10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10 - - Q

QUARTERLY REPORT

PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED MARCH 31, 2008

1-2360

(Commission file number)

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

New York	13-0871985
(State of incorporation)	(IRS employer identification number)
Armonk, New York	10504
(Address of principal executive offices)	(Zip Code)

914-499-1900

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         Yes xNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o	Non-accelerated filer o
Smaller reporting company o		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

The registrant has 1,373,478,587 shares of common stock outstanding at March 31, 2008.

Index

	Page
PART I - Financial Information:	1
ITEM 1. Consolidated Financial Statements	1
Consolidated Statement of Earnings for the three months ended March 31, 2008 and 2007	1
Consolidated Statement of Financial Position at March 31, 2008 and December 31, 2007	3
Consolidated Statement of Cash Flows for the three months ended March 31, 2008 and 2007	5
Notes to Consolidated Financial Statements	6
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition	19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	43
ITEM 4. Controls and Procedures	43
PART II - Other Information:	43
ITEM 1. Legal Proceedings	43
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities	44
ITEM 5. Other Information	44
ITEM 6. Exhibits	45

PART I - Financial Information

ITEM 1. Consolidated Financial Statements:

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)

(Dollars in millions except	Three Months Ended March 31,
per share amounts)	2008			2007
Revenue:
Services	$	14,574		$	12,423
Sales	9,288			8,985
Financing	640			621
Total revenue	24,502			22,029
Cost:
Services	10,348			9,050
Sales	3,674			3,809
Financing	314			304
Total cost	14,336			13,163
Gross profit	10,166			8,866
Expense and other income:
Selling, general and administrative	5,620			5,089
Research, development and engineering	1,569			1,509
Intellectual property and custom development income	(274		)	(205		)
Other (income) and expense	(125		)	(180		)
Interest expense	178			73
Total expense and other income	6,968			6,287
Income from continuing operations before income taxes	3,198			2,579
Provision for income taxes	879			735
Income from continuing operations	2,319			1,844

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

1

(Dollars in millions except	Three Months Ended March 31,
per share amounts)	2008		2007
Discontinued operations:
Income from discontinued operations, net of tax	—		00
Net income	$	2,319	$	1,844
Earnings per share of common stock:
Assuming dilution
Continuing operations	$	1.65	$	1.21
Discontinued operations	—		0.00
Total	$	1.65	$	1.21
Basic
Continuing operations	$	1.68	$	1.23
Discontinued operations	—		0.00
Total	$	1.68	$	1.23
Weighted-average number of common shares outstanding: (millions)
Assuming dilution	1,404.3		1,522.8
Basic	1,383.0		1,499.5
Cash dividends per common share	$	0.40	$	0.30

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

2

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)

ASSETS

	At March 31,		At December 31,
(Dollars in millions)	2008		2007
Assets:
Current assets:
Cash and cash equivalents	$	10,786	$	14,991
Marketable securities	1,241		1,155
Notes and accounts receivable — trade (net of allowances of $237 in 2008 and $241 in 2007)	11,092		11,428
Short-term financing receivables (net of allowances of $307 in 2008 and $296 in 2007)	14,743		16,289
Other accounts receivable (net of allowances of $13 in 2008 and 2007)	1,059		1,072
Inventories, at lower of average cost or market:
Finished goods	752		668
Work in process and raw materials	2,224		1,996
Total inventories	2,977		2,664
Deferred taxes	2,072		1,687
Prepaid expenses and other current assets	4,456		3,891
Total current assets	48,425		53,177
Plant, rental machines and other property	40,009		38,584
Less: Accumulated depreciation	24,539		23,503
Plant, rental machines and other property — net	15,470		15,081
Long-term financing receivables (net of allowances of $60 in 2008 and $58 in 2007)	11,460		11,603
Prepaid pension assets	18,460		17,417
Intangible assets — net	3,122		2,107
Goodwill	18,624		14,285
Investments and sundry assets	6,262		6,761
Total assets	$	121,823	$	120,431

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

3

LIABILITIES AND STOCKHOLDERS’ EQUITY

(Dollars in millions)			At March 31, 2008			At December 31, 2007
Liabilities and Stockholders’ Equity:
Current liabilities:
Taxes			$	3,033		$	3,673
Short-term debt			15,235			12,235
Accounts payable			7,329			8,054
Compensation and benefits			3,819			4,645
Deferred income			11,079			9,802
Other accrued expenses and liabilities			6,553			5,901
Total current liabilities			47,048			44,310
Long-term debt			19,951			23,039
Retirement and nonpension postretirement benefit obligations			14,261			13,582
Deferred income			3,235			3,060
Other liabilities			8,600			7,970
Total liabilities			93,095			91,962
Stockholders’ equity:
Common stock, par value $0.20 per share, and additional paid-in capital			36,252			35,188
Shares authorized: 4,687,500,000
Shares issued:		2008 - 2,069,370,899
		2007 - 2,057,607,421
Retained earnings			62,378			60,640
Treasury stock - at cost			(66,619		)	(63,945		)
Shares:	2008 - 695,892,312
	2007 - 672,373,283
Accumulated gains and (losses) not affecting retained earnings			(3,282		)	(3,414		)
Total stockholders’ equity			28,728			28,470
Total liabilities and stockholders’ equity			$	121,823		$	120,431

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

4

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, (UNAUDITED)

(Dollars in millions)	2008			2007
Cash flow from operating activities from continuing operations:
Net income	$	2,319		$	1,844
Loss from discontinued operations	—			00
Adjustments to reconcile income from continuing operations to cash provided from operating activities:
Depreciation	1,030			949
Amortization of intangibles	317			291
Stock-based compensation	171			178
Net gain on asset sales and other	115			(88		)
Changes in operating assets and liabilities, net of acquisitions/divestitures	251			(157		)
Net cash provided by operating activities from continuing operations	4,202			3,016
Cash flow from investing activities from continuing operations:
Payments for plant, rental machines and other property, net of proceeds from dispositions	(1,018		)	(917		)
Investment in software	(194		)	(215		)
Acquisition of businesses, net of cash acquired	(4,962		)	(205		)
Divestiture of businesses, net of cash transferred	29			—
Purchases of marketable securities and other investments	(3,710		)	(8,443		)
Proceeds from sale of marketable securities and other investments	4,076			7,362
Net cash used in investing activities from continuing operations	(5,778		)	(2,418		)
Cash flow from financing activities from continuing operations:
Proceeds from new debt	3,742			900
Payments to settle debt	(4,894		)	(104		)
Short-term borrowings/(repayments) less than 90 days — net	372			436
Common stock repurchases	(2,427		)	(3,398		)*
Common stock transactions — other	965			900		*
Cash dividends paid	(554		)	(452		)
Net cash used in financing activities from continuing operations	(2,796		)	(1,717		)
Effect of exchange rate changes on cash and cash equivalents	168			52
Net cash used in discontinued operations - operating activities	—			(3		)
Net change in cash and cash equivalents	(4,205		)	(1,070		)
Cash and cash equivalents at January 1	14,991			8,022
Cash and cash equivalents at March 31	$	10,786		$	6,953

* First quarter 2007 amounts reclassified to conform with the presentation of Common stock repurchases and Common stock transactions – other which were previously combined in Common stock transactions-net in the Form 10-Q for the quarter ended March 31, 2007.

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

5

Notes to Consolidated Financial Statements:

1. Basis of Presentation:  The accompanying consolidated financial statements and footnotes thereto are unaudited.In the opinion of the management of International Business Machines Corporation (the company), these statements include all adjustments, which are of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, costs, expenses and gains and losses not affecting retained earnings that are reported in the Consolidated Financial Statements and accompanying disclosures.  Actual results may be different.  See the company’s 2007 Annual Report for a discussion of the company’s critical accounting estimates.

Interim results are not necessarily indicative of results for a full year.  The information included in this Form 10-Q should be read in conjunction with the company’s 2007 Annual Report.

Within the financial tables in this Form 10-Q, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts.

2. Accounting Changes:  In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133.” SFAS No. 161 expands the current disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” such that entities must now provide enhanced disclosures on a quarterly basis regarding how and why the entity uses derivatives; how derivatives and related hedged items are accounted for under SFAS No. 133 and how derivatives and related hedged items affect the entity’s financial position, performance and cash flow. Pursuant to the transition provisions of the Statement, the company will adopt SFAS No. 161 in fiscal year 2009 and will present the required disclosures in the prescribed format on a prospective basis. This Statement will not impact the Consolidated Financial Statements as it is disclosure-only in nature.

In February 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions,” and FSP FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, “Fair Value Measurements.” FSP FAS 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). See SFAS No. 157 discussion on page 7.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which will become effective in 2009 via prospective application to new business combinations. This Statement requires that the acquisition method of accounting be applied to a broader set of business combinations, amends the definition of a business combination, provides a definition of a business, requires an acquirer to recognize an acquired business at its fair value at the acquisition date and requires the assets and liabilities assumed in a business combination to be measured and recognized at their fair values as of the acquisition date (with limited exceptions). The company will adopt this Statement in fiscal year 2009 and its effects on future periods will depend on the nature and significance of any acquisitions subject to this statement.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” This Statement requires that the noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. Pursuant to the transition provisions of SFAS No. 160, the company will adopt the Statement in fiscal year 2009 via retrospective application of the presentation and disclosure requirements. The company does not expect the adoption of this Statement to have a material effect on the Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair  Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115,” which became effective January 1, 2008. SFAS No. 159 permits entities to measure eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other generally accepted accounting principles. The fair value measurement election is irrevocable and subsequent changes in fair value must be

6

Notes to Consolidated Financial Statements – (continued)

recorded in earnings. The company adopted this Statement as of January 1, 2008 and the adoption of this Statement did not have a material effect on the Consolidated Financial Statements.

