Company Name: Int'l. Business Machines Corp.
Public Availability Date: November 16, 2006
Document Sections:
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
November 9, 2006
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: 2007 Stockholder Proposal of the Laborers' Local Union and District Council
Pension Fund on Executive Compensation Disclosure
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, dated October 5, 2006, and attached as Exhibit A hereto (the
"Proposal") from the Laborers' Local Union and District Council Pension Fund
(the "Proponent").
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 24, 2007
(the "2007 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 SUFFICIENT INFORMATION REQUIRED UNDER SUCH RULES
REGARDING ITS ELIGIBILITY TO SUBMIT A PROPOSAL DESPITE THE TIMELY AND SPECIFIC
REQUEST OF THE COMPANY FOR THE PROPONENT TO FURNISH ALL SUCH REQUIRED
INFORMATION.
A. IBM's RECEIPT OF THE PROPOSAL ON OCTOBER 5, 2006
The Proponent faxed the Proposal to IBM on October 5, 2006. Following receipt of
the 5 page submission, consisting of a cover letter and the Proposal on October
5, the Company examined the submission, checked our stock records, and confirmed
that the Proponent was not an IBM stockholder of record. In this light, the
Proponent specifically stated in its October 5 letter that it was the beneficial
owner of "approximately 8,215 shares of the Company's common stock" and that the
"record holder of the stock will provide the appropriate verification of the
Fund's beneficial ownership by separate letter." No corroborative proof of the
Proponent's beneficial ownership from the record holder accompanied the
Proponent's October 5 submission.
B. COMPANY'S OCTOBER 5, 2006 REQUEST FOR PROPER PROOF OF BENEFICIAL OWNERSHIP
Since the Company had not received any independent proof of the Proponent's
stock ownership from the record holder, the Company promptly replied to the
Proponent on October 5. By fax letter sent to both Mr. Speakes, the Fund
Administrator, as well as to Ms. Jennifer O'Dell, the Assistant Director of the
LIUNA Corporate Affairs Department, the undersigned acknowledged receipt of the
Proposal, and detailed exactly what we needed for the Proponent to secure and
deliver from the record holder that would constitute proper proof of the
Proponent's beneficial ownership of IBM stock under Rule 14a-8. (Exhibit B).
The fax confirmations for our letter show that both copies of IBM's request
letter were received by the Proponent on October 5, 2006.
(Exhibit C - Confirmation of Fax Request to Mr. Speakes)
(Exhibit D - Confirmation of Fax Request to Ms. O'Dell).
In our October 5 request letter, we specifically asked for proper proof of
beneficial ownership of IBM stock in accordance with the SEC's regulations.
Specifically, we wrote, in the second paragraph:
Please understand that in order to be eligible to submit a proposal for
consideration at IBM's 2007 IBM Annual Meeting, Rule 14a-8 under Regulation 14A
of the United States Securities and Exchange Commission ("SEC") requires that a
stockholder 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 it submits a proposal. The stockholder must
also continue to hold those securities through the date of the meeting and must
so indicate to us. (See Exhibit B)
We also acknowledged in our letter the Proponent's statement that it owned
"approximately 8,215 shares" of IBM, but we noted that we needed proper proof of
such ownership. We wrote:
You state in your letter that the Laborers' Local Union and District Council
Pension Fund (the "Fund") is the beneficial owner of approximately 8,215 shares
of IBM. I will need to receive proof of beneficial ownership in a manner
consistent with SEC regulations. (See Exhibit B)
We then described precisely what the Proponent should do to comply with the
SEC's regulations. We wrote:
As a beneficial owner of stock, eligibility to file a proposal can be proven 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 the securities (usually a broker or
bank) verifying that at the time the proposal was submitted the beneficial
holder continuously held the requisite 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 fifth paragraph:
Please understand that all of the documentation requested in this letter must be
sent to my attention at the above address within 14 calendar days of the date
you receive this request. Thank you for your interest in IBM and this matter.
