SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] Soliciting Material Pursuant toss.240.14a-12
Rational Software Corporation
--------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
International Business Machines Corporation
--------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
_____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________
(5) Total fee paid:
_____________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
_____________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_____________________________________________________________________
2
(3) Filing Party:
_____________________________________________________________________
(4) Date Filed:
_____________________________________________________________________
3
Filed by International Business Machines Corporation
Pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Rational Software Corporation
Commission File No.: 000-12167
The following is the text of a joint press release issued by Rational
Software and IBM on December 6, 2002:
For immediate release
IBM Contacts: Rational contacts:
John Reilly Bill Durling
914-766-1067 781-372-5886
jcreilly@us.ibm.com bdurling@rational.com
Tim Breuer John Coffey
914-766-1711 781-372-5848
breuer@us.ibm.com jcoffey@rational.com
IBM AND RATIONAL SOFTWARE SIGN AGREEMENT
FOR IBM TO ACQUIRE RATIONAL
Will give customers a complete open software development environment for
building on demand e-business and technical software products
Armonk, N.Y., and Cupertino, Calif., December 6, 2002 -- IBM (NYSE:IBM)
and Rational Software Corp. (NASDAQ:RATL) today announced the two companies
have entered into a definitive agreement for IBM to acquire the equity of
Rational at a price of approximately $2.1 billion in cash or $10.50 per share.
Rational provides open, industry standard tools, best practices and
services for developing business applications and building software products
and systems, including embedded software for devices such as cell phones and
medical systems.
IBM now will provide a complete software development environment for
companies that want to integrate their business processes and software
infrastructure across their companies, with suppliers, customers and
employees. This requires the integration of data management, systems
management, collaboration, transaction and business process integration
middleware and software development. The acquisition of Rational will
strengthen IBM's leadership in each of these segments, including software
development, and reinforces IBM's commitment to open industry standards. The
acquisition is an important element of IBM's e-business on demand strategy.
"The software industry, business customers and developers are
increasingly demanding software that is based on open industry standards and
enables integration -- integration of business applications across the
enterprise and the value chain of customers and suppliers," said Steve Mills,
IBM senior vice president and group executive, Software Group. "This is an
important aspect of IBM's On Demand strategy. Rational supports what IBM does
best, which is provide infrastructure software and software tools to help our
customers create a complete software development environment. This deal
extends IBM's ability to help customers into the 'on demand' future with tools
built on industry standards to develop, integrate and manage their business
processes."
Rational provides a software development platform that can improve the
speed, quality and predictability of software projects. Ninety-eight of the
Fortune 100, including IBM, use Rational tools and services. IDC estimates the
market opportunity for application development software will grow from $9
billion in 2002 to $15 billion in 2006.
"Rational helps software developers around the world write software
faster, with less risk and can help produce a higher return on investment,"
said Michael Devlin, CEO and co-founder, Rational Software. "The combination
of Rational and IBM is a logical extension to what has been a very beneficial,
20-year relationship and will significantly extend our progress in key markets
and customer segments."
With headquarters in Cupertino, California, and Lexington, Massachusetts,
Rational has more than 3,400 employees and customers in 89 countries. Rational
estimates that more than 600,000 software developers use its software tools.
IBM intends to merge Rational's business operations and employees into the IBM
Software Group as a new division and fifth brand, joining WebSphere, Lotus,
Tivoli and DB2. When the acquisition closes, Mike Devlin will become the
general manager of the new division and will report to Steve Mills.
Industry analysts have reported that companies using Rational software
have seen return on investment rates of 200 percent and higher as a result of
increased productivity and application quality and reduced development cycles
and testing times. IBM has been using Rational software since 1985.
Rational provides the broadest support for enterprise application
development on J2EE, .NET, Linux and other platforms to support the deployment
of solutions on the customer's choice of hardware and software platforms.
Rational's tools also are used to build technical software, commercial
software products and software for embedded devices and real-time systems,
such as pagers, cell phones, medical devices, air traffic control systems and
government defense systems.
Once the acquisition is completed, IBM plans to:
o Market and sell Rational's application development offerings
worldwide through the Rational sales force, which will become part
of the IBM sales force team;
o Integrate Rational's products more tightly with IBM software
products;
o Continue Rational's investment in and support for open standards
technologies that support a variety of platforms, including Unix,
Windows and others; and
o Accelerate investments in Rational products to better support the
emerging requirements of current customers, system integrators (SIs)
and independent software vendors (ISVs).
The acquisition is subject to customary closing conditions, including
Rational stockholder and government regulatory approvals. IBM and Rational
anticipate closing in the first quarter of 2003.