In September 2006, the FASB finalized SFAS No. 157 which became effective January 1, 2008 except as amended by FSP FAS 157-1 and FSP FAS 157-2 as previously described. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements; however, it does not require any new fair value measurements. The provisions of SFAS No. 157 were applied prospectively to fair value measurements and disclosures for financial assets and financial liabilities and nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial statements on at least an annual basis beginning in the first quarter of 2008. The adoption of this Statement did not have a material effect on the Consolidated Financial Statements for fair value measurements made during the first quarter of 2008. While the company does not expect the adoption of this Statement to have a material impact on its Consolidated Financial Statements in subsequent reporting periods, the company continues to monitor any additional implementation guidance that is issued that addresses the fair value measurements for certain financial assets, such as private market pension plan assets, and nonfinancial assets and nonfinancial liabilities not disclosed at fair value in the financial statements on at least an annual basis. See Note 6 on pages 9 and 10 for additional information regarding the adoption of this Statement.

3. Stockholders’ Equity:The following table summarizes Net income plus gains and (losses) not affecting retained earnings (net of tax), a component of Stockholders’ equity in the Consolidated Statement of Financial Position:

	Three Months Ended March 31,
(Dollars in millions)	2008			2007
Net income	$	2,319		$	1,844
Gains and (losses) not affecting retained earnings: (net of tax)
Foreign currency translation adjustments	459			90
Prior service costs, net gains/(losses) and transition assets/ (obligations)	126			208
Net unrealized losses on marketable securities (1)	(157		)	(19		)
Net unrealized (losses)/gains on cash flow hedge derivatives	(296		)	14
Total net gains/(losses) not affecting retained earnings	132			294
Net income plus gains and (losses) not affecting retained earnings	$	2,451		$	2,138

(1) Sale of Lenovo stock and mark-to-mark adjustment of remaining Lenovo stock accounted for ($151 million) and ($37 million) of the period change in the first-quarter 2008 and first-quarter 2007 periods, respectively.

4.  Stock-Based Compensation:  Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period. The following table presents total stock-based compensation cost included in the Consolidated Statement of Earnings:

	Three Months Ended March 31,
(Dollars in millions)	2008			2007
Cost	$	29		$	46
Selling, general and administrative expense	127			112
Research, development and engineering expense	15			20
Pre-tax stock-based compensation cost	171			178
Income tax benefits	(47		)	(66		)
Total stock-based compensation cost	$	124		$	111

The reduction in pre-tax stock-based compensation cost for the three-month period ended March 31, 2008, as compared to the corresponding period in the prior year, was principally the result of a reduction in the level of stock option grants ($65 million) offset by an increase related to restricted and performance-based stock units ($57 million).

7

Notes to Consolidated Financial Statements – (continued)

As of March 31, 2008, the total unrecognized compensation cost of $1,029 million related to non-vested awards is expected to be recognized over a weighted-average period of approximately three years.

There was no significant capitalized stock-based compensation cost at March 31, 2008 and 2007.

For Restricted Stock Units (RSUs) awarded after December 31, 2007, dividend equivalents will not be paid. The fair value of such RSUs is determined and fixed on the grant date based on the company’s stock price adjusted for the exclusion of dividend equivalents.

5. Retirement-Related Benefits:  The company offers defined benefit pension plans, defined contribution pension plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits. The following table provides the total retirement-related benefit plans’ impact on income from continuing operations before income taxes.

					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended March 31:	2008		2007		Change
Retirement-related plans – cost:
Defined benefit and contribution pension plans – cost	$	361	$	540	(33.1	)%
Nonpension postretirement plans – cost	95		103		(7.8	)
Total	$	456	$	643	(29.1	)%

The following table provides the components of the cost/(income) for the company’s pension plans.

Cost/(Income) of Pension Plans

(Dollars in millions)	U.S. Plans						Non-U.S. Plans
For the three months ended March 31:	2008			2007			2008			2007+
Service cost	$	—		$	188		$	138		$	146
Interest cost	671			646			506			424
Expected return on plan assets	(995		)	(926		)	(690		)	(604		)
Amortization of transition assets	—			—			—			(1		)
Amortization of prior service cost	—			15			(34		)	(31		)
Recognized actuarial losses	70			169			154			220
Net periodic pension cost—U.S. Plan and material non-U.S. Plans	(254		)*	92		*	74		**	154		**
Cost of other defined benefit plans	23			30			57			37
Total net periodic pension cost for all defined benefit plans	(231		)	122			131			191
Cost of defined contribution plans	321			116			140			111
Total pension plan cost recognized in the Consolidated Statement of Earnings	$	90		$	238		$	271		$	302

+   Reclassified to conform with 2008 presentation.

*   Represents the qualified portion of the IBM Personal Pension Plan.

** Represents the qualified and non-qualified portion of material non-U.S. plans.

In 2008, the company expects to contribute to its non-U.S. defined benefit plans approximately $660 million, which is the legally mandated minimum contribution for the company’s non-U.S. plans. In the first quarter of 2008, the company contributed approximately $147 million to its non-U.S. plans.

8

Notes to Consolidated Financial Statements – (continued)

The following table provides the components of the cost for the company’s nonpension postretirement plans.

Cost of Nonpension Postretirement Plans

	Three Months Ended March 31,
(Dollars in millions)	2008			2007
Service cost	$	14		$	17
Interest cost	79			79
Amortization of prior service cost	(16		)	(15		)
Expected return on plan assets	(3		)	—
Recognized actuarial losses	3			8
Net periodic postretirement plan cost - U.S. Plan	77			89
Cost of non-U.S. Plans	18			14
Total nonpension postretirement plan cost recognized in the Consolidated Statement of Earnings	$	95		$	103

The company received a $3.1 million subsidy in the first quarter of 2008 in connection with the Medicare Prescription Drug Improvement and Modernization Act of 2003. A portion of this amount is used by the company to reduce its obligation and expense related to the plan, and the remainder is contributed to the plan to reduce contributions required by the participants.  For further information related to the Medicare Prescription Drug Act, see page 115 in the company’s 2007 Annual Report.

6. Fair Value:As highlighted in Note 2 on  page 6, the company adopted the provisions of SFAS No. 157 as amended by FSP FAS 157-1 and FSP FAS 157-2 on January 1, 2008. Pursuant to the provisions of FSP FAS 157-2, the company will not apply the provisions of SFAS No. 157 until January 1, 2009 for the following major categories of nonfinancial assets and liabilities from the Consolidated Statement of Financial Position: Plant, rental machines and other property-net; Goodwill; Intangible assets-net and the Asset retirement obligation liabilities within Other accrued expenses and liabilities and Other liabilities.  The company recorded no change to its opening balance of Retained earnings as of January 1, 2008 as it did not have any financial instruments requiring retrospective application per the provisions of SFAS No. 157.

Fair Value Hierarchy

SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect the company’s own assumptions of market participant valuation (unobservable inputs). In accordance with SFAS No. 157, these two types of inputs have created the following fair value hierarchy:

· Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

· Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

· Level 3 –  Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

SFAS No. 157 requires the use of observable market data if such data is available without undue costand effort.

Measurement of Fair Value

The company measures fair value as an exit price using the procedures described below for all assets and liabilities measured at fair value. When available, the company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and   currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific

9

Notes to Consolidated Financial Statements – (continued)

asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and marketable debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument. In the event of an other-than-temporary impairment of a nonpublic equity method investment, the company uses the net asset value of its investment in the investee adjusted using discounted cash flows for the company’s estimate of the price that it would receive to sell the investment to a market participant that would consider all factors that would impact the investment’s fair value. In determining the fair value of financial instruments, the company considers ‘base valuations’ calculated using the methodologies described  below for several parameters that market participants would consider in determining fair value.

· Counterparty credit risk adjustments are applied to financial instruments, where the base valuation uses market parameters based on an AA (or equivalent) credit rating. Due to the fact that not all counterparties have a AA (or equivalent) credit rating, it is necessary to take into account the actual credit rating of a counterparty to determine the true fair value of such an instrument.

· Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market.

Items Measured at Fair Value on a Recurring Basis

The following table presents the company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2008 consistent with the fair value hierarchy provisions of SFAS No. 157.

(Dollars in millions)	Level 1		Level 2		Level 3		Netting (1)			Total
Assets:
Cash and cash equivalents	$	3,963	$	3,787	$	—	$	—		$	7,750
Marketable securities	—		1,140		—		—			1,140
Derivative assets (2)	37		1,475		—		(962		)	550
Investments and sundry assets	469		2		—		—			470
Total Assets	$	4,469	$	6,403	$	—	$	(962	)	$	9,910
Liabilities:
Derivative liabilities (3)	$	—	$	2,104	$	—	$	(962	)	$	1,142
Total Liabilities	$	—	$	2,104	$	—	$	(962	)	$	1,142

(1)Represents netting of derivative exposures covered by a qualifying master netting agreement in accordance with FASB Interpretation No. 39, “Offsetting of Amounts Relating to Certain Contracts.”

(2)The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at March 31, 2008 are $982 million and $529 million, respectively.

(3)The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at March 31, 2008 are $1,459 million and $645 million, respectively.

At March 31, 2008, the company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

Items Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis and therefore are not included in the table above. These assets include equity method investments that are recognized at fair value at the end of the period to the extent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis and are included in the table above can also be subject to nonrecurring fair value measurements. These assets include public cost method investments that are deemed to be other-than-temporarily impaired. The company did not record any other-than-temporary impairment charges for these assets during the first quarter of 2008.

10

Notes to Consolidated Financial Statements – (continued)

7. Accelerated Share Repurchase:  In May 2007, IBM International Group (IIG), a wholly-owned foreign subsidiary of the company repurchased 118.8 million shares of common stock for $12.5 billion under accelerated share repurchase (ASR) agreements with three banks.

