluded outright under Rule 14a-8(i)(10) as moot. See PPG Industries, Inc. (January 19, 2004)(proposal that board issue a policy statement committing the company to use alternatives to product testing on animals properly excluded under rule 14a-8(i)(10), with the staff noting PPG's representation that the company has publicly issued an animal welfare policy committing the company to use alternatives to animal testing); Baldwin Piano and Organ Company (March 27, 1997)(proposal requesting registrant to engage the services of a nationally recognized investment banker to explore all alternatives to enhance shareholder values, including a sale, merger or other business combination was properly excluded under former Rule 14a-8(c)(10), because it was rendered moot. In arriving at this position, the staff noted that the registrant had in fact already retained a nationally recognized investment bank to evaluate various business alternatives); International Business Machines Corporation (February 19, 1987)(proposal to have registrant withdraw from South Africa was properly omitted where the registrant represented that it was in the process of doing so, and would no longer have any employees or assets there); E.I. du Pont de Nemours and Co. (February 12, 1990) (proposal to establish committee to monitor environmental compliance properly excluded as the company's board had already established a committee with a similar mission). See also Cisco Systems, Inc. (August 11, 2003)(proposal seeking for company to implement a performance-based compensation plan was deemed to be "substantially implemented" based on what company had in place); and First Federal Bankshares, Inc. (September 18, 2000)(company could exclude, as moot, a proposal requesting that board not restrict the eligibility of any adult shareholder to serve as a director when the company showed that it did not impose any such restrictions in its governing documents). The same result should apply here, and the "simple majority" Proposal should be omitted from IBM's proxy materials under Rule 14a-8(i)(10). A. THE PROPOSAL IS MOOT AS TO IBM, AS THE PROPOSAL IS PROPERLY TARGETED AT COMPANIES WITH OPERATIVE SUPERMAJORITY VOTING PROVISIONS IN THEIR GOVERNING DOCUMENTS, NOT IBM, SINCE IBM HAS NO OPERATIVE SUPERMAJORITY VOTING PROVISIONS IN OUR GOVERNING DOCUMENTS. As noted above, the Proposal is moot as applied to IBM. It seeks a simple majority vote to apply on each issue that can be subject to a shareholder vote. More importantly, the Proposal, by its express terms, is not intended to apply to director elections, where a different threshold applies.
3 With this being the case, the clear intent of the instant Proposal is to have companies with operative supermajority voting provisions in their governing documents have stockholders vote to lower those voting thresholds to a "simple majority vote" to the maximum extent permitted by law, (i.e., in the Proponent's words, "to the greatest extent possible.") The Proposal appears to have been carefully drafted with these qualifying words so as not to attempt to have companies impose "simple majority" voting thresholds in situations where another voting requirement is mandated by state law. Notably, the Proposal also does not seek to change applicable voting thresholds to a "simple majority" for director elections. Indeed, our review of the existing staff letters of this same proposal, whether submitted directly by Mr. Chevedden or by others with his involvement, makes clear that the Proposal is properly targeted at companies with operative supermajority voting provisions in their governing documents that could be lawfully lowered through corporate action by a company's board and its stockholders. However, IBM is not such a company. Compare Alaska Air Group (February 17, 2004, March 8, 2002, March 26, 2000)(proposal for a simple majority vote could not be excluded where the certificate of incorporation contained operative supermajority provisions requiring a stockholder vote of 80% of the outstanding shares); SBC Communications, Inc. (January 5, 2005, reconsideration denied January 31, 2005)(proposal for a simple majority vote could not be excluded where the certificate of incorporation contained an operative supermajority provision requiring a two-thirds majority vote of the total outstanding shares to amend or repeal any by-law for the maximum number of directors on SBC's board or for a classified board); Northrop Grumman Corporation (March 22, 2002 and February 16, 2001)(proposals to reinstate simple majority vote could not be excluded where company's governing documents contained operative supermajority voting provisions); Maytag Corporation (March 14, 2002)(proposal to reinstate simple majority voting could not be excluded where the company's governing documents contained a number of operative supermajority voting provisions); Electronic Data Systems Corporation (September 28, 2001)(company with operative supermajority voting provision could not exclude proposal from Mr. Chevedden seeking to allow a simple majority vote);