About IBM
IBM is the world's largest information technology company, with 80 years of
leadership in helping businesses innovate. IBM Software offers a wide range of
middleware and operating systems for all types of computing platforms,
allowing customers to take full advantage of the era of e-business. The
fastest way to get more information about IBM software is through the IBM
Software home page at http://www.software.ibm.com.
About Rational Software Corporation
Rational Software provides a software development platform that improves the
speed, quality, and predictability of software projects. Rational's
integrated, full lifecycle solution combines software engineering best
practices, market-leading tools and professional services. Ninety-eight of the
Fortune 100 rely on Rational tools and services to build better software,
faster. This open platform is extended by partners who provide more than 500
complementary products and services. Founded in 1981, Rational is one of the
world's largest software companies, with revenues of $689 million in its
twelve months ended March 31, 2002, and more than 3,400 employees worldwide.
Rational is a member of the S&P 500 Index and a component of the Nasdaq-100
Index(R). Additional information is available at www.Rational.com and
www.theRationaledge.com, the monthly e-zine for the Rational community.
# # #
IBM, WebSphere, Tivoli, Lotus and DB2 are trademarks or registered trademarks
of International Business Machines Corporation in the United States, other
countries, or both. All other company, product or service names may be
trademarks or service marks of others.
In connection with the merger, Rational will be filing a proxy statement and
other relevant documents concerning the transaction with the Securities and
Exchange Commission (SEC). STOCKHOLDERS OF RATIONAL ARE URGED TO READ THE
PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors
and security holders can obtain free copies of the proxy statement and other
documents when they become available by contacting Investor Relations,
Rational, 18880 Homestead Road, Cupertino, CA 95014 (Telephone: (408)
863-9900). In addition, documents filed with the SEC by Rational will be
available free of charge at the SEC's web site at www.sec.gov.
Information regarding the identity of the persons who may, under SEC rules, be
deemed to be participants in the solicitation of stockholders of Rational in
connection with the transaction, and their interests in the solicitation, will
be set forth in a proxy statement that will be filed by Rational with the SEC.
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, statements contained in
this release may constitute "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
neither promises nor guarantees, but involve a number of risks, uncertainties
and other factors that could cause actual results to differ materially from
those set forth in the forward-looking statements, including, without
limitation, the risk that the merger may not be consummated in a timely
manner, if at all, risks regarding employee relations and other risks
concerning IBM and Rational and their respective operations that are detailed
in the periodic filings with the SEC of IBM and Rational, including their most
recent filings on Form 10-K.
Filed by International Business Machines Corporation
Pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Rational Software Corporation
Commission File No.: 000-12167
The following is the text of a letter delivered to Rational's employees with
respect to the merger:
Dear Rational Team:
By now you are aware that Rational Software and IBM have announced an
agreement for IBM to acquire Rational. We are both very excited about this
combination and would like to share some thoughts on the enormous opportunity
that it presents.
You know the importance of software and the potential it has for changing the
world. Many of you joined Rational because you believe in this vision. As part
of Rational, you've done a great job in taking this message to the market and
delivering a solution that truly improves a customer's ability to create
higher quality software faster. The market has recognized Rational's
leadership in the art and science of software development.
Are you aware of the commitment IBM has to the importance of software?
IBM Software Group is a $13 Billion business consisting of 30,000 employees
dedicated to the delivery of software solutions. IBM has established itself as
a major force in the software community and in the categories in which it
competes: transaction management (WebSphere), data management (DB2),
collaboration (Lotus), and systems management and security (Tivoli).
Individually, each of these software areas is important. As a combination,
they allow IBM to offer a complete and compelling solution to customers.
When you add Rational's leadership in software development, you get a truly
remarkable enterprise that is destined to succeed. Together, we can address --
in a way the industry has never seen before -- our mutual customers'
ever-increasing need to exploit the power of software.
Whether our customers are building business applications in their enterprise
IT organizations or writing software for products and technical systems, we
will have an unbeatable solution.
For companies striving to integrate their business processes and software
infrastructures, IBM will offer a complete solution for building an on-demand
e-business. IBM's presence in these enterprise accounts will help spread the
benefit of Rational's products to more customers at an accelerated rate.
For companies building software for products and technical systems -- where
time-to-market and competitive differentiation is their lifeblood -- IBM's
pervasive computing strategy will combine with Rational's leadership to create
an even more powerful offering.
Our combined sales force will have more than 10,000 professionals worldwide -
the largest software sales force on the planet.
We already share many of the same customers, including Merrill Lynch, Cisco,
Nokia and EDS. We will protect the investment our customers have made in
Rational, add new customers, and build upon each other's strengths as we
increase our presence in our current markets and enter new ones.