Pursuant to the ASR agreements, executed on May 25, 2007, IIG paid an initial purchase price of $105.18 per share for the repurchase. The initial purchase price was subject to adjustment based on the volume weighted average price of IBM common stock over a settlement period of three months for each of the banks. The adjustment also reflected certain other amounts including the banks’ carrying costs, compensation for ordinary dividends declared by the company during the settlement period and interest benefits for receiving the $12.5 billion payment in advance of the anticipated purchases by each bank of shares in the open market during its settlement period.  The adjustment amount could be settled in cash, registered shares or unregistered shares at IIG’s option. Under the ASR, IIG had a separate settlement with each of the three banks. The first settlement occurred on September 6, 2007, resulting in a settlement payment to the bank of $151.8 million. The second settlement occurred on December 5, 2007, resulting in a settlement payment to the bank of $253.1 million. The third settlement occurred on March 4, 2008, resulting in a settlement payment to the company of $54.2 million. The settlement amounts were paid in cash at the election of IIG in accordance with the provisions of the ASR and were recorded as adjustments to Stockholders’ equity in the Consolidated Statement of Financial Position on the settlement dates. The adjusted average price paid per share during the ASR period was $108.13, resulting in a total purchase price of $12,851 million versus the original $12,500 million. The $351 million difference was settled in cash.

8. Acquisitions:During the three months ended March 31, 2008, the company completed seven acquisitions at an aggregate cost of $5,198 million. The Cognos, Inc. acquisition is shown separately given the significant purchase price.

Cognos, Inc. – On January 31, 2008 the company acquired 100 percent of the outstanding common shares of Cognos, Inc. for consideration of  $5,021 million consisting of $4,998 million of cash and $24 million of equity instruments. Through this acquisition, IBM and Cognos will become a leading provider of technology and services for business intelligence and performance management, delivering the industry’s most complete, open standards-based platform with the broadest range of expertise to help companies expand the value of their information, optimize their business processes and maximize performance across their enterprises. The company acquired Cognos to accelerate its Information on Demand strategy, a cross-company initiative that combines the company’s strength in information integration, content and data management and business consulting services to unlock the business value of information. Cognos was integrated into the Software segment upon acquisition and goodwill, as reflected in the table on page 12 has been entirely assigned to the Software segment. It is expected that 40-50 percent of the goodwill will be deductible for tax purposes. The overall weighted average useful life of the intangible assets purchased, excluding goodwill, is 6.5 years.

Other Acquisitions -  The company acquired six additional companies at an aggregate cost of $178 million that are presented in the table on page 12 as “Other Acquisitions.”

The Software segment completed four other acquisitions: AptSoft Corporation, Solid Information Technology,  Net Integration Technologies Inc. and Encentuate, Inc., all  privately held companies. Each acquisition further complemented and enhanced the software product portfolio.

Global Technology Services (GTS) completed one acquisition: Arsenal Digital Solutions, a privately held company. Arsenal provides global clients with security rich information protection services designed to handle increasing data retention requirements.

Global Business Services (GBS) completed one acquisition: u9consult, a privately held company. u9consult complements the company’s existing capabilities in value chain consulting.

Purchase price consideration for the “Other Acquisitions” was paid all in cash. All acquisitions are reported in the Consolidated Statement of Cash Flows net of acquired cash and cash equivalents.

11

Notes to Consolidated Financial Statements – (continued)

The table below reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of March 31, 2008.

	Amortization				Other
(Dollars in millions)	Life (yrs.)	Cognos			Acquisitions
Current assets		$	529		$	20
Fixed assets/noncurrent		125			12
Intangible assets:
Goodwill	N/A	4,152			143
Completed technology	3 – 7	534			12
Client relationships	3 – 7	47			8
Other	3 – 7	543			12
Total assets acquired		5,931			207
Current liabilities		(782		)	(22		)
Noncurrent liabilities		(128		)	(8		)
Total liabilities assumed		(910		)	(29		)
Total purchase price		$	5,021		$	178

The acquisitions were accounted for as purchase transactions, and accordingly, the assets and liabilities of the acquired entities were recorded at their estimated fair values at the date of acquisition. The primary items that generated the goodwill are the value of the synergies between the acquired companies and IBM and the acquired assembled workforce, neither of which qualify as an amortizable intangible asset. For the “Other Acquisitions,” the overall weighted-average life of the identified amortizable intangible assets acquired is 3.4 years. With the exception of goodwill, these identified intangible assets will be amortized on a straight-line basis over their useful lives. Goodwill of $143 million has been assigned to the Software ($60 million) and Global Technology Services ($83 million) segments. None of the goodwill related to “Other Acquisitions” is deductible for tax purposes.

9. Printing Systems Divestiture:  In January 2007, the company announced an agreement with Ricoh Company Limited (Ricoh), a publicly traded company, to form a joint venture company based on IBM’s Printing System Division (a division of the Systems and Technology segment). The company initially created a wholly-owned subsidiary, InfoPrint Solutions Company, LLC (InfoPrint), by contributing specific assets and liabilities from its printer business. The company’s Printing System Division generated approximately $1 billion of revenue in 2006. The InfoPrint portfolio includes solutions for production printing for enterprises and commercial printers as well as solutions for office workgroup environments and industrial segments. On June 1, 2007 (closing date), the company divested 51 percent of its interest in InfoPrint to Ricoh.  The company will divest its remaining 49 percent ownership to Ricoh quarterly over the next three years from the closing date. At March 31, 2008, the company’s ownership in InfoPrint was 36.7 percent. See IBM’s 2007 Annual Report, Note C, “Acquisitions/Divestitures”, for additional information.

10. Financing Receivables: The following table presents financing receivables, net of allowances for doubtful accounts, including residual values.

	At March 31,		At December 31,
(Dollars in millions)	2008		2007
Current:
Net investment in sales-type leases	$	4,762	$	4,746
Commercial financing receivables	4,579		6,263
Client loans receivables	4,819		4,652
Installment payment receivables	583		629
Total	$	14,743	$	16,289
Noncurrent:
Net investment in sales-type leases	$	6,104	$	6,085
Commercial financing receivables	120		113
Client loans receivables	4,808		4,931
Installment payment receivables	427		474
Total	$	11,460	$	11,603

12

Notes to Consolidated Financial Statements – (continued)

Net investment in sales-type leases is for leases that relate principally to the company’s equipment and are for terms ranging from two to seven years. Net investment in sales-type leases includes unguaranteed residual values of $931 million and $915 million at March 31, 2008 and December 31, 2007, respectively, and is reflected net of unearned income of $1,072 million and $1,016 million and of allowance for uncollectible accounts of $135 million and $127 million at those dates, respectively.

Commercial financing receivables relate primarily to inventory and accounts receivable financing for dealers and remarketers of IBM and non-IBM products. Payment terms for inventory and accounts receivable financing generally range from 30 to 90 days.

Client loan receivables relate to loans that are provided by Global Financing primarily to the company’s clients to finance the purchase of the company’s software and services. Separate contractual relationships on these financing arrangements are for terms ranging from two to seven years. Each financing contract is priced independently at competitive market rates. The company has a history of enforcing the terms of these separate financing agreements.

The company utilizes certain of its financing receivables as collateral for non-recourse borrowings. Financing receivables pledged as collateral for borrowings were $297 million and $258 million at March 31, 2008 and December 31, 2007, respectively.

The company did not have any financing receivables held for sale as of March 31, 2008 and December 31, 2007.

11. Intangible Assets Including Goodwill:  The following schedule details the company’s intangible asset balances by major asset class:

	At March 31, 2008
(Dollars in millions)	Gross Carrying		Accumulated			Net Carrying
Intangible asset class	Amount		Amortization			Amount
Capitalized software	$	1,929	$	(836	)	$	1,093
Client-related	1,549		(513		)	1,036
Completed technology	1,045		(239		)	807
Patents/Trademarks	207		(71		)	136
Other(a)	172		(122		)	50
Total	$	4,903	$	(1,781	)	$	3,122

	At December 31, 2007
(Dollars in millions)	Gross Carrying		Accumulated			Net Carrying
Intangible asset class	Amount		Amortization			Amount
Capitalized software	$	1,926	$	(826	)	$	1,100
Client-related	1,054		(495		)	559
Completed technology	536		(194		)	342
Strategic alliances	103		(103		)	—
Patents/Trademarks	128		(61		)	67
Other(a)	154		(115		)	39
Total	$	3,901	$	(1,794	)	$	2,107

(a)  Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems and impacts  from currency translation.

The net carrying amount of intangible assets increased $1,015 million during the first quarter of 2008, primarily due to acquired intangible assets and capitalized software additions, partially offset by amortization. The aggregate intangible amortization expense was $317 million and $291 million for the quarters ended March 31, 2008 and 2007, respectively. In addition, in the first quarter, the company retired $338 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.

13

Notes to Consolidated Financial Statements – (continued)

The amortization expense for each of the five succeeding years relating to intangible assets currently recorded in the Consolidated Statement of Financial Position is estimated to be the following at March 31, 2008:

	Capitalized		Acquired
(Dollars in millions)	Software		Intangibles		Total
2008 (for Q2-Q4)	$	533	$	381	$	913
2009	420		455		874
2010	133		361		493
2011	7		310		318
2012	—		228		228

The changes in the goodwill balances by reportable segment, for the quarter ended March 31, 2008, are as follows:

										Foreign
										Currency
					Purchase					Translation
(Dollars in millions)	Balance		Goodwill		Price					And Other			Balance
Segment	12/31/07		Additions		Adjustments			Divestitures		Adjustments			3/31/08
Global Business Services	$	4,041	$	—	$	—		$	—	$	63		$	4,103
Global Technology Services	2,914		83		(3		)	—		119			3,113
Systems and Technology	484		—		7			—		—			491
Software	6,846		4,212		(22		)	—		(120		)	10,916
Global Financing	—		—		—			—		—			—
Total	$	14,285	$	4,295	$	(18	)	$	—	$	62		$	18,624

There were no goodwill impairment losses recorded during the quarter.