5 UAL Corporation (February 9, 2001) (proposal from Mr. Chevedden to reinstate simple majority voting on all matters that are submitted to shareholder vote could not be excluded where UAL had operative supermajority voting provisions in its governing documents); The Boeing Company (February 6, 2001) (proposal to reinstate simple majority voting from another stockholder could not be excluded where Boeing's governing documents contained operative supermajority voting provisions); Lockheed Martin Corporation (February 5, 2001)(company with operative supermajority voting provisions in its governing documents could not exclude a proposal from John Chevedden seeking to reinstate simple majority voting on all matters that are subject to shareholder vote); The Home Depot, Inc. (April 4, 2000)(to same effect);
6 Sempra Energy (February 29, 2000)(company with an operative supermajority voting provision could not exclude a proposal from Ray and Veronica Chevedden, seeking to reinstate a simple majority vote). The above letters, while interesting, are readily distinguishable from IBM's situation. In contrast to the foregoing letters, in which proposals were filed with companies that all had operative supermajority voting provisions in their governing documents, IBM has no operative supermajority voting provisions in any of its governing documents. Therefore, for the reasons set forth below, the instant Proposal is inapplicable to IBM, and it is subject to exclusion as moot under Rule 14a-8(i)(10). In this light, Article II, SECTION 8 of IBM's By-laws provides, in pertinent part: "At all meetings of the stockholders at which a quorum shall be present, all matters (except where otherwise provided by law, the Certificate of Incorporation or these By-laws) shall be decided by the vote of a majority in voting interest of the stockholders present in person or represented by proxy and entitled to vote thereat." There are no provisions in our By-laws which require a greater vote by our stockholders. By the same token, none of the operative provisions in IBM's Certificate of Incorporation require stockholder approval of any actions by more than a majority of shares. As described earlier, since all of the Preferred Stock was redeemed in 2001, all provisions relating to the Preferred Stockincluding the limited class voting provisionare defunct, and of no further force and effect. While other companies that have considered similar proposals from Mr. Chevedden and others over the years have all had governing documents with operative provisions requiring stockholder approval of certain transactions by a "supermajority" vote, the history and status of those proposals is simply not relevant to IBM's situation, because IBM already redeemed the Preferred Stock which contained a limited supermajority voting provision, and IBM does not have any other supermajority voting requirements which a stockholder proposal could lower. In short, since IBM has no operative "supermajority" voting requirements in our governing documents, this proposal is simply inapplicable to IBM and therefore moot within the meaning of Rule 14a-8(i)(10). B. AN INOPERATIVE VESTIGIAL PROVISION IN IBM'S CERTIFICATE OF INCORPORATION WHICH IS OF ABSOLUTELY NO LEGAL FORCE AND EFFECT RELATING TO PREFERRED STOCK THAT HAS ALREADY BEEN REDEEMED SHOULD NOT LEAD TO A DIFFERENT RESULT UNDER RULE 14a-8(i)(10). Upon receipt of the Proposal, we reviewed it carefully, noting first that the Proposal, by its terms, specifically was not intended to apply to director elections. In reading through the Proposal, we noted with interest the Proponent's statement that: "* A 67% shareholder vote was required to make at least one key governance changeEntrenchment Concern." Since IBM stockholders had not voted on any agenda item for many years with such a supermajority voting requirementlet alone one for a "key governance change" it was not clear what the Proponent was referring to. After reviewing our governing documents, we believed that the Proponent was referring to the now-wholly inoperative and legally defunct provisions in our Certificate of Incorporation relating to the Preferred Stock, which provisions, when operative, contained a limited 2/3 class voting provision. Since IBM redeemed all of the Preferred Stock in 2001, all provisions relating thereto (including the voting provision) are a nullity; i.e., of no legal force and effect whatsoever. The Preferred Stock, by its terms, was not redeemable prior to July 1, 2001, and on and after such date, IBM had the option to redeem such Preferred Stock. Consistent with such terms, IBM exercised its redemption rights, and fully redeemed the Preferred Stock on July 3, 2001. Prior notification of the redemption of the Preferred Stock was effected by IBM (Exhibit B) and the Company thereafter described such redemption in our 1934 Act reportsfirst, as a Subsequent Event in our Form 10-Q for the quarter ended June 30, 2001,
7 and again at the end of each calendar year in the Notes to our Annual Reports on Form 10-K for the years ending December 31, 2001, December 31, 2002 and December 31, 2003, describing Stockholders' Equity Activity.