Our relationship goes back a long way -- IBM was an early investor in
Rational, and in 1999 we formed a comprehensive alliance that has produced
numerous marketing and product development programs, including IBM's agreement
to OEM Rational ClearCase LT and Rational ClearQuest LT and our joint
development on Eclipse. We both use each other's products. This strong
connection and mutual trust will make for an easier transition period once the
deal closes.
As with other business acquisitions of this nature, this one will require
government regulatory approval and the approval of Rational's shareholders.
IBM has appointed an experienced executive, Steve Solazzo, formerly GM of
Linux, to lead a team of IBMers to ensure Rational's transition to IBM goes as
smoothly as possible once the transaction has been approved and completed.
We've also launched an extranet site as a way to introduce you to IBM. It will
help inform you on issues like employee benefits, the marketplace, the latest
news, earnings reports, etc. You can access them from Midnight or see the URL
link below.
It may take some time for you to fully appreciate the significance of this
industry-leading event. We're certain this is the right strategy for IBM and
Rational, and we hope that you agree.
In the end, it's all about winning. Let's do it together.
Sincerely,
Steve Mills Michael Devlin
Senior Vice President & Group Executive CEO
IBM Software Group Rational Software
If you, your customers or your partners have questions regarding the
transaction, please contact the integration project office at swdev@us.ibm.com
IBM/Rational Extranet
URL: http://www-1.ibm.com/services/socomm/newse/Barron/index.shtml
ID: newse
Password: jup5iter
In connection with the merger, Barron will be filing a proxy statement and
other relevant documents concerning the transaction with the Securities and
Exchange Commission (SEC). STOCKHOLDERS OF BARRON ARE URGED TO READ THE PROXY
STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and
security holders can obtain free copies of the proxy statement and other
documents when they become available by contacting Investor Relations, Barron,
18880 Homestead Road, Cupertino, CA 95014 (Telephone: (408) 863-9900). In
addition, documents filed with the SEC by Barron will be available free of
charge at the SEC's web site at www.sec.gov.
Information regarding the identity of the persons who may, under SEC rules, be
deemed to be participants in the solicitation of stockholders of Barron in
connection with the transaction, and their interests in the solicitation, will
be set forth in a proxy statement that will be filed by Barron with the SEC.
Forward-Looking Statements
Except for historical information contained herein, statements contained in
this document may constitute "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
neither promises nor guarantees, but involve a number of risks, uncertainties
and other factors that could cause actual results to differ materially from
those set forth in the forward-looking statements, including, without
limitation, the risk that the merger may not be consummated, if at all, risks
regarding employee relations and other risks concerning IBM and Barron and
their respective operations that are detailed in the periodic filings with the
SEC of IBM and Barron, including their most recent filings on Form 10-K.
Filed by International Business Machines Corporation
Pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Rational Software Corporation
Commission File No.: 000-12167
Q&A's for Rational Employees
High Level Positioning (H)
H1 Why is the acquisition of Rational by IBM a good thing for Rational? Why
should I be excited about this?
A. Becoming a part of IBM will help ensure that Rational keeps winning and
is a great place to work.
Over the last 20 years we have remained dedicated to a single mission:
ensuring the success of customers who depend on developing or deploying
software. During those 20 years we have taken the company through many
stages as we drove it to the next level, ahead of the market. The latest
stage began in 1997 when we increased our capabilities by acquiring a
number of leading tools companies in the software development tools
resulting in our Rational Suite product line. This strategy was very
successful and today we see many of our competitors emulating it.
While other companies are still playing catch-up, our agreement to join
IBM begins the newest stage of Rational's pursuit of excellence.
What will drive the major leap in helping customers build the software
than can change the world? We believe the answer lies in a few important
elements:
o Deep platform integration. It's clear that in the enterprise IT
space, customers are striving to integrate their business processes,
unify their software infrastructures, and improve their software
development speed and quality. Combining forces with IBM, one of the
most successful organization in the enterprise IT space, allows us
to deeply integrate with a complete platform, including transaction
management (WebSphere), data management (DB2), systems management
and security (Tivoli) and collaboration (Lotus). This depth of
integration goes far deeper than just integrating with an IDE - it
is integrating with a complete platform with significant benefits to
our customers. Being a part of IBM can accelerate Enterprise IT
customers' awareness and adoption of Rational.
o Support of a wide variety of software environments. While deeply
integrating with the IBM platform will be a distinct competitive
advantage for many enterprise IT customers, we also recognize that
most of those customers have heterogeneous computing environments.