12. Segments:  The table on page 48 of this Form 10-Q reflects the results of the company’s reportable segments consistent with the management system used by the company’s chief operating decision maker. These results are not necessarily a depiction that is in conformity with GAAP. For example, employee retirement plan costs are developed using actuarial assumptions on a country-by-country basis and allocated to the segments based on headcount.  Different results could occur if actuarial assumptions that are unique to the segments were used. Performance measurement is based on income before income taxes (pre-tax income). These results are used, in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments.

13. Restructuring-Related Liabilities:  The following table provides a rollforward of the current and noncurrent liability balances for actions taken in the following periods: (1) the second-quarter of 2005; (2) the fourth-quarter 2002 actions associated with the acquisition of the PricewaterhouseCoopers consulting business; (3) the second-quarter of 2002 associated with the Microelectronics Division and the rebalancing of both the company’s workforce and leased space resources; (4) the 2002 actions associated with the hard disk drive (HDD) business for reductions in workforce, manufacturing capacity and space; (5) actions taken in 1999; and (6) actions that took place prior to 1994. See the company’s 2007 Annual Report, Note Q on pages 99 and 100 for additional information on the actions taken in 2005.

	Liability								Liability
	as of								as of
(Dollars in millions)	12/31/2007		Payments			Other Adj.*			3/31/2008
Current:
Workforce	$	130	$	(35	)	$	8		$	104
Space	30		(10		)	10			30
Other	7		—			1			8
Total Current	$	167	$	(45	)	$	19		$	141
Noncurrent:
Workforce	$	557	$	—		$	52		$	609
Space	74		—			(7		)	66
Total Noncurrent	$	631	$	—		$	45		$	676

*  The other adjustments column in the table above principally includes the reclassification of noncurrent to current, foreign currency translation adjustments and interest accretion.

14

Notes to Consolidated Financial Statements – (continued)

14. Contingencies:  The company is involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to time in the ordinary course of its business, including actions with respect to contracts, intellectual property (IP), product liability, employment, benefits, securities, foreign operations and environmental matters. These actions may be commenced by a number of different parties, including competitors, partners, clients, current or former employees, government and regulatory agencies, stockholders and representatives of the locations in which the company does business.

The following is a summary of some of the more significant legal matters involving the company.

The company is a defendant in an action filed on March 6, 2003 in state court in Salt Lake City, Utah by The SCO Group (SCO v. IBM). The company removed the case to Federal Court in Utah. Plaintiff is an alleged successor in interest to some of AT&T’s Unix IP rights, and alleges copyright infringement, unfair competition, interference with contract and breach of contract with regard to the company’s distribution of AIX and Dynix and contribution of code to Linux. The company has asserted counterclaims, including breach of contract, violation of the Lanham Act, unfair competition, intentional torts, unfair and deceptive trade practices, breach of the General Public License that governs open source distributions, promissory estoppel and copyright infringement. In October 2005, the company withdrew its patent counterclaims in an effort to simplify and focus the issues in the case and to expedite their resolution. Motions for summary judgment were heard in March 2007, and the court has not yet issued its decision. On August 10, 2007, the court in another suit, The SCO Group, Inc. v. Novell, Inc., issued a decision and order determining, among other things, that Novell is the owner of UNIX and UnixWare copyrights, and obligating SCO to recognize Novell’s waiver of SCO’s claims against IBM and Sequent for breach of UNIX license agreements. At the request of the court in SCO v. IBM, on August 31, 2007, each of the parties filed a status report with the court concerning the effect of the August 10th Novell ruling on the SCO v. IBM case, including the pending motions. On September 14, 2007, plaintiff filed for bankruptcy protection, and all proceedings in this case were stayed.

On November 29, 2006, the company filed a lawsuit against Platform Solutions, Inc. (PSI) in the United States District Court for the Southern District of New York. IBM filed its amended complaint on August 17, 2007 and asserted claims for patent infringement, trade secret misappropriation, copyright infringement, tortious interference and breach of contract in connection with PSI’s development and marketing of a computer system that PSI says is compatible with IBM’s S/390 and System z architectures. IBM also sought a declaratory judgment that its refusal to license its patents to PSI and certain of its software for use on PSI systems does not violate the antitrust laws. IBM seeks damages and injunctive relief. On September 21, 2007, PSI answered the amended complaint and asserted counterclaims against IBM for alleged monopolization and attempted monopolization, tying, violations of New York and California statutes proscribing unfair competition, tortious interference with the acquisition of PSI by a third party and promissory estoppel. PSI also sought declaratory judgments of noninfringement of IBM’s patents and patent invalidity. In October 2007, PSI filed a complaint with the European Commission claiming that the company’s alleged refusal to do business with PSI violated European competition law. The company responded to this complaint in December. On January 11, 2008, the court in the New York lawsuit permitted T3 Technologies, a reseller of PSI computer systems, to intervene as a counterclaim-plaintiff, and the court also permitted the company to file a second amended complaint adding patent infringement claims against T3. Discovery is proceeding and the court has  tentatively set the case for trial on March 16, 2009.

In October 2003, a purported collective action lawsuit was filed against IBM in the United States District Court for the Northern District of California by 10 former IBM employees alleging, on behalf of themselves and allegedly similarly situated former employees, that the company engaged in a pattern and practice of discriminating against employees on the basis of age when it terminated employees, both in connection with reductions in force and individualized determinations (Syverson v. IBM). Initially, the District Court dismissed the lawsuit on the basis of release agreements signed by all the plaintiffs. On appeal, the Ninth Circuit reversed the trial court’s finding that the release barred these claims, and in January 2007, after denial of IBM’s petition for rehearing, the matter was returned to the trial court for further proceedings. On October 3, 2007, the court dismissed with prejudice plaintiffs’ claim for relief under the Older Workers Benefit Protection Act, and dismissed with leave to amend plaintiffs’ claim asserting disparate impact age discrimination with respect to individualized terminations. On November 6, 2007, plaintiffs filed a Third Amended Complaint, amending the disparate impact claim. IBM filed its answer on November 26, 2007, and discovery is proceeding.

In July 2005, two lawsuits were filed in the United States District Court for the Southern District of New York related to the company’s disclosures concerning first-quarter 2005 earnings and the expensing of equity compensation. Pursuant to an Order from the Court dated March 28, 2006, the two lawsuits were consolidated into a single action captioned “In re International Business Machines Corp. Securities Litigation.” Plaintiffs filed a corrected consolidated amended complaint dated May 19, 2006, in which they named the company and IBM’s Senior Vice President and Chief Financial Officer as

15

Notes to Consolidated Financial Statements – (continued)

defendants and alleged that defendants made certain misrepresentations and omissions in violation of Section 10(b), and Rule 10b-5 thereunder, and Section 20(a) of the Securities Exchange Act of 1934. On September 20, 2006, the Court denied a Motion to Dismiss that was filed by IBM. On March 12, 2007, the plaintiffs’ class was certified; class notifications were mailed on or about May 30, 2007.

In January 2004, the Seoul District Prosecutors Office in South Korea announced it had brought criminal bid-rigging charges against several companies, including IBM Korea and LG IBM (a joint venture between IBM Korea and LG Electronics, which has since been dissolved, effective January, 2005) and had also charged employees of some of those entities with, among other things, bribery of certain officials of government-controlled entities in Korea and bid rigging. IBM Korea and LG IBM cooperated fully with authorities in these matters. A number of individuals, including former IBM Korea and LG IBM employees, were subsequently found guilty and sentenced. IBM Korea and LG IBM were also required to pay fines. Debarment orders were imposed at different times, covering a period of no more than a year from the date of issuance, which barred IBM Korea from doing business directly with certain government-controlled entities in Korea. All debarment orders have since expired and when they were in force did not prohibit IBM Korea from selling products and services to business partners who sold to government-controlled entities in Korea. In addition, the U.S. Department of Justice and the SEC have both contacted the company in connection with this matter. In March 2008, the company received a request from the SEC for additional information.

On March 27, 2008, the company was temporarily suspended from participating in new business with U.S. Federal government agencies.  The notice of temporary suspension was issued by the Environmental Protection Agency (EPA) and related to an investigation by the EPA of possible violations of the Procurement Integrity provisions of the Office of Federal Procurement Policy Act regarding a specific bid for business with the EPA originally submitted in March 2006. In addition, the U.S. Attorney’s Office for the Eastern District of Virginia served the company and certain employees with grand jury subpoenas related to the bid, requesting testimony and documents regarding interactions between employees of the EPA and certain company employees. On April 4, 2008, the company announced an agreement with the EPA that terminated the temporary suspension order.  The company is cooperating with the EPA and with the U.S. Attorney’s Office for the Eastern District of Virginia.

The company is a defendant in a civil lawsuit brought in Tokyo District Court by Tokyo Leasing Co., Ltd., which seeks to recover losses that it allegedly suffered after IXI Co., Ltd. initiated civil rehabilitation (bankruptcy) proceedings in Japan and apparently failed to pay Tokyo Leasing amounts for which Tokyo Leasing now seeks to hold IBM and others liable. The claims in this suit include tort and breach of contract.