8 Upon the redemption of all the Preferred Stock by the Company on July 3, 2001, none of the shares remained outstanding, and all of the provisions in our Certificate of Incorporation relating theretoincluding the supermajority voting provision the Proponent appears to have focused upon in crafting the Proposalwere of no legal further force and effect whatsoever. Recognizing that the Proposal was moot as to IBM, and hoping to avoid having to involve the SEC to resolve this matter, the undersigned contacted Mr. Chevedden on November 21, 2005. I explained our position, and sought for him to voluntarily withdraw the Proposal. I noted to him that we had no operative supermajority voting provisions in our governing documents, and that the only supermajority voting provision physically resident in our Certificate of Incorporation related to a limited class voting provision for the Preferred Stock, which had been fully redeemed over 4 years ago. Because all of the Preferred Stock had been redeemed, I explained that all of the provisions relating theretoincluding the supermajority voting provisionwere a legal nullity. I noted that once IBM exercised our right to redeem all of the Preferred Stock on July 3, 2001, no shares remained outstanding, and that as of such date, all provisions relating thereto were of no further force and effect. As such, I noted that IBM had no operative supermajority voting provisions remaining in any of our governing documents which could even be the subject of any shareholder vote, let alone his stockholder proposal relating thereto. I further noted to Mr. Chevedden that in contrast to IBM, other companies I found where he had filed this same proposal over the years who raised challenges to his proposal at the SEC had operative supermajority voting provisions in their governing documents. I also explained that the redemption of the Preferred Stock was a matter of public record, noting both IBM's issuance of a public press release prior to the redemption, and, more importantly, that IBM had made specific and repeated references to the redemption of the Preferred Stock in our 1934 Act reports for 2001, 2002 and 2003. Mr. Chevedden was cordial, but responded only that the SEC should "be the arbiter" of this matter. As such, we are now filing this letter seeking exclusion of the Proposal under Rule 14a-8(i)(10). In sum, we believe the Proposal has been "substantially implemented" within the meaning of Rule 14a-8(i)(10) and moot. Since: (i) the Proposal by its terms, asks "that our Board of Directors take each step necessary for a simple majority vote to apply in each issue that can be subject to a shareholder vote," and (ii) since the Proposal by its terms is not designed to address director elections, the Proposal is simply not applicable to IBM because our governing documents contain no operative supermajority voting provisions which can be subject to a shareholder vote. The sole voting provision still physically resident within IBM's Certificate of Incorporation relates to Preferred Stock which has all been redeemed. By its terms, all provisions relating to the Preferred Stock (including the voting provision) areand have beenof no legal force and effect whatsoever as of July 3, 2001, because none of the shares are outstanding, having been redeemed in full over 4 years ago. The fact that the provisions relating to the now defunct and fully redeemed Preferred Stock physically remain in the Company's Certificate of Incorporation should not change the legal result. The Company, by redeeming all of the Preferred Stock, has already implemented the substance of the Proposal, making any current consideration by IBM shareholders moot, or a useless exercise. Without the Preferred Stock, there can be no issues subject to any supermajority voting. All of the provisions in the Certificate of Incorporation relating to the Preferred Stock, being wholly inoperative, are of no legal force and effect whatsoever, and do not conflict in any way with what the Proposal seeks. Inasmuch as the Proposal asks the IBM Board of Directors to implement simple majority voting by eliminating supermajority provisions from our governing documents, the Board of Directors and the Company have already effected that request by redeeming the Preferred Stock on July 3, 2001. In substance, the Proposal asks IBM to do what has already been done. Hence, we see no reason to confuse stockholders, or otherwise waste corporate resources in having our stockholders vote on a matter that is moot. See William Morley, Editor, Shareholder Proposal Handbook, supra, at page 23-4. In light of the foregoing, we believe the Proposal has been substantially implemented within the meaning of Rule 14a-8(i)(10).