IBM already provides a broad set of support for heterogeneous (e.g.,
Windows, Unix, Linux, mainframe, etc.) and non-IBM environments
(e.g., Oracle, SQL Server, etc) and has a strong public commitment
to open standards. Our solution will strengthen IBM's enterprise
offering by increasing IBM's ability to support for other major
software environments, most notably Microsoft's .NET platform. We
must continue to offer customers a solution for both
environments (and others) to fully support their business
application development needs.
o Support for a variety of software projects. We have a strong
relationship and a deep heritage among customers building software
for technical software products and systems because of our quality,
innovation and commitment to heterogeneous environments. We will
continue to support those customers and invest in our solution to
help them build better software faster. Part of IBM's interest in
Rational is the fact that we can take them into customers and
markets in which they have not traditionally been strong. We will
accelerate IBM's penetration into these types of customers.
For 20 years, we have done a great job of growing Rational, building a
brand and awareness, and providing clear evidence of the benefits of
using our solution -- but there is so much more to do.
IBM's posture in the industry is undeniable, and we will utilize that
presence to increase our product's visibility.
With IBM's more extensive distribution channels and broad customer
relationships, we can broaden the distribution of our products. We will also
be able to accelerate the delivery of our product vision as we become more
efficient by using common technology and combining projects with other parts
of IBM. And imagine the increased number of customers that will benefit from
our best practices as we utilize IBM's incredible service organization.
Joining IBM will give Rational the scale and market presence it needs to
forward our mission.
H2 Why did IBM acquire Rational? How does it fit into IBM's overall software
strategy?
A. Adding Rational to IBM strengthens IBM's "On Demand" computing strategy
and provides IBM's customers with a complete solution for creating an
integrated e-business.
o An integrated e-business requires integrated data management,
transaction management, collaboration, systems management &
security, and application development. IBM has strong product
offerings in the first four areas, and with the addition of Rational
adds the software development area.
o IBM now has the broadest support for software development
environments. The combined IBM/Rational solutions assist customers
who are developing e-business applications on J2EE or Microsoft .NET
as well as customers building technical software products and
systems.
o IBM and Rational have many synergies, built over a twenty year
history. The companies are more alike than not. They have a common
focus on customer success, deep relationships with enterprise
accounts, and are leaders in their respective areas. Each uses the
other's products, and there are already joint product initiatives
and OEM relationships in place. In addition, their strengths are
complementary: IBM can accelerate Rational's penetration into
enterprise IT organizations, and Rational brings leading technical
software products to IBM.
H3 Did Rational and IBM have a relationship prior to this acquisition?
A. Yes. IBM was an initial investor in Rational and has been working with
Rational for 20 years. More recently, IBM and Rational have strengthened
their levels of collaboration through a number of cooperative development
projects, OEM relationships, cooperative sales, participation in Eclipse
and numerous joint marketing programs. Rational and IBM also have a
history of extensively using each other's products.
H4 What will be the benefit of this deal to Rational's customers?
A. Rational's customers will benefit from IBM's global reach and will be
able to move from project to enterprise wide ROI. In addition, Rational
will be more efficient in delivering products because it will optimize
its product strategy with the rest of IBM's to exploit opportunities for
reuse and other efficiencies. Those Rational customers using the IBM
platform can benefit from an even tighter amount of integration.
H5 What benefits will IBM customers receive from Rational?
A. IBM customers will be able to choose from a complete solution for
building an integrated e-business. An integrated e-business requires data
management, transaction management, collaboration, systems management &
security, and software development. IBM has offerings in the first four
spaces, and it now adds product offerings in the fifth space, software
development. In addition, IBM's software development solution will now
support the broadest range of software environments, including business
applications on J2EE or .NET, as well as technical software products and
systems.
H6 How will IBM and Rational offerings compare against the competition?
A. The combined Rational and IBM will offer a highly competitive
comprehensive solution for integrated e-business, both in terms of deep
functional coverage - integrating data management, transaction
management, collaboration, systems management & security, and software
development. The IBM/Rational combination also provides broad platform
coverage, spanning .NET, J2EE, and other environments, and also supports
the development of the widest variety of types of software, including
technical software products and systems as well as e-business
applications.
H7 Will this acquisition jeopardize Rational's relationship with Microsoft?
How can IBM reassure MS ISVs that they will continue to support them?
A. Microsoft and IBM have a long term relationship delivering excellent
tools. . It is IBM's intention to continue a strong relationship with
Microsoft ISVs and other ISVs. One of the reasons IBM wanted to acquire
Rational is Rational's support for .NET, so IBM is motivated to continue
that support. Both IBM and Rational deliver software across a wide range
of platforms and technologies. We intend to continue support for
Microsoft environments for as long as they continue to be important to
our customers.