The company is a defendant in numerous actions filed after January 1, 2008 in Supreme Court for the State of New York, county of Broome, on behalf of hundreds of plaintiffs. The complaints allege causes of action for negligence and recklessness, private nuisance, and trespass. Plaintiffs in these cases seek medical monitoring and claim damages in unspecified amounts for a variety of personal injuries and property damages allegedly arising out of the presence of groundwater contamination and vapor intrusion of groundwater contaminants into certain structures in which plaintiffs reside or resided, or conducted business, allegedly resulting from the release of chemicals into the environment by the company at its former manufacturing and development facility in Endicott. These complaints also seek punitive damages in an unspecified amount.

The company is party to, or otherwise involved in, proceedings brought by U.S. federal or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as “Superfund,” or laws similar to CERCLA. Such statutes require potentially responsible parties to participate in remediation activities regardless of fault or ownership of sites. The company is also conducting environmental investigations, assessments or remediations at or in the vicinity of several current or former operating sites globally pursuant to permits, administrative orders or agreements with country, state or local environmental agencies, and is involved in lawsuits and claims concerning certain current or former operating sites.

The company is also subject to ongoing tax examinations and governmental assessments in various jurisdictions. Along with many other U.S. companies doing business in Brazil, the company is involved in various challenges with Brazilian authorities regarding non-income tax assessments and non-income tax litigation matters. These matters principally relate to claims for taxes on the importation of computer software. The total amounts related to these matters are approximately $2.3 billion, including amounts currently in litigation and other amounts. In addition, the company has received an income tax assessment from Mexican authorities relating to the deductibility of certain warranty payments. In response, the company has filed an appeal in the Mexican Federal Fiscal court. The total potential amount related to this matter for all applicable years is

16

Notes to Consolidated Financial Statements – (continued)

approximately $500 million. The company believes it will prevail on these matters and that these amounts are not meaningful indicators of liability.

In accordance with SFAS No. 5, “Accounting for Contingencies,” (SFAS No. 5), the company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and proceedings are reviewed at least quarterly and provisions are taken or adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter. Any recorded liabilities including any changes to such liabilities for the quarter ended March 31, 2008, were not material to the Consolidated Financial Statements. Based on its experience, the company believes that the damage amounts claimed in the matters previously referred to are not a meaningful indicator of the potential liability. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of the matters previously discussed. While the company will continue to defend itself vigorously in all such matters, it is possible that the company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters.

Whether any losses, damages or remedies finally determined in any such claim, suit, investigation or proceeding could reasonably have a material effect on the company’s business, financial condition, results of operations or cash flows will depend on a number of variables, including the timing and amount of such losses or damages; the structure and type of any such remedies; the significance of the impact any such losses, damages or remedies may have on the Consolidated Financial Statements; and the unique facts and circumstances of the particular matter which may give rise to additional factors.

15. Commitments:  The company’s extended lines of credit to third-party entities include unused amounts of $4,268 million and $3,702 million at March 31, 2008 and December 31, 2007, respectively. A portion of these amounts was available to the company’s business partners to support their working capital needs. In addition, the company has committed to provide future financing to its clients in connection with client purchase agreements for approximately $3,717 million and $3,654 million at March 31, 2008 and December 31, 2007, respectively.

The company has applied the disclosure provisions of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to its agreements that contain guarantee or indemnification clauses. These disclosure provisions expand those required by SFAS No. 5, by requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. The following is a description of arrangements in which the company is the guarantor.

The company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the company, under which the company customarily agrees to hold the party harmless against losses arising from a breach of representations and covenants related to such matters as title to the assets sold, certain intellectual property (IP) rights, specified environmental matters, third-party performance of non-financial contractual obligations and certain income taxes. In each of these circumstances, payment by the company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the company to challenge the other party’s claims. Further, the company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the company may have recourse against third parties for certain payments made by the company.

It is not possible to predict the maximum potential amount of future payments under these or similar agreements, due to the conditional nature of the company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the company under these agreements have not had a material effect on the company’s business, financial condition or results of operations.

In addition, the company guarantees certain loans and financial commitments. The maximum potential future payment under these financial guarantees was $24 million and $23 million at March 31, 2008 and December 31, 2007, respectively. The fair value of the guarantees recognized in the Consolidated Statement of Financial Position is not material.

17

Notes to Consolidated Financial Statements – (continued)

Changes in the company’s warranty liability balance are presented in the following table:

(Dollars in millions)	2008			2007
Balance at January 1	$	412		$	582
Current period accruals	92			105
Accrual adjustments to reflect actual experience	16			(16		)
Charges incurred	(133		)	(167		)
Balance at March 31	$	387		$	504

The decrease in the balance was primarily driven by a reduction in estimated future cost as a result of the divestiture of the company’s Personal Computing business to Lenovo Group Limited (Lenovo) in April 2005.

16. Subsequent Events:On April 29, 2008, the company announced that the Board of Directors approved a quarterly dividend of $0.50 per common share. The dividend is payable June 10, 2008 to shareholders of record on May 9, 2008. The dividend declaration represents an increase of $0.10, or 25 percent more than the prior quarterly dividend of $0.40 per common share.

On April 29, 2008, the IBM Board of Directors approved a pension adjustment for certain U.S. retirees and beneficiaries. Effective September 1, 2008, this adjustment provides a pension increase to approximately 42,000 IBM retirees who retired before January 1,1997. The impact of this adjustment will be included in the Personal Pension Plan remeasurement at December 31, 2008, therefore, there will be no impact to 2008 net periodic pension cost.

On April 3, 2008, the company announced the completion of the acquisition of Telelogic AB for approximately $845 million in cash.

18

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

FOR THE THREE MONTHS ENDED MARCH 31, 2008*

Snapshot

							Yr. To Yr.
							Percent/
(Dollars in millions except per share amounts)							Margin
For the three months ended March 31:	2008			2007			Change
Revenue	$	24,502		$	22,029		11.2	%**
Gross profit margin	41.5		%	40.2		%	1.2	pts.
Total expense and other income	$	6,968		$	6,287		10.8	%
Total expense and other income to revenue ratio	28.4		%	28.5		%	(0.1	)pts.
Provision for income taxes	$	879		$	735		19.6	%
Income from continuing operations	$	2,319		$	1,844		25.7	%
Net income	$	2,319		$	1,844		25.7	%
Net income margin	9.5		%	8.4		%	1.1	pts.
Earnings per share from continuing operations:
Assuming dilution	$	1.65		$	1.21		36.4	%
Basic	$	1.68		$	1.23		36.6	%
Weighted-average shares outstanding:
Assuming dilution	1,404.3			1,522.8			(7.8	)%
Basic	1,383.0			1,499.5			(7.8	)%

	3/31/08		12/31/07
Assets	$	121,823	$	120,431	1.2	%
Liabilities	$	93,095	$	91,962	1.2	%
Equity	$	28,728	$	28,470	0.9	%

*  The following Results of Continuing Operations discussion does not include the hard disk drive (HDD) business that the company sold to Hitachi, Ltd. on December 31, 2002. The HDD business was accounted for as a discontinued operation under generally accepted accounting principles. There were no losses for the three-month periods ended March 31, 2008 and 2007.

** 3.9 percent adjusted for currency

Within the Management Discussion, selected references to “adjusted for currency” or “at constant currency” are made so that the financial results and other performance metrics can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of the company’s business performance.

Total revenue increased 11.2 percent as reported, 4 percent adjusted for currency, versus the first quarter of 2007. Pre-tax income from continuing operations was $3,197 million, up 24.0 percent versus the first quarter of 2007. Diluted earnings per share from continuing operations was $1.65 versus $1.21, a 36.4 percent improvement year-to-year.

The company delivered strong financial results in the first quarter by capitalizing on its ability to deliver specific value propositions and solutions to its clients worldwide. Growth remained strong in the emerging growth markets, as the company continues its focus on building out the IT infrastructures in these countries. The company’s performance in the period benefited from its balanced and stable operating model – a significant annuity business which drives about half of the company’s revenue and reduces its dependency on high-volume transactions; a continued focus on cost and expense management which has resulted in gross margin expansion in 14 of the last 15 quarters; and, a disciplined approach to aligning investments to growth opportunities.

The increase in revenue was driven by strong double digit growth in the Global Services segments. Global Technology Services revenue increased 17.2 percent, while Global Business Services revenue improved by 17.4 percent versus the first quarter of 2007.  Software segment revenue increased 14.0 percent led by branded middleware. The acquisition of Cognos contributed approximately 1 point to the company’s revenue growth in the quarter. These increases were partially offset by lower revenue from Systems and Technology of 6.7 percent primarily driven by weaker performance in Microelectronics OEM and System x, partially offset by the successful launch of the new z10 mainframe and revenue growth in Storage and System p midrange servers. Global Financing revenue increased 3.0 percent reflecting an improvement in financing revenue offset by a decline in used equipment sales.

19

The gross profit margin was 41.5 percent, an increase of 1.2 points, primarily due to improved margins in Global Technology Services (0.6 points of the increase) and improved margins and revenue mix in Systems and Technology (0.6 points of the increase).

Total expense and other income increased 10.8 percent (5 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007. Overall, the increase was driven by approximately 6 points due to the effects of currency, 4 points due to acquisitions and 2 points from additional interest expense associated with the 2007 accelerated share repurchase with other operational expenses down slightly versus the prior year.

The company’s effective tax rate for the first three months of 2008 was 27.5 percent versus 28.5 percent in the first three months of 2007.

Total assets increased $1,392 million (decreased $1,450 million adjusted for currency) from December 31, 2007, primarily due to increased goodwill ($4,339 million) and intangible assets ($1,015 million) due to the Cognos acquisition, increased prepaid pension assets ($1,043 million) and prepaid expenses ($565 million), partially offset by lower cash and cash equivalents ($4,205 million), also due to the Cognos acquisition, and lower financing receivables ($1,690 million). The company had $12,027 million in cash and marketable securities at March 31, 2008.