10 Physical removal of these defunct and inoperative provisions should not be required to conclude that the Proposal has been "substantially implemented" under Rule 14a-8(i)(10). This has certainly been the case in other contexts. For example, in Humana Inc. (February 27, 2001), the staff concurred that a proposal recommending that the company establish a nominating committee solely of "independent" directors was "substantially implemented," notwithstanding the proponent's assertion that its more restrictive definition of independence should govern. See also Masco Corporation (March 29, 1999)(proposal that the company establish specified qualifications for outside directors was "substantially implemented" notwithstanding differences between the proposal and company's qualifications); The GAP (March 16, 2001) (proposal requesting a report on child labor practices of the company's suppliers was substantially implemented even though the company's report did not provide all the information sought by the proposal); H.J. Heinz Company (June 19, 1997) (proposal had been substantially implemented despite a letter from the proponent (CREF) detailing a number of differences between the company's existing corporate governance guidelines and the information specifically requested in the proposal); The Limited, Inc. (March 15, 1996) (company's adoption of some, but not all, of the recommended policies with respect to its foreign suppliers substantially implemented the proposal). By the same token, in the instant case, the inoperative language in our Certificate of Incorporation relating to the now-defunct Preferred Stock is of no legal force and effect whatsoever. Moreover, since there is nothing inconsistent between what the Proponent seeks and the operative provisions of our governing documents, the Proposal is moot under Rule 14a-8(i)(10). The terms relating to the Preferred Stock, having been redeemed in full, are a legal nullity, and are akin to a harmless vestigial remnant which will be physically removed from our Certificate of Incorporation in due course. Finally, we wish to highlight that the instant situation is readily and substantively distinguishable from General Motors Corporation (March 30, 2005). General Motors, faced with a similar "simple majority vote" proposal from Mr. Chevedden, argued unsuccessfully that it was moot because a peculiar
11but nonetheless fully operativesupermajority voting provision, applicable to "its issued and outstanding stock of all classes," was "permissive" rather than "mandatory" in nature. Unlike the situation in GM, where there was no question that their supermajority provision was fully operativecovering all of its issued and outstanding stock of all classesit is just as clear in the instant case that there are no operative provisions in IBM's Certificate of Incorporation calling for any supermajority voting. The only provision still physically resident in IBM's Certificate of Incorporation is wholly inoperative because the voting provision related to Preferred Stock which was fully redeemed over 4 years ago. In sum, since IBM redeemed the Preferred Stock in 2001, there are no operative provisions in the Company's governing documents which conflict in any way with the simple majority vote sought by the Proposal. As such, we believe the Proposal has already been "substantially implemented" within the meaning of Rule 14a-8(i)(10), and is thereby subject to exclusion from our proxy materials in its entirety under Rule 14a-8(i)(10). IBM therefore 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 2006 Annual Meeting under Rule 14a-8(i)(10). II. THE PROPOSAL MAY ALSO BE OMITTED UNDER RULE 14a-8(i)(7) AS RELATING TO THE CONDUCT OF THE ORDINARY BUSINESS OPERATIONS OF IBM. There is yet another reason to exclude the instant Proposal. Rule 14a-8(i)(7) allows a company to omit a shareholder proposal from its proxy materials "if the proposal deals with a matter relating to the company's ordinary business operations." The Commission has expressed two central considerations underlying the ordinary business exclusion. The first underlying consideration expressed by the Commission is that "[c]ertain tasks are so fundamental to management's ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to shareholder oversight." See Amendments to Rules on Shareholder Proposals, Release 34-40018 (63 Federal Register No 102, May 28, 1998 at pp. 29, 106 and 29, 108). The second consideration involves the degree to which the proposal seeks to micro-manage the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment. id. The Commission had earlier explained in 1976 that shareholders, as a group, are not qualified to make an informed judgment on ordinary business matters due to their lack of business expertise and their lack of intimate knowledge of the issuer's business. See Adoption of Amendments Relating to Proposals by Security Holders, Exchange Act Release No. 12999 (November 22, 1976). The Commission has also reiterated "[t]he general underlying policy of this exclusion is consistent with the policy of most state corporate laws: to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting." See Amendments to Rules on Shareholder Proposals, Release 34-40018 (63 Federal Register No 102, May 28, 1998 at p. 29, 108) See also Proposed Amendments to Rule 14a-8 under the Securities Exchange Act of 1934 relating to Proposals by Security Holders, Exchange Act Release No. 19135 (October 14, 1982), at note 47. Moreover, it has also been the consistent position of the staff that if any portion of a proposal implicates ordinary business matters, the entire proposal must be omitted under Rule 14a-8(i)(7). International Business Machines Corporation (January 9, 2001; reconsideration denied