Deal and Organization Related (D)
D1 What is IBM's fiscal year?
A. IBM's fiscal year begins January 1st and ends December 31st (calendar
fiscal year).
D2 When will the acquisition close?
A. We expect the acquisition to close in first calendar quarter of 2003. The
acquisition is subject to shareholder and regulatory approvals. It is
important to note that until the deal closes, Rational and IBM will
remain two separate entities and we will need to stay focused on
executing our current business plans.
D3 How will the current Rational business continue in the future?
A. IBM plans to integrate Rational's operations into the IBM Software Group.
Rational will retain its brand and operate as a new division within IBM
Software Group. Rational will join other divisions and brands such as
WebSphere, DB2, Lotus and Tivoli.
D4 How big is IBM's Software Group? How big is IBM overall?
A. IBM's Software Group has approximate annual revenues of $13 Billion and
about 30,000 employees worldwide. IBM overall had annual revenues of $86
Billion in their FY'01 and currently has about 320,000 employees
worldwide.
D5 Who will run the new Rational division within IBM's Software Group?
A. Mike Devlin will be the leader of the Rational division. In this new role
as General Manager, Mike will report directly to Steve Mills, IBM's
Senior Vice President & Group Executive of the Software Group. Mike will
have responsibility for the Rational division's product development,
marketing, field, and customer service teams and will have matrix
responsibility for certain G&A functions dedicated to supporting the
division. Tom Bogan will be in a transition role assisting Mike with a
variety of issues moving to this new operational structure. Following
this transition, Paul Levy and Tom will not be part of the IBM management
team.
D6 Will all of the Rational senior management team join IBM?
A. No, but many of Rational's senior management team will join IBM. More
specific information will be made available prior to closing.
D7 How many people will lose their jobs as a result of this acquisition and
how many are expected to join IBM?
A. IBM understands that the main asset value in Rational is its people. To
that end, IBM intends to offer employment to the vast majority of the
people that make up Rational today. We expect that the development, sales
and technical support groups will join IBM largely
intact. As with any acquisition, there may be typical areas of overlap in
G&A and other infrastructure functions.
D8 When will I know for sure whether or not I have a role going forward with
IBM?
A. IBM intends to offer employment to the vast majority of the people that
make up Rational today. Determining the relatively few areas of job
overlap is one of senior management's highest priorities and
communications will be completed as quickly as possible. Functional
leaders for both IBM and Rational are fully aware of the impact that the
uncertainty has on Rational's people in the typical areas of overlap and
will do everything possible to communicate decisions as quickly as
possible.
D9 What will be the details of the severance package offered to those
impacted?
A. On an exception basis, IBM has agreed to extend the current Rational
severance practice for one year following the close of the acquisition
for employees who are impacted by an involuntary layoff resulting from
the acquisition , or as the result of an individual separation in which
severance payments may be made. Additionally, although IBM's normal
practice for severance benefits calculation for acquired employees is to
use only the service reference date associated with IBM employment,
during the one year post-close transition window (only), IBM will honor
the combined Rational/IBM service dates for the purposes of severance
calculation. The primary intention behind this limited exception is to
generally recognize the transition impact to those employees who may be
structurally affected by transition or related activity during the
period. Additional details regarding the severance program will be
provided to those who are impacted.
D10 Will IBM keep the current Rational locations? Are there any plans to
close existing Rational sites?
A. There are no current plans to close existing Rational sites. Employees in
various Rational facilities will continue to report to work in their
current locations. IBM's practice is to consolidate smaller facilities
into local vacant space where and when available, whether they are
existing IBM or Rational locations.
Compensation and Benefits at IBM (C)
C1 How will my salary be determined?
A. IBM's intention is to provide those employees joining IBM with base
salaries comparable to those provided by Rational. IBM will provide your
specific salary information at or about closing. IBM also conducts an
annual base salary increase review for all employees.
C2 Does IBM have a bonus or incentive plan?
A. Yes, IBM has the IBM Variable Pay Program and all regular employees who
are not on a sales or services incentive plan are eligible to
participate. The variable pay program is a very
important part of the IBM compensation opportunity and is designed to
support a team-oriented, high performance work culture. Program payments
are contingent upon IBM business results and individual performance. For
most employees, the current target variable pay opportunity is 10% of
annual earnings with the potential for far greater rewards for
extraordinary performance. Senior level non-executive positions are
eligible for a variable pay opportunity of 15% of annual earnings at
target. Generally, the payments are made in March following the end of
IBM's fiscal year (calendar year). Employees coming onto the plan during
the plan year, as Rational employees will, are generally eligible to
receive a prorated portion of the 2003 Variable Pay Program (details of
the current year's program are announced in January), payable in 2004.