Total liabilities increased $1,134 million (decreased $1,305 million adjusted for currency) from December 31, 2007, primarily due to deferred income ($1,451 million), retirement and nonpension postretirement benefit obligations ($680 million), and other accruals ($829 million), partially offset by lower compensation and benefits ($826 million), accounts payable ($725 million) and taxes ($640 million).

Stockholders’ equity of $28,728 million increased $258 million from December 31, 2007, primarily due to higher retained earnings ($1,737 million) and common stock ($1,064 million), partially offset by increased treasury stock  ($2,675 million).

The company generated $4,202 million in cash flow provided by operating activities, an increase of $1,186 million, compared to the first quarter of 2007, primarily driven by increased net income ($475 million) and changes in operating assets and liabilities ($408 million). Net cash used in investing activities of $5,778 million was $3,360 million higher than the first quarter of 2007, primarily due to the Cognos acquisition. Net cash used in financing activities of $2,796 million was $1,079 million higher, primarily due to an increase in net payments associated with debt ($2,012 million), partially offset by lower payments to repurchase common stock ($970 million) in the first quarter of 2008 versus the first quarter of 2007.

Global Services signings were $12,611 million, an increase of 6 percent year to year ($10,830 million, down 2 percent, adjusted for currency). The estimated Global Services backlog, at constant currency, ended at $118 billion, flat versus the December 31, 2007 balance and $2 billion higher compared to the March 31, 2007 balance.

20

Quarter in Review

Results of Continuing Operations

Segment Details

The following is an analysis of the first quarter 2008 versus first quarter 2007 reportable segment external revenue and gross margin results.

(Dollars in millions) For the three months ended March 31:	2008			2007			Yr. to Yr. Percent/Margin Change		Yr. to Yr. Percent Change Adjusting for Currency
Revenue:
Global Technology Services	$	9,677		$	8,258		17.2	%	9.1	%
Gross margin	31.3		%	29.2		%	2.2	pts.
Global Business Services	4,911			4,183			17.4	%	8.8	%
Gross margin	25.0		%	23.8		%	1.2	pts.
Systems and Technology	4,219			4,520			(6.7	)%	(11.7	)%
Gross margin	37.0		%	34.8		%	2.2	pts.
Software	4,847			4,251			14.0	%	6.5	%
Gross margin	83.9		%	83.6		%	0.3	pts.
Global Financing	633			614			3.0	%	(3.4	)%
Gross margin	50.8		%	50.9		%	(0.1	)pts.
Other	216			203			6.2	%	4.2	%
Gross margin	(19.9		)%	12.0		%	(31.9	)pts.
Total revenue	$	24,502		$	22,029		11.2	%	3.9	%
Gross profit	$	10,166		$	8,866		14.7	%
Gross margin	41.5		%	40.2		%	1.2	pts.

The following table presents each reportable segment’s external revenue as a percentage of total external segment revenue.

For the three months March 31:	2008		2007
Global Technology Services	39.8	%	37.8	%
Global Business Services	20.2		19.2
Total Global Services	60.1		57.0
Systems and Technology	17.4		20.7
Global Financing	2.6		2.8
Total Systems and Technology/Financing	20.0		23.5
Software	20.0		19.5
Total	100.0	%	100.0	%

21

Global Services

					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended March 31:	2008		2007		Change
Global Services Revenue:	$	14,588	$	12,441	17.3	%
Global Technology Services:	$	9,677	$	8,258	17.2	%
Strategic Outsourcing	5,011		4,335		15.6
Integrated Technology Services	2,187		1,899		15.2
Maintenance	1,825		1,534		18.9
Business Transformation Outsourcing	654		489		33.6
Global Business Services	$	4,911	$	4,183	17.4	%

The company’s Global Services segments, Global Technology Services and Global Business Services had combined revenue of $14,588 million, an increase of 17.3 percent (9 percent adjusted for currency) in the first quarter of 2008 compared to the first quarter of 2007.  Performance was broad based with double-digit growth in all lines of businesses and across all geographies, driven by the strength of the annuity base and a portfolio of offerings that are driving cost savings and value for clients. In the first-quarter 2008, total Global Services signings increased 6 percent year to year to $12,611 million ($10,830 million adjusted for currency, down 2 percent). Short-term signings were $6,465 million, an increase of 13 percent year to year (6 percent adjusted for currency). Long-term signings were $6,146 million, flat year to year (decreased 10 percent adjusted for currency). The Global Services segments delivered combined pre-tax profit of $1,567 million, an improvement of 36.2 percent versus the first quarter of 2007.

In the first quarter, in addition to reporting Global Services signings at constant currency, the company is presenting signings as reported, or at actual rates. The company believes that presenting signings at actual rates may provide investors with a better view of how these signings will convert to services revenue, particularly for the shorter-term businesses within the Global Services segments. In addition, reporting signings at actual rates will provide better comparability to other companies in the industry who report signings using actual rates.

Global Technology Services (GTS) revenue increased 17.2 percent (9 percent adjusted for currency) versus the first quarter of 2007. GTS delivered double-digit revenue growth across all business lines and geographies. Total signings in GTS increased 2 percent (decreased 7 percent adjusted for currency) in the first quarter of 2008, with long-term signings decreasing 2 percent (12 percent adjusted for currency) while short-term signings increased 11 percent (4 percent adjusted for currency).

Strategic Outsourcing (SO) revenue was up 15.6 percent (7 percent adjusted for currency) in the first quarter of 2008 versus the same period in 2007. This is the largest annuity component of the services business.  Revenue growth was driven by a strong backlog, good prior year signings and continued base account growth. SO signings in the first quarter of 2008 increased 1 percent (decreased 9 percent adjusted for currency) when compared to the first quarter of 2007.

Integrated Technology Services (ITS) revenue increased 15.2 percent (7 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007. Revenue growth was driven primarily by the key infrastructure offerings. ITS signings in the first quarter increased 11 percent (4 percent adjusted for currency) year to year.

Maintenance revenue increased 18.9 percent (11 percent adjusted for currency) in the quarter, driven primarily by maintenance services on non-IBM IT equipment. Services provided to Ricoh InfoPrint Solutions, following the divestiture of the printer business in the second quarter of 2007, contributed 7 points of growth in the quarter.  These services will transition to Ricoh in the second quarter of 2008.

Business Transformation Outsourcing (BTO) revenue was up 33.6 percent (28 percent adjusted for currency) year to year with double-digit growth in all geographies. BTO signings, which can vary significantly period-to-period, declined 22 percent (27 percent adjusted for currency) in the first quarter.

Global Business Services (GBS) revenue increased 17.4 percent (9 percent adjusted for currency) in the first quarter of 2008 compared with the prior year, with double-digit growth in all geographies and all sectors. The Application Management Services and Core Consulting businesses both had strong revenue performance in the quarter.  All consulting services lines, which include Financial Management Services, Human Capital Management, CRM, Supply Chain and Strategy and Change,

22

grew revenue in the quarter. Total signings in GBS increased 12 percent (6 percent adjusted for currency) in the first quarter of 2008. Short-term signings increased 14 percent (7 percent adjusted for currency) to $4,147 million. Long-term signings increased 7 percent (decreased 1 percent adjusted for currency).  Within GBS, clients are motivated by projects with shorter-term paybacks yielding solid economic returns. Signings were driven by clients globalizing and integrating their businesses, creating shared services and centers of excellence, innovating in new markets and replacing legacy systems.

									Yr. To Yr.
									Percent/
(Dollars in millions)									Margin
For the three months ended March 31:	2008				2007				Change
Global Services gross profit:
Global Technology Services:
Gross profit	$	3,032			$	2,407			25.9	%
Gross profit margin	31.3			%	29.2			%	2.2	pts.
Global Business Services:
Gross profit	$		1,228		$		997		23.2	%
Gross profit margin	25.0			%	23.8			%	1.2	pts

GTS gross profit increased 25.9 percent compared to the first quarter of 2007, with gross profit margin improving 2.2 points, driven primarily by strong profit growth in the SO and ITS business lines. Segment pre-tax profit increased 45.1 percent to $1.0 billion with a pre-tax margin of 9.8 percent, an increase of 2.0 points versus the first quarter of 2007. The margin expansion was driven by improved productivity and an improved cost structure in Strategic Outsourcing, a mix to higher value offerings in ITS and lower retirement-related costs year-to-year.

GBS gross profit increased 23.2 percent year to year and the gross profit margin improved 1.2 points to 25.0 percent. Segment pre-tax profit increased 23.4 percent to $0.6 billion with a pre-tax margin of 11.2 percent, an improvement of 0.7 points versus the first quarter of 2007. The margin improvement was driven primarily by effective contract management, increased utilization and lower retirement-related costs.

Global Services Signings

	For the Three Months Ended
(At Actual Currency Rates)	March 31,
(Dollars in millions)	2008		2007
Global Technology Services Signings:
Long term	$	5,162	$	5,248
Short term	2,318		2,091
Total	$	7,480	$	7,339
Global Business Services Signings:
Long term	$	984	$	917
Short term	4,147		3,645
Total	$	5,131	$	4,562

	For the Three Months Ended
(At Constant Currency)	March 31,
(Dollars in millions)	2008		2007
Global Technology Services Signings:
Long term	$	4,355	$	4,924
Short term	1,997		1,921
Total	$	6,351	$	6,845
Global Business Services Signings:
Long term	$	895	$	905
Short term	3,584		3,334
Total	$	4,479	$	4,239

23

Global Services signings are management’s initial estimate of the value of a client’s commitment under a Global Services contract. Signings are used by management to assess period performance of Global Services management. There are no third-party standards or requirements governing the calculation of signings. The calculation used by management includes an approximation of currency and involves estimates and judgments to gauge the extent of a client’s commitment, including the type and duration of the agreement, and the presence of termination charges or wind-down costs. For example, for long-term contracts that require significant up-front investment by the company, the portions of these contracts that are a signing are those periods in which there is a significant economic impact on the client if the commitment is not achieved, usually through a termination charge or the client incurring significant wind-down costs as a result of the termination. For short-term contracts that do not require significant upfront investments, a signing is usually equal to the full contract value. Long-term contracts represent SO and BTO contracts as well as GBS contracts with the U.S. Federal government and its agencies and Application Management Services (AMS) for custom and legacy applications. Short-term contracts represent the remaining GBS offerings of Consulting and Systems Integration, AMS for packaged applications and ITS contracts.