February 14, 2001); Wal-Mart Stores, Inc. (March 15, 1999); The Warnaco Group, Inc. (March 21, 1999); Kmart Corporation (March 12, 1999)(to same effect); Z-Seven Fund, Inc. (November 3, 1999) (proposal containing governance recommendations as well as ordinary business recommendations was permitted to be excluded in its entirety, with the staff reiterating its position that it is not their practice to permit revisions to shareholder proposals under the ordinary business exception). Thus, even if a part of the instant Proposal relates to an ordinary business matter, the entire Proposal must be excluded. Associated Estates Realty Corporation (March 23, 2000); E*Trade Group, Inc. (October 31, 2000). Under these tests, the instant Proposal is also subject to omission in its entirety under Rule 14a-8(i)(7). Given the situation at hand, to the extent the only remaining "unimplemented" portion of the Proposal could possibly be understood to have IBM undertake the ministerial task of physically removing the inoperative and defunct provisions relating to the Preferred Stock from our Certificate of Incorporation (i.e., to "fully" implement the Proposala result not required under Rule 14a-8(i)(10), see Argument I, supra), such portion of the Proposal would be subject to exclusion as a matter of ordinary business under Rule 14a-8(i)(7), and the Company also hereby seeks exclusion of the entire Proposal under such rule. Any "physical cleanup" which might be suggested in the instant case could only recommend that the Company's Office of the Secretary take all steps necessary to attend to what would only be the ministerial task of effecting a separate corporate housekeeping action, removing from our Certificate of Incorporation provisions which areand have been since 2001completely devoid of any legal significance to the Company or its stockholders. Indeed, this level of micro-managementwhich would have stockholders vote at an annual meeting solely to remove harmless and legally inoperative provisionsimplicates a matter even more mundane than a variety of other analogous issues the staff has addressed and concurred that companies could exclude over the years under Rule 14a-8(i)(7) and its predecessor, Rule 14a-8(c)(7), including, among others, proposals seeking to regulate the color of ink a company should use in its annual report (Pan Am Corporation (February 16, 1990)); the specific content to include in a registrant's periodic reports (WPS Resources Corp. (January 23, 1997)); the specific information to be placed within a registrant's proxy materials (International Business Machines Corporation (January 19, 1999)); the floor procedures a company should employ at its annual meeting (AmSouth Bancorporation (January 15, 2002)); and the physical dimensions for a product a company had long been successfully marketing (Mattel, Inc. (January 4, 1996)). In this connection, IBM has been incorporated since 1911. We have effected multiple amendments to our Certificate of Incorporation over the years, and we expect to continue to do so. In the past, it was IBM's practice to go back to our stockholders to remove outdated provisions from our Certificate when other substantive amendments were needed that required stockholder consideration. Notably, the Preferred Stock provisions in question were still fully operative at the time IBM last amended its Certificate of Incorporation in 1999 after receiving stockholder approval to increase the number of authorized shares in connection with a 2 for 1 common stock split. Consistent with Rule 14a-8(i)(7), we believe it would be a colossal waste of time and company resources to have IBM stockholders vote at an annual meeting on an item to physically remove harmless and defunct provisions from our Certificate of Incorporation. Indeed, the Company is well aware of these provisions, is in the best position to determine when and how to best effect a cleanup of these provisions, and will attend to their removal in the ordinary course. Since this decision is best left to the Company's management rather than our stockholders, IBM also respectfully requests the concurrence of the staff that the Proposal can properly be excluded under Rule 14a-8(i)(7). We are sending Mr. Chevedden, on behalf of the Proponent, a copy of this submission, advising him of our intent to exclude the Proposal from the proxy materials for the 2006 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. Because of time considerations, and in accordance with Q&A "I." of Staff Legal Bulletin 14C dated June 28, 2005, we would appreciate it if you could provide your response by facsimile to IBM and Mr. Chevedden. Our facsimile number is 845-491-3203, and Mr. Chevedden's facsimile number is 310-371-7872. Thank you for your attention and interest in this matter. Very truly yours, /s/ Stuart S. Moskowitz
Senior Counsel Copy, with attachments to: Mr. John Chevedden
2215 Nelson Avenue, No. 205
Redondo Beach, CA 90278 -----FOOTNOTES-----
1 Prior to 1983, the Staff of the Division of Corporation Finance permitted exclusion of proposals under the predecessor to this Rule (Rule 14a-8(c)(10)) only where the proposal had been fully effected. In 1983, the Commission announced an interpretive change to permit omission of proposals that had been "substantially implemented." In doing so, the Commission explained that, "[w]hile the new interpretive position will add more subjectivity to the application of the provision, the Commission has determined that the previous formalistic application of this provision defeated its purpose." Securities Exchange Act Release No. 20091 (Aug. 16, 1983). The Commission amended the Rule to reflect the new, more flexible interpretation in 1998. See Securities Exchange Act Rel. No. 40018 (May 21, 1998).