(Exhibit B)
C. IBM's SUBSEQUENT RECEIPT OF THE DEFECTIVE BROKER'S LETTER
Five days after the Proponent received our request for proper proof of
beneficial ownership, on October 10, 2006, Wachovia Bank, N.A., the Proponent's
broker, sent IBM a 2 page fax, including a cover sheet and a letter dated
October 2, 2006. (Exhibit E). The October 2 letter from Wachovia will sometimes
be referred to for convenience as the "Broker's letter." The Broker's letter,
faxed to IBM on October 10, constituted the only independent proof of
Proponent's beneficial ownership the Company has ever received.1
Although the Broker's letter was timely sent to IBM (i.e. within the 14 day
period set forth in Rule 14a-8(f)(1)), the Broker's letter wasand
remainsfatally defective. The Broker's letter was dated on October 2, 2006,
presumably containing information accurate as of such date. But since such date
was three (3) days before the Proponent submitted the Proposal to IBM, the
Broker's Letter did notand indeed could not provide information properly
responsive to the Company's request that the Proponent provide independent
corroborative evidence sufficient to prove that the Proponent had, and
maintained continuous beneficial ownership of the requisite amount of IBM stock
for the relevant one year period ending as of the date the Proposal was
submitted to IBM. As a result, the Proponent is ineligible to have IBM further
consider its Proposal for inclusion in our 2007 proxy statement under the
applicable SEC rules outlined to the Proponent in our October 5, 2006 letter.
D. ANALYSIS
The proof offered in the Broker's letter was not responsive to the Company's
request. The Company had earlier pointed out to the Proponent that we needed
proof in the form of:
"a written statement from the record holder of the securities (usually a broker
or bank) verifying that at the time the proposal was submitted the beneficial
holder(s) continuously held the requisite securities for at least one year."
(Exhibit B)
The Proposal was submitted to IBM on October 5, 2006, but the Broker's Letter
later furnished to us was dated October 2, 2006, three (3) days earlier than the
date the Proposal was submitted. The Broker's Letter, containing information as
of 3 days before the Proposal was submitted, could not properly address or
otherwise satisfy the Commission's regulations, as IBM had specifically
requested. Because the Broker's Letter was old, it could not verify anything at
all about the Proponent's stock ownership at the time the proposal was
submitted.
Indeed, there is absolutely nothing in the Broker's Letter that addresses what
the Company had requested of the Proponent in our letter. We needed to receive
proper proof that the Proponent continuously held at least $2,000 of IBM stock
for at least one year at the time the Proposal was submitted, and no other
independent evidence of the Proponent's continuous beneficial ownership of IBM
stock was ever furnished.
Since the Proposal was submitted on October 5, 2006, and since we promptly
delivered our request that same day detailing what would constitute proper proof
of beneficial ownership, we fulfilled our responsibility to the Proponent.
Thereafter, the Broker should, in response, have furnished proper corroborative
proof both that:
(i) the Proponent held the requisite amount of IBM securities on the date the
Proposal was submitted (October 5, 2006), and
(ii) the Proponent continuously held the requisite amount of IBM securities from
at least October 5, 2005 forward.
We never received any such information. The SEC's rules are crisp, and have been
carefully designed with a clear purposeto ensure that proper proof of
beneficial ownership is timely furnished to a registrant following a proper
request for such information so that registrants do not have to speculate2 as to
a beneficial owner's eligibility to file a stockholder proposal under Rule
14a-8. We have never received any documentation responsive to our request that
could properly substantiate that the Proponent held the requisite IBM securities
on October 5, 2006 and that such securities were continuously held for at least
one year on such date. Finally, the fact that the Broker's letter wasn't faxed
to IBM until October 10 is utterly irrelevant, as the substantive information
contained within such October 2 letter was notand could never be found to
beproperly responsive to the Company's request to the Proponent for proper
proof of beneficial ownership as of the date the Proposal was submitted under
Rules 14a-8(b) and (f).
In Staff Legal Bulletin 14 (July 13, 2001), the Division of Corporation Finance
made it crystal clear that Broker's letters like the instant one from Wachovia
simply do not pass muster. Paragraph C.(3) of the Staff Legal Bulletin sets
forth the following Q & A to bring this point home:
(3) If a shareholder submits his or her proposal to the company on June 1, does
a statement from the record holder verifying that the shareholder owned the
securities continuously for one year as of May 30 of the same year demonstrate
sufficiently continuous ownership of the securities as of the time he or she
submitted the proposal?
No. A shareholder must submit proof from the record holder that the shareholder
continuously owned the securities for a period of one year as of the time the
shareholder submits the proposal.
As in the Q&A above, the defective Broker's letter here was stale, and was the
only independent proof ever submitted in response to our October 5 letter
seeking proper corroboration for the Proponent's claim of eligibility to file
the Proposal. Because the fourteen day time frame for furnishing the proper
information to IBM in response to our request has long expired, the Proposal
should properly be excluded under Rules 14a-8(b)(1), (b)(2) and (f).
The Proponent is an experienced stockholder proponent, having filed proposals
with IBM and other companies in past years. In fact, IBM included in our 2005
proxy statement another proposal from the instant Proponent, without raising any
challenge with the SEC, since the Proponent had timely and properly proved its
beneficial ownership to IBM in connection with such 2005 proposal. This year,
however, the proof submitted is defective, and as such, we are now seeking to
properly exclude it.