Employees participating in an IBM sales or services plan are not eligible
for the IBM Variable Pay Program. A compensation transition plan for
Rational employees on sales or services compensation plans will be
communicated as soon as reasonably possible.
C3 What happens to my current Rational Stock Options?
A. The treatment of your Rational stock options will depend on the exercise
price of your Rational stock options.
Rational Stock Options with an Exercise Price of Less than $15.57
Upon the closing of the transaction, IBM will assume Rational stock
options with an exercise price of less than $15.57. This means that IBM
stock options will be substituted for Rational stock options. The number
of option shares and exercise price will be adjusted to reflect the
assumption as described below. Except for the exercise price and number
of shares covered by these options, the assumed options will continue to
be subject to all of the terms and conditions of the Rational stock
option plan and the award agreement under which the options were granted.
The number of IBM shares covered by each Rational option will be
determined by applying a purchase value ratio. For illustration purposes,
let's assume that IBM is buying Rational for $10.50 per share. The
average closing price for IBM stock over the 10 business days immediately
preceding the closing of the transaction establishes the IBM stock price
for computing the equivalent value. To convert your Rational stock
options to an equivalent value of IBM stock options, a purchase value
ratio is established as Rational's $10.50 per share divided by IBM
average closing price. This ratio is then multiplied by the number of
Rational stock options you hold, with the result rounded down to the
nearest whole share.
The exercise price per share for the Rational option will be adjusted by
dividing the Rational option exercise price by the purchase value ratio,
with the result rounded up to the nearest whole cent.
Example 1: Rational Options with an Exercise Price of Less than $15.57
You hold an option to purchase 1000 Rational option shares with an
exercise price of $12 per Rational share. IBM buys Rational for $10.50
per share.
The average IBM closing price for 10 days prior to the deal close equals
$84. The purchase value ratio is $10.50/$84 = .125. 1000 Rational option
shares x .125 = 125 IBM stock options, rounded down to the nearest whole
share = 125 IBM shares. $12 per Rational exercise price/.125, rounded
up to the nearest whole cent = $96.
Rational Stock Options with an Exercise Price of $15.57 or More
Rational stock options with an exercise price of $15.57 or more will be
canceled in connection with the acquisition. However, although these
stock options are "out of the money" and cannot be exercised for a gain,
IBM will replace a portion of these Rational stock options with brand new
IBM stock options effective on the date of closing using the assumptions
described below. The new options will vest 25% per year over 4 years and
be subject to the terms and conditions of IBM's Long Term Performance
Plan. The exercise price per share for the new IBM stock options will
equal 100% of IBM's fair market value on the date of grant. However, if
the new IBM option grant would result in fewer than 50 IBM option shares,
IBM will replace your Rational options with a cash retention award.
Rational stock options with an exercise price of $15.57 or more and less
than $30
Rational stock options with an exercise price of $15.57 or more and less
than $30 will be converted to IBM stock options using the purchase value
ratio described in Example 1 above. Then these purchase value option
shares will be exchanged for final IBM option shares using the ratio of 4
purchase value option shares for each 1 final IBM option share.
Example 2: Rational Stock Options with an Exercise Price of $15.57 or
More and Less than $30
You hold 2000 Rational stock options with an exercise price of $20 per
share. IBM buys Rational for $10.50 per share.
The average IBM closing price for 10 days prior to the deal close equals
$84. The purchase value ratio is $10.50/$84 = .125. 2000 Rational options
x .125 = 250 IBM purchase value option shares. 250 IBM purchase value
option shares/4 = 62.5 final IBM option shares rounded down to the
nearest whole share equals 62 final IBM option shares.
Rational stock options with an exercise price of $30 or more
Rational stock options with an exercise price of $30 or more will be
converted to IBM stock options using the purchase value ratio described
in Example 1 above. Then these purchase value option shares will be
exchanged for final IBM stock options using the ratio of 10 purchase
value option shares for each 1 final IBM option share
Example 3: Rational Stock Options with an Exercise Price of $30 or More
You hold 10,000 Rational stock options with an exercise price of $40 per
share. IBM buys Rational for $10.50 per share. The average IBM closing
price for 10 days prior to the deal close equals $84. The purchase value
ratio is $10.50/$84 = .125. 10,000 Rational stock options x .125 = 1250
IBM purchase value option shares. 1250 IBM purchase value option
shares/10 = 125 final IBM option shares.