2 The now-inoperative and defunct supermajority class voting provision for the Preferred Stock in IBM's Certificate of Incorporation is set forth below: (e) Voting. The shares of the Series A 7-1/2% Preferred Stock shall not have any voting powers either general or special, except as required by law and except that: (i) So long as any of the shares of the Series A 7-1/2% Preferred Stock are outstanding, the consent of the holders of at least two-thirds of all the shares of the Series A 7-1/2% Preferred Stock at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Series A 7-1/2% Preferred Stock shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any certificate of amendment or any similar document relating to any series of preferred stock) which would adversely affect the powers, preferences or special rights of the Series A 7-1/2% Preferred Stock, including the creation or authorization of any class of stock that ranks senior to the Preferred Stock with respect to dividends or upon Liquidation. Any amendment or any resolution or action of the Board of Directors which would create or issue any series of preferred stock out of the authorized shares of preferred stock, or which would authorize, create or issue any shares or class of stock (whether or not already authorized), ranking junior to or on a parity with the Series A 7-1/2% Preferred Stock with respect to the payment of dividends and distributions and distributions upon any Liquidation, shall not be considered to affect adversely the powers, preferences or special rights of the outstanding shares of the Series A 7-1/2% Preferred Stock."
3In this connection, the Proposal specifically states that: "[t]his Proposal does not address a majority vote standard in director elections which is gaining increased support as a separate topic." (See Exhibit A).
4 For example, in New York, in the case of a sale of all or substantially all of the assets of a company outside the ordinary course of business, Section 909 of the New York Business Corporation Law would require the approval of 2/3 of IBM's outstanding shares. If the Proposal sought to have stockholders vote on lowering this 2/3 vote to a "simple majority," the Proposal would violate Section 909 and would be subject to outright exclusion under Rule 14a-8(i)(2).
5 Compare Electronic Data Systems Corporation (January 24, 2005), supra, where this "simple majority vote proposal" was later omitted under Rule 14a-8(i)(10) as "substantially implemented" when the company represented that stockholders would have the opportunity to vote on eliminating the operative supermajority provision from its certificate of incorporation.
6 Compare The Home Depot, Inc. (March 28, 2002), supra, where actions subsequently taken by the company to eliminate the operative supermajority voting provisions rendered the proposal moot under Rule 14a-8(i)(10).
7 Note 9 to IBM's Consolidated Financial Statements contained the following disclosure relating to the redemption of the Preferred Stock: In 1993, the company issued 11.25 million shares of Series A 7-1/2% Preferred Stock, represented by 45 million Depositary Shares. On May 18, 2001, the company announced it would redeem all outstanding shares of its Series A 7-1/2% Preferred Stock, represented by the outstanding Depositary Shares (10,184,043 shares). The Depositary Shares represent ownership of one-fourth of a share of Preferred Stock. Depositary Shares were redeemed as of July 3, 2001, the redemption date, for cash at a redemption price of $25 plus accrued and unpaid dividends to the redemption date for each Depositary Share. Dividends on Preferred Stock, represented by the Depositary Shares ceased to accrue on the redemption date.
8 For example, Note N to the Company's Annual Report on Form 10-K for the year ended December 31, 2003, set forth as Exhibit C hereto, also stated that:
In 1995, the Board of Directors authorized the company to repurchase all of its outstanding Series A 7-1/2 percent callable preferred stock. On May 18, 2001, the company announced it would redeem all outstanding shares of its Series A 7-1/2 percent callable preferred stock, represented by the outstanding depositary shares (10,184,043 shares). The depositary shares represent ownership of one-fourth of a share of preferred stock. Depositary shares were redeemed as of July 3, 2001, the redemption date, for cash at a redemption price of $25 plus accrued and unpaid dividends to the redemption date for each depositary share. Accordingly, these shares are no longer outstanding. Dividends on preferred stock, represented by the depositary shares, ceased to accrue on the redemption date.