Finally, there is nothing in the Proponent's own correspondence to IBM which can
properly serve to cure the defective Broker's letter, since statements from a
beneficial owner about its own stock ownership 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 (December 19,
2004)(defective broker's letter not subject to post-facto cure when company had
timely sent out proper request for proof of beneficial ownership which was not
timely satisfied); International Business Machines Corporation (January 7,
2004)(to same effect); International Business Machines Corporation (January 22,
2003; reconsideration denied February 26, 2003)(original broker's letter was
stale and could not serve to prove beneficial ownership as of the date the
proposal was submitted; after the fact attempt to cure deemed ineffective);
International Business Machines Corporation (January 7, 2002)(stale broker's
letter could not serve to prove continuous beneficial ownership of IBM stock);
International Business Machines Corporation (January 14, 2002)(broker's letter
claiming ownership of shares "since prior to November 30, 2001" did not properly
establish ownership on November 8, 2001); International Business Machines
Corporation (January 8, 2002)(broker's letter naming ownership in another
company was fatally defective to the stockholder's claim of continuous
beneficial ownership of IBM stock); Oracle Corporation (June 22, 2001)(proposal
excluded based upon defective broker's letter which did not show that
stockholder owned shares on the date the proposal was submitted); Baxter
International Inc. (February 22, 2006)(when proposal submitted on November 4,
2005, broker's letter stating that it held 100 shares in the proponent's account
from November 18, 2004 through November 30, 2005 was insufficient to prove
continuous beneficial ownership); The St. Joe Company (March 14, 2006)(an
undated broker's letter stating that the Proponent continuously owned 64 shares
of the Company's common stock from October 24, 2004 to the date of the broker's
letterthe date of which could not be pinpointedwas insufficient to establish
proper proof of beneficial ownership); AT&T Corp. (January 24, 2001)
(stockholder's own statements insufficient, even when coupled with brokerage
statements); 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 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 7, 2004)(defective broker letter); International Business Machines
Corporation (January 22, 2003, reconsideration denied February 26, 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)); see generally
XM Satellite Radio Holdings Inc. (March 28, 2006)(submission of 1099's, an
E-trade statement and computer printouts insufficient proof); General Motors
Corporation (March 24, 2006)(Ameritrade portfolio report insufficient); American
International Group, Inc. (March 15, 2006)(monthly ownership statements from the
Proponent's broker not equivalent to a Broker's statement needed to prove
continuous beneficial ownership).
Under the Commission's rules, the burden of establishing proof of continuous
beneficial ownership is on the stockholder, and here, the Proponent simply
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. After having
received a timely, clear and specific request for all of the information
required by the SEC's regulations, the Proponent subsequently 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.
Because the Proponent failed to respond with the proper information required by
Rule 14a-8(b) to prove its 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 2007 Annual Meeting
under Rules 14a-8(b) and (f).
We are sending the Proponent a copy of this submission, advising it of our
intent to exclude the Proposal from the proxy materials for the 2007 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:
Laborers' Local Union and District Council Pension Fund
905 16th Street, NW
Washington, DC 20006-1765
Attention: Ms. Jennifer O'Dell
Assistant Director, LIUNA Corporate Affairs
-----FOOTNOTES-----
1 The hard-copy original of this same October 2, 2006 faxed Broker's letter was
later delivered to IBM by mail (See Exhibit F).
2 For example, in the instant case, the October 2 Broker's letter states that
the Proponent held 28,710 IBM shares, along with an intention of holding "said
stock" through the date of IBM's annual meeting. Yet, three days later, on
October 5, when the Proponent submitted the Proposal, it claimed it only held
"approximately 8,215 shares." Aside from the fact that there is a great
difference between the number of shares the Proponent actually owned on these
two dates, without any corroborative evidence from the Broker as to precisely
how many IBM shares the Proponent held on the date the Proposal was submitted,
as well as how long those shares had been held as of such date, the Proponent is
ineligible to have its stockholder proposal included in the Company's proxy
materials. See generally The St. Joe Company (March 14, 2006)(an undated letter
from Schwab confirming continuous beneficial ownership of 64 shares since
October 24, 2004 was not sufficient proof of beneficial ownership for a proposal
that was submitted to the company on December 13, 2005).
[STAFF REPLY LETTER]
November 16, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: International Business Machines Corporation Incoming letter dated November
9, 2006
The proposal relates to compensation.
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 appears to have failed to
supply, within 14 days of receipt of IBM's request, documentary support
evidencing that it satisfied the minimum ownership requirement for the one-year
period as of the date that it 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/
Ted Yu
Special Counsel
|