Cash Retention Award
If the new IBM option grant is fewer than 50 options, you will receive a
cash retention award equal to 55% of the average IBM closing price for
the 10 days prior to the close, per final IBM option share. The award
will be payable if you continue to be employed by IBM until the six-month
anniversary of the closing of the acquisition. If you are eligible, you
will receive more information following the closing.
C4 What happens to the stock I've purchased through the Rational Employee
Stock Purchase Plan (or any other Rational stock that I own)?
A. Any Rational stock that you currently own will be bought out in the
acquisition closing with cash on the same terms as all other outstanding
Rational shares.
C5 What will happen to the current Rational Employee Stock Purchase Plan
offering?
A. The current Rational Employee Stock Purchase Plan (ESPP) offering will
terminate just prior to the closing of the deal. As you are aware, the
Rational ESPP works on six-month purchase periods beginning November 1
and May 1. After the acquisition agreement between Rational and IBM is
signed, no new participants can join the Rational ESPP and existing
participants cannot increase their payroll deductions in accordance with
the terms of Rational's ESPP. However, participants may withdraw any time
before the purchase date. Money collected from November 1 until closing
will be used to purchase shares immediately before closing. These shares
will then be purchased by IBM at the applicable purchase price. The
purchase price for the shares will be the lower of 85% of Rational's
stock price on the first day of the offering period or 85% of Rational's
stock price on the last business day before closing. Upon joining IBM,
employees will have a chance to enroll in IBM's ESPP at the next
enrollment date.
C6 What are the provisions of the IBM Employees Stock Purchase Plan?
A. Eligible employees may contribute up to 10% of their compensation through
payroll deductions to purchase IBM stock at 85% of the stock price on the
first day of each offering period (January 1 or July 1) or the stock
price on the date of purchase, whichever is lower. Purchases are made at
the end of each pay period. A prospectus will be available to all
employees.
C7 What happens to my Rational benefits?
A. As we get closer to the deal closing, there will be more specific
information made available to you explaining the transition to IBM
benefits. Rational recently announced benefit changes going into effect
on January 1st and you may have changed/updated your benefit elections
during Rational's recently completed open enrollment period. If any of
the benefit changes announced, or elections you made during open
enrollment will change due to the acquisition, you will be notified as
soon as possible prior to January 1, 2003.
C8 How will my service at Rational be bridged to IBM?
A. IBM plans to bridge service from Rational for purposes of vacation
accrual. Service will not be bridged for purposes of the IBM pension plan
or Future Health Account plan which is based on service with IBM.
C9 Does IBM have a pension plan?
A. Yes, this is a significant benefit that Rational employees will enjoy as
an added feature. The IBM Personal Pension Plan is a cash-balance plan.
IBM employees are eligible to participate in this plan when they have one
year of IBM service. Once an employee is eligible, IBM will contribute 5%
of the employee's pensionable earnings on a monthly basis. The employee's
account will continue to grow through these monthly contributions until
the employee leaves IBM and monthly interest credits continue until
distribution. To be vested in this plan, an employee needs to have 5
years of IBM service.
C10 Does IBM have a post-employment health plan?
A. Yes, this is another significant benefit that Rational employees will
enjoy as an enhanced feature. IBM employees are eligible to participate
in the Future Health Account when they are age 40 with one year of IBM
service. Once an employee is eligible, IBM will credit $2500 per year,
plus interest, for 10 years while employed at IBM. IBM employees are able
to begin withdrawals from their Future Health Account beginning at age 55
with 15 years of IBM service. Funds in your Future Health Account are
used to pay premiums for yourself and eligible dependents under IBM's
group health plans in effect at the time you leave IBM.
C11 Does IBM have a 401(k) plan?
A. Yes, the IBM Savings Plan is a 401(k) plan through which you may
contribute a percentage of your salary on a tax deferred basis up to
legal limits. IBM matches 50 cents for every dollar you contribute up to
the first 6% of your pay and provides for immediate vesting. There are 21
investment options in this plan.
C12 How will vacation time be handled, what is IBM's policy?
A. Each calendar year, your vacation eligibility will be determined by your
combined Rational and IBM service. Similar to Rational's current policy,
the IBM vacation policy is based on vacation hours that are accrued each
pay period. The IBM vacation schedule is shown below:
Combined Years of Service Total Vacation Weeks Accrued Annually
1 - 4 2
5 - 9 3
10 - 19 4
20 and over 5
C13 Can Rational employees carry over their unused Rational vacation days?