Signings include SO, BTO, ITS and GBS contracts. Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Maintenance is not included in signings as maintenance contracts tend to be more steady state, where revenues equal renewals.

Backlog includes SO, BTO, ITS, GBS, and Maintenance. Backlog is intended to be a statement of overall work under contract and therefore does include Maintenance. Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue not materialized and currency assumptions used to approximate constant currency.

Contract portfolios purchased in an acquisition are treated as positive backlog adjustments provided those contracts meet the company’s requirements for initial signings. A new signing will be recognized if a new services agreement is signed incidental or coincidental to an acquisition or divestiture.

Systems and Technology

					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended March 31:	2008		2007		Change
Systems and Technology Revenue:	$	4,219	$	4,520	(6.7	)%
System z					10.2	%
System p					1.8
System i					(20.7	)
System x					(1.7	)
Storage					9.6
Retail Store Solutions					(3.3	)
Total Systems					2.2
Microelectronics OEM					(19.5	)
Printing Systems					nm

nm – not meaningful

Systems and Technology revenue decreased 6.7 percent (12 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007. Systems and Technology revenue, excluding the divested printing business, decreased 1.6 percent (7 percent adjusted for currency).

System z revenue increased 10.2 percent (2 percent adjusted for currency) in the first quarter versus the prior year, while MIPS (millions of instructions per second) volumes grew 14 percent year-to-year. These increases were primarily driven by the successful introduction, in late February, of the new z10 enterprise class server. The z10 server has up to 70 percent more total capacity and a 100 percent performance improvement on CPU-intensive workloads, which enables large scale consolidations and unmatched utilization.

System p revenue increased 1.8 percent (down 3 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007. The increase in revenue was primarily driven by strong performance in the POWER6 based midrange

24

offerings (approximately 60 percent growth), partially offset by a decline in high-end System p offerings, as clients await the new POWER6 products which were announced on April 8, 2008. The technology innovation and virtualization capability of the POWER6 products provide clients with improved energy and space efficency and enables substantial consolidation of under-utilized servers.

System i revenue decreased 20.7 percent (27 percent adjusted for currency) in the first quarter of 2008 compared to the first quarter of 2007. In April, the company introduced a unified POWER platform which utilizes the same hardware for both System i and System p. This will provide System i clients full access to the entire line of POWER-based systems including new blade offerings.

System x revenue decreased 1.7 percent (8 percent adjusted for currency) in the first quarter of 2008 versus the prior year. System x server revenue was flat, with high-end server revenue increasing 13 percent, offset by a decrease in low-end servers. Blades revenue remained strong, increasing 31 percent versus the first quarter of 2007.

Storage revenue increased 9.6 percent (3 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007. Total disk revenue increased 6 percent primarily due to double-digit growth in Enterprise Disk, driven by the  continued strength of the DS8000, which had revenue growth of 17 percent in the quarter. Tape revenue increased 18 percent reflecting the value in total cost of ownership, power consumption and data protection offered by the brand’s tape solutions.

Microelectronics OEM revenue decreased 19.5 percent (20 percent adjusted for currency) in the first quarter of 2008 compared to the first quarter of 2007. The primary mission of this business is to provide leadership technology for the systems business, as demonstrated this quarter in the new z10 mainframe and POWER6 systems.

Retail Stores Solutions revenue decreased 3.3 percent (9 percent adjusted for currency) versus the first quarter of 2007, while Printing Systems revenue decreased as a result of the divestiture of the business in the second quarter of 2007.

							Yr. to Yr.
							Percent/
(Dollars in millions)							Margin
For the three months ended March 31:	2008			2007			Change
Systems and Technology gross profit:
Gross profit	$	1,562		$	1,572		(0.6	)%
Gross profit margin	37.0		%	34.8		%	2.2	pts.

Overall gross margin increased 2.2 points versus 2007. Margin improvements in System p, System x, Storage and Retail Stores Solutions contributed 1.2, 0.8, 0.8 and 0.2 points, respectively, to the overall margin improvement. These improvements were partially offset by lower margins in System z, System i and Microelectronics which impacted the overall margin by 0.1, 0.3 and 0.8 points, respectively.

Systems and Technology pre-tax margin improved 1.3 points to 3.3 percent in the first quarter of 2008, with pre-tax profit increasing 51 percent, reflecting the improvements in gross margin.

25

Software

					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended March 31:	2008		2007*		Change
Software Revenue:	$	4,847	$	4,251	14.0	%
Middleware:	$	3,751	$	3,246	15.5	%
Key Branded Middleware:	2,586		2,166		19.4
WebSphere Family					20.1
Information Management					27.1
Lotus					16.5
Tivoli					9.5
Rational					3.2
Other middleware	1,164		1,080		7.8
Operating systems	529		522		1.4
Product Lifecycle Management	248		251		(1.1	)
Other	318		232		37.2

* Reclassified to conform with 2008 presentation.

Software segment revenue of $4,847 million increased 14.0 percent (6 percent adjusted for currency) in the first quarter of 2008 reflecting continued strong demand for the Key Branded Middleware products and contribution from the Cognos acquisition.

Revenue from Key Branded Middleware increased 19.4 percent (12 percent adjusted for currency) in the first quarter of 2008 and increased 2 points year to year to 53 percent of total Software segment revenue. The company has invested heavily in these products through internal investments and targeted acquisitions, and expects the majority of its software revenue growth to come from this portion of the software portfolio.  Demand for the branded middleware products reflects customers continued investments in IT software to improve their business operations, drive cost savings, manage complex regulatory demands and address their strategic priorities.

Revenue from the WebSphere Family of products increased 20.1 percent (12 percent adjusted for currency) in the first quarter of 2008. Performance was led by double-digit growth in WebSphere Application Servers and WebSphere Integration software. WebSphere Integration software allows customers to integrate disparate systems for improved business efficiency.

Information Management revenue increased 27.1 percent (19 percent adjusted for currency) in the first quarter of 2008 when compared to the first quarter of 2007. The Cognos acquisition contributed the majority of the revenue growth in the brand. Cognos’ performance management solution helps customers improve decision-making across the enterprise to optimize business performance.  The company also completed the acquisition of Solid Information Technology, a provider of real-time data access software, in the quarter.

Lotus revenue increased 16.5 percent (8 percent adjusted for currency) in the first quarter of 2008, the fourteenth consecutive quarter of growth. Customers continued to invest in their strategic priorities, using Lotus Collaboration and Social Networking software, to increase productivity across their local and global teams. The company completed the acquisition of Net Integration Technologies Inc., a provider of business server software solutions for small and medium-sized businesses, in the quarter.

Tivoli revenue increased 9.5 percent (3 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007. Revenue growth was led by Tivoli Security and Storage Management products. These products provide clients with solutions for complex regulatory demands. They provide secure access to key data and applications, as well as consistent data retention across the enterprise.

Rational revenue increased 3.2 percent (decreased 4 percent adjusted for currency) in the first quarter. The company completed the acquisition of Telelogic on April 3, 2008.  Telelogic’s suite of system programming tools complements Rational’s IT tool set, providing a complete tooling solution across a client’s enterprise.

26

Other middleware and Operating systems products revenue increased 7.8 percent (1 percent adjusted for currency) and 1.4 percent (decreased 5 percent adjusted for currency), respectively, in the first quarter of 2008 when compared to the same period of 2007.  These product sets include more mature products which provide a more stable flow of revenue.

Product Life Cycle Management (PLM) revenue decreased 1.1 percent (11 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007.

Other software segment revenue increased 37.2 percent (29 percent adjusted for currency) in the first quarter of 2008 when compared to the first quarter of 2007 reflecting growth in software-related services, such as consulting and education.

(Dollars in millions) For the three months ended March 31:	2008			2007			Yr. to Yr. Percent/ Margin Change
Software gross profit:
Gross profit	$	4,066		$	3,553		14.5	%
Gross profit margin	83.9		%	83.6		%	0.3	pts.

Software segment gross profit increased 14.5 percent to $4.1 billion, driven primarily by revenue growth and good cost management. Gross profit margin was 83.9 percent, an increase of 0.3 points versus the first quarter of 2007.

The Software segment contributed $1.3 billion of pre-tax profit in the first quarter of 2008, an increase of 22.3 percent versus the same period in 2007. The segment pre-tax profit margin of 23.0 percent was up 1.6 points, driven by the revenue growth and effective cost and expense management, offsetting the increased acquisition costs related to Cognos.

Global Financing

See pages 38 to 43 for an analysis of the Global Financing segment.

Geographic Revenue

In addition to the revenue presentation by reportable segment, the company also measures revenue performance on a geographic basis. The following geographic, regional and country-specific revenue performance excludes OEM revenue, which is presented separately.