10 It has historically been IBM's practice to go back to stockholders to remove harmless and outdated provisions from our Certificate when other substantive amendments are sought that require stockholder consideration. In this connection, when IBM last physically amended its Certificate of Incorporation in 1999 after receiving stockholder approval to increase the number of authorized shares in connection with a 2 for 1 stock split, the Preferred Stock provisions were still fully operative. We have not had reason since that time to go back to stockholders to amend our Certificate of Incorporation. As noted in Argument II, infra, the Company is in the best position to determine how and when to best effect a cleanup of these inoperative and defunct charter provisions, and it will attend to the removal of these provisions in due course.
11 The fully operative language of the provision in GM's certificate of incorporation, which has been in GM's certificate of incorporation since 1916, provides in pertinent part that with the vote of "two-thirds of its issued and outstanding stock of all classes ... the Board of Directors may sell.... any part or all of the property, assets, rights and privileges of the Corporation...." (emphasis added)
[INQUIRY LETTER] P.O. Box 249
Boonville, CA 95415 Mr. Samuel J. Palmisano
Chairman
International Business Machines Corporation (IBM)
New Orchard Rd
Armonk NY 10504 Dear Mr. Palmisano, This Rule 14a-8 proposal is respectfully submitted for the 2006 annual shareholder meeting to support the long-term performance of our company. Rule 14a-8 requirements are intended to be met including ownership of the required stock value until after the date of the applicable shareholder meeting. This submitted format, with the shareholder-supplied emphasis, is intended to be used for definitive proxy publication. This is the proxy for Mr. John Chevedden and/or his designee to act on my behalf in shareholder matters, including this shareholder proposal for the forthcoming shareholder meeting before, during and after the forthcoming shareholder meeting. Please direct all future communication to Mr. John Chevedden at: PH: 310-371-7872
2215 Nelson Ave., No. 205
Redondo Beach, CA 90278 Your consideration and the consideration of the Board of Directors is appreciated. Sincerely, /s/ cc: Daniel E. O'Donnell
Corporate Secretary
PH: 914 499-1900
FX: 914 765-7382
[APPENDIX]
[October 9, 2005] 3 - Adopt Simple Majority Vote RESOLVED: Shareholders recommend that our Board of Directors take each step necessary for a simple majority vote to apply on each issue that can be subject to shareholder vote to the greatest extent possible. Emil Rossi and Nick Rossi, P.O. Box 249, Boonville, Calif. 95415 submitted this proposal. 75% yes-vote This topic won a 75% yes-vote average at 7 major companies in 2004. The Council of Institutional Investors www.cii.org formally recommends adoption of this proposal topic. End Potential Frustration of the Shareholder Majority Our current rule allows a small minority to frustrate the will of our shareholder majority. For example, in requiring a 75% vote to make a key governance change, if 74% vote yes and only 1% vote noonly 1% could force their will on the overwhelming 74% majority. This proposal does not address a majority vote standard in director elections which is gaining increased support as a separate topic. Progress Begins with One Step It is important to take a step forward in corporate governance and adopt the above RESOLVED statement since our 2005 governance standards were not impeccable. For instance in 2005 it was reported (and certain corresponding concerns are noted): We had no Independent Chairman or Non-revolving Lead Director - Independent oversight concern. A 67% shareholder vote was required to make at least one key governance change - Entrenchment concern. Cumulative voting was not permitted. Two of our directors were designated "problem directors" by The Corporate Library (TCL), an independent investment research firm in Portland, Maine: 1) Cathleen Black - because she chaired the committee that set executive compensation at Coca-Cola, a company that received a CEO compensation grade of "F" by TCL. 2) Charles Knight - because he chaired the committee that set executive compensation at Morgan Stanley, which received a CEO Compensation rating of "F" by TCL. Additionally: The Corporate Library said there are too many active CEOs on our board (5). Active CEOs can serve as excellent directors, but are often over-committed, and may not be optimally independent of management's views. Six directors were allowed to hold from 4 to 6 director seats each - Over-extension concern. One Step Forward The above practices reinforce the reason to take one step forward and adopt simple majority vote. Notes: The above format is the format submitted and intended for publication. The company is requested to assign a proposal number (represented by "3" above) based on the chronological order in which proposals are submitted. The requested designation of "3" or higher number allows for ratification of auditors to be item 2. This proposal is believed to conform with Staff Legal Bulletin No. 14B (CF), September 15, 2004 including: Accordingly, going forward, we believe that it would not be appropriate for companies to exclude supporting statement language and/or an entire proposal in reliance on rule 14a-8(i)(3) in the following circumstances: the company objects to factual assertions because they are not supported; the company objects to factual assertions that, while not materially false or misleading, may be disputed or countered; the company objects to factual assertions because those assertions may be interpreted by shareholders in a manner that is unfavorable to the company, its directors, or its officers; and/or the company objects to statements because they represent the opinion of the shareholder proponent or a referenced source, but the statements are not identified specifically as such. Please note that the title of the proposal is part of the argument in favor of the proposal. In the interest of clarity and to avoid confusion the title of this and each other ballot item is requested to be consistent throughout the proxy materials. Please advise if there is any typographical question. Stock will be held until after the annual meeting. Verification of stock ownership will be forwarded.