A. Yes. All employees will transition to IBM's vacation plan after the
closing. At that time, your current Rational vacation balance will be
carried over as described below. If you have 10 days or less of Rational
vacation time carried over, you will be required to use that time by the
end of calendar year 2003. If you have more than 10 days of Rational
vacation time carried over, you will be required to use at least 10 days
of that time by the end of calendar year 2003 and the balance of the time
by the end of calendar year 2004. After the closing, you will begin to
accrue IBM vacation time in accordance with the IBM vacation plan.
Vacation earned while at IBM but not used in a calendar year is not lost,
but rather, it is carried forward to the next year. (These days are
referred to as "excess" days under the IBM vacation plan). When vacation
days are carried over, the number of new days you accrue is reduced which
results in a maximum cap on the number of days you can earn in a calendar
year.
C143 What is IBM's holiday policy?
A. IBM provides 12 annual holidays, 6 of which are generally designated as
national IBM holidays (fixed) and the remaining 6 may be either locally
designated or personal choice days. The number of fixed and floating
holidays may vary by IBM work location, however, the total number of
holidays remains 12. Similar to the Rational policy, the use of floating
days requires manager pre-approval.
C15 Does IBM have alternate work schedules and flexible working arrangements?
A. Yes. IBM understands the importance of flexible working hours and
provides employees with very flexible work arrangements, subject to your
manager's approval.
Career Development Opportunities at IBM (CD)
CD1 What types of career opportunities are available at IBM?
A. IBM has over 320,000 employees operating in over 165 countries. This
environment allows for many opportunities for individual growth and
professional development by providing varied career paths touching every
facet of the information technology industry. IBM provides a 'dual career
path' option for employees who are interested in either broad technical
or managerial career growth in any discipline.
CD2 How does IBM assist employees in career and skills development?
A. IBM provides a number of tools and programs to help employees grow their
capabilities and manage their careers. These include:
o Internal courses offered on a continual basis via various media
(classroom, web, desktop)
o A Tuition Refund Plan which reimburses 100% of the cost of tuition
and other educational fees for business-related education programs
taken outside of working hours
o Online internal job posting system
o IBM's Career Planner web site with information on career management
and keeping skills current and competitive
o Mentoring programs to help employees tap into the knowledge and
experience of fellow IBM team members
CD3 Will employees joining IBM be permitted to seek transfers to other jobs
within IBM?
A. Yes, we want to operate as one team as soon as possible and will consider
all candidates to ensure the best selection for available job
opportunities. IBM job opportunities span software, hardware and services
and as a result there are opportunities for skill development and career
growth across all disciplines.
Note: This document is intended to provide an overview of the IBM plans
and programs as they apply to Rational employees beginning after the
closing of the transaction. It is not an official summary plan
description and is not intended to provide full details. Complete details
can be found in the formal plan documents, which remain the final
authority and, in the event of a conflict with this document, shall
govern in all cases. The plan administrator retains exclusive authority
and discretion to interpret the terms of the plans and programs. IBM
reserves the right, at its discretion, to amend, change or terminate any
of its benefit plans, programs, practices or policies, as IBM requires.
Nothing contained in this document shall be construed as creating an
expressed or implied obligation on the part of IBM to maintain the plans
and programs. For more information, contact the IBM Employee Services
Center at 1-800-796-9876 (TTY: 1-800-426-6537). From outside the United
States, call 1-919-301-6389.
In connection with the merger, Rational will be filing a proxy statement and
other relevant documents concerning the transaction with the Securities and
Exchange Commission (SEC). STOCKHOLDERS OF RATIONAL ARE URGED TO READ THE
PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors
and security holders can obtain free copies of the proxy statement and other
documents when they become available by contacting Investor Relations,
Rational, 18880 Homestead Road, Cupertino, CA 95014 (Telephone: (408)
863-9900). In addition, documents filed with the SEC by Rational will be
available free of charge at the SEC's web site at www.sec.gov.
Information regarding the identity of the persons who may, under SEC rules, be
deemed to be participants in the solicitation of stockholders of Rational in
connection with the transaction, and their interests in the solicitation, will
be set forth in a proxy statement that will be filed by Rational with the SEC.
Forward-Looking Statements
Except for historical information contained herein, statements contained in
this document may constitute "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
neither promises nor guarantees, but involve a number of risks, uncertainties
and other factors that could cause actual results to differ materially from
those set forth in the forward-looking statements, including, without
limitation, the risk that the merger may not be consummated, if at all, risks
regarding employee relations and other risks concerning IBM and Rational and
their respective operations that are detailed in the periodic filings with the
SEC of IBM and Rational, including their most recent filings on Form 10-K.