[INQUIRY LETTER]
December 7, 2005 Division of Corporation Finance
Office of the Chief Counsel
450 Fifth Street, N.W.
Washington D.C. 20549 International Business Machines Corporation (IBM) Shareholder Position on Company No-Action Request Rule 14a-8 Proposal: Simple Majority Vote Shareholder: Nick Rossi Ladies and Gentlemen: This is an initial response to the International Business Machines Corporation (IBM) no action request. According to The Corporate Library IBM has a 67% Voting Provision. This seems to be contrary to the company argument that it essentially has no 67%-type Voting Provision. The following text is from The Corporate Library Governance Analytics report on IBM: "Vote Required for Merger or Other Transaction: 67% "Merger Vote Notes "At companies like IBM that were incorporated in New York on or prior to February 22, 1998, approval of holders of two-thirds of the outstanding stock is required for a merger unless a company has explicitly provided for a lower threshold in its charter. IBM has not amended its charter so the two-thirds threshold remains in effect." Source: http://www.boardanalyst.com/companies/company_profile.asp?ID=13607 Therefore the company does not appear to be doing "what the proposal seeks to achieve." It is respectfully requested that concurrence not be granted to the company. It is also respectfully requested that there be an opportunity for additional material in support of the inclusion of this shareholder proposal. Also that the shareholder have the last opportunity to submit material since the company had the first opportunity. Sincerely, John Chevedden cc: Nick Rossi
Stuart Moskowitz
[INQUIRY LETTER]
January 11, 2006 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549 International Business Machines Corporation (IBM) #2 Shareholder Position on Company No-Action Request Rule 14a-8 Proposal: Simple Majority Vote Shareholder: Nick Rossi Ladies and Gentlemen: This is to advise that the December 7, 2005 initial response to the International Business Machines Corporation (IBM) no action request was emailed to the company on December 8, 2005 and there has been no response from the company. The following repeats the brief but critical information in the December 7, 2005 initial shareholder response: According to The Corporate Library IBM has a 67% Voting Provision. This seems to be contrary to the company argument that it essentially has no 67%-type Voting Provision. The following text is from The Corporate Library Governance Analytics report on IBM: "Vote Required for Merger or Other Transaction: 67% "Merger Vote Notes "At companies like IBM that were incorporated in New York on or prior to February 22, 1998, approval of holders of two-thirds of the outstanding stock is required for a merger unless a company has explicitly provided for a lower threshold in its charter. IBM has not amended its charter so the two-thirds threshold remains in effect." Source: http://www.boardanalyst.com/companies/company_profile.asp?ID=13607 Therefore the company does not appear to be doing "what the proposal seeks to achieve." It is therefore respectfully requested that concurrence not be granted to the company. It is also respectfully requested that the shareholder have the last opportunity to submit material since the company had the first opportunity. Sincerely, John Chevedden cc: Nick Rossi
Stuart Moskowitz<smoskowi@us.ibm.com>
[STAFF REPLY LETTER]
January 19, 2006 Response of the Office of Chief Counsel Division of Corporation Finance Re: International Business Machines Corporation Incoming letter dated December 5, 2005 The proposal recommends that the board take each step necessary for a simple majority vote to apply on each issue that can be subject to shareholder vote to the greatest extent possible. We are unable to concur in your view that IBM may exclude the proposal under rule 14a-8(i)(7). Accordingly, we do not believe that IBM may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7). We are unable to concur in your view that IBM may exclude the proposal under rule 14a-8(i)(10). Accordingly, we do not believe that IBM may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(10). Sincerely, /s/ Mary Beth Breslin
Special Counsel | 