(Dollars in millions) For the three months ended March 31:	2008		2007		Yr.to Yr. Percent Change
Geographies:
Americas	$	9,923	$	9,146	8.5	%
Europe/Middle East/Africa	8,775		7,582		15.7
Asia Pacific	5,107		4,472		14.2
OEM	696		828		(16.0	)
Total	$	24,502	$	22,029	11.2	%

Revenue increased in all geographies in the first quarter of 2008 when compared to the first quarter of 2007. Adjusted for currency, revenue growth was led by the Americas and the emerging market countries.

Americas revenue increased 8.5 percent (6 percent adjusted for currency) in the quarter. U.S. revenue increased 6.5 percent, driven by annuity-based businesses and double-digit growth (14 percent) in System z revenue driven by the introduction of the z10 mainframe. In addition, U.S. revenue in the Financial Services sector returned to growth in the quarter.  Latin America revenue increased 19.2 percent (6 percent adjusted for currency) and Canada revenue increased 16.3 percent (flat adjusted for currency).

Europe/Middle East/Africa (EMEA) revenue increased 15.7 percent (4 percent adjusted for currency) in the first quarter of 2008 when compared to the first quarter of 2007. Adjusted for currency, the rate of growth was consistent with performance over the past several quarters and reflects a moderate IT spending environment. In the major countries, U.K. revenue increased 4.8 percent (3 percent adjusted for currency), Spain revenue increased 23.5 percent (8 percent adjusted for currency) and Italy revenue increased 15.7 percent (1 percent adjusted for currency). France revenue increased 13.8 percent

27

(decreased 1 percent adjusted for currency) and Germany revenue increased 11.7 percent (decreased 3 percent adjusted for currency).

Asia Pacific revenue increased 14.2 percent (3 percent adjusted for currency) in the first quarter of 2008 versus the prior year first quarter.  Growth was led by the India, Greater China, Australia/New Zealand, Korea and ASEAN regions, where the economies and IT markets continue to expand, with combined revenue growth of 17.9 percent (10 percent adjusted for currency). Japan revenue increased 10.8 percent (decreased 3 percent adjusted for currency) in the quarter.

Across the geographies, aggregate revenue from the countries comprising the company’s new growth markets unit increased 18.7 percent (11 percent adjusted for currency) in the first quarter of 2008 and represented approximately 17 percent of the company’s total revenue.  These growth markets have economies and IT markets that are growing rapidly, with clients who are building out infrastructures and creating unique business models that address scarce resources and rapid business expansion.  The BRIC countries of Brazil, Russia, India and China together grew 26.5 percent (14 percent adjusted for currency). Brazil revenue increased 26.7 percent (4 percent adjusted for currency) while Russia revenue increased 38.4 percent (38 percent adjusted for currency).  India revenue increased 43.0 percent (30 percent adjusted for currency) and China revenue increased 17.6 percent (11 percent adjusted for currency).

OEM revenue decreased 16.0 percent (16 percent adjusted for currency) in the quarter driven by reduced demand in the Microelectronics OEM business.

Expense

Total expense and other income increased 10.8 percent (5 percent adjusted for currency) for the first quarter of 2008 versus the first quarter of 2007. Overall, the increase was due to approximately 6 points driven by the effects of currency, approximately 4 points due to acquisitions and  2 points from additional interest expense associated with the financing of the accelerated share repurchase in 2007, with other operational expense decreasing year to year. The expense-to-revenue ratio declined 0.1 points to 28.4 percent in the first quarter 2008 versus the first quarter of 2007.

For additional information regarding Total expense and other income, see the following analyses by category.

Selling, general and administrative expense

(Dollars in millions)  For the three months ended March 31:	2008		2007*			Yr. To Yr. Percent Change
Selling, general and administrative expense:
Selling, general and administrative – base	$	4,936	$	4,421		11.7	%
Advertising and promotional expense	296		292			1.4
Workforce reductions – ongoing	87		55			58.8
Amortization expense – acquired intangibles	69		59			17.9
Retirement-related expense	103		152			(32.2	)
Stock-based compensation	127		112			14.1
Bad debt expense	1		(2		)	nm
Total	$	5,620	$	5,089		10.4	%

*Reclassified to conform with 2008 presentation.

nm – not meaningful

Total Selling, general and administrative (SG&A) expense increased 10.4 percent (4 percent adjusted for currency) in the first quarter of 2008 versus the first quarter of 2007. The increase was driven by the company’s investment in acquisitions, predominantly Cognos, which accounted for approximately 4 points of the increase. In addition, approximately 6 points of the increase was due to the impact of currency.

28

Other (income) and expense

(Dollars in millions) For the three months ended March 31:	2008			2007*			Yr. to Yr. Percent Change
Other (income) and expense:
Foreign currency transaction losses /(gains)	$	195		$	(6	)	nm	%
(Gains)/losses on derivative instruments	(108		)	46			nm
Interest income	(134		)	(138		)	(2.8	)
Net gains from securities and investment assets	(57		)	(51		)	12.4
Net realized (gains)/losses from certain real estate activities	(12		)	(2		)	nm
Other	(9		)	(27		)	(67.3	)
Total	$	(125	)	$	(180	)	(30.4	)%

* Reclassified to conform with 2008 presentation.

nm – not meaningful

Other (income) and expense was income of $125 million in the first quarter 2008, versus income of $180 million in the first quarter of 2007. The decrease in income was primarily due to increased foreign currency transaction losses ($201 million year to year) partially offset by gains on derivative instruments of $154 million. The company hedges its major cross-border cash flows to mitigate the effect of currency volatility in the year-over-year results. The impact of these hedging programs is primarily reflected in Other (income) and expense, as well as cost of goods sold. The impact of losses from cash flow hedges reflected in Other (income) and expense was $109 million, an increase of $82 million year to year. In addition, net gains from securities and investment assets primarily reflects sales of Lenovo stock in both the current quarter and the first quarter of 2007. As a result of the sale, the company’s ownership in Lenovo declined from 8.8 percent at December 31, 2007 to approximately 7 percent with voting ownership at approximately 3 percent.

Research, Development and Engineering

(Dollars in millions) For the three months ended March 31:	2008		2007		Yr. to Yr. Percent Change
Research, development and engineering:
Total	$	1,569	$	1,509	4.0	%

Research, development and engineering (RD&E) expense increased 4.0 percent in the first quarter of 2008 versus the first quarter of 2007 primarily driven by acquisitions completed in the past year and currency impacts. Software spending increased $73 million partially offset by lower Systems and Technology spending of $43 million. Retirement-related expense decreased $20 million and stock-based compensation expense decreased $5 million in the first quarter of 2008 versus the first quarter of 2007.

Intellectual Property and Custom Development Income

(Dollars in millions) For the three months ended March 31:	2008		2007		Yr. to Yr. Percent Change
Intellectual Property and Custom Development Income:
Sales and other transfers of intellectual property (IP)	$	15	$	19	(18.3	)%
Licensing/royalty-based fees	132		77		70.1
Custom development income	127		109		16.6
Total	$	274	$	205	33.6	%

The timing and amount of Sales and other transfers of IP may vary significantly from period to period depending upon the timing of divestitures, economic conditions, industry consolidation and the timing of new patents and know-how development. There were no significant IP transactions in the quarter.

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Interest Expense

					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended March 31:	2008		2007		Change
Interest expense:
Total	$	178	$	73	143.7	%

The increase in interest expense was primarily due to higher debt associated with the financing of the ASR agreements in 2007, partially offset by lower interest rates. See Note 7 on page 11 for additional information. Interest expense is presented in Cost of Financing in the Consolidated Statement of Earnings only if the related external borrowings are to support the Global Financing external business. See pages 41 and 42 for additional information regarding Global Financing debt and interest expense. Overall, total interest expense for the first quarter was $384 million, an increase of $123 million year to year.

Retirement-Related Plans

The following table provides the total pre-tax cost for all retirement-related plans. Cost amounts are included as an element in the cost and expense amounts in the Consolidated Statement of Earnings within the caption (e.g., Cost, SG&A, RD&E) relating to the job function of the individuals participating in the plans.

					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended March 31:	2008		2007		Change
Retirement-related plans – cost:
Defined benefit and contribution pension plans – cost	$	361	$	540	(33.1	)%
Nonpension postretirement plans – cost	95		103		(7.8	)
Total	$	456	$	643	(29.1	)%

Included in the amounts above, the company had income of $100 million and incurred cost of $313 million associated with its defined benefit pension plans for the quarters ended March 31, 2008 and 2007, respectively. The decrease in cost was primarily driven by benefit accruals no longer being recorded for the IBM Personal Pension Plan, effective January 1, 2008, as well as by lower cost due to amortization of prior years’ actual return on assets exceeding expected return on assets and lower cost due to recognized actuarial losses.  This decrease in cost was partially offset by an increase in the cost of defined contribution plans ($234 million). This increase in cost was primarily driven by pension redesign efforts, primarily in the IBM Savings Plan in the U.S., effective January 1, 2008. See Note U, “Retirement-Related Benefits,” in the company’s 2007 Annual Report for additional information on these plan changes. The net year-to-year decrease in cost impacted gross profit, SG&A expense and RD&E expense by approximately $117 million, $49 million and $20 million, respectively.

Acquired Intangible Asset Amortization

The company has been investing in targeted acquisitions primarily within the Software and Global Services segments to increase its capabilities in higher value market segments. The following table presents the total acquired intangible asset amortization by reportable segment included in the referenced category in the Consolidated Statement of Earnings.

					Yr. to Yr.
(Dollars in millions)					Percent
For the three months ended March 31:	2008		2007		Change
Cost :
Software (Sales)	$	38	$	24	58.3	%
Global Technology Services (Services)	8		10		(22.4	)
Selling, general and administrative	69		59		17.9
Total	$	115	$	94	22.8	%

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Taxes

The effective tax rate for the first three months of 2008 was 27.5 percent versus an effective tax rate of 28.5 percent for the first three months of 2007. The decline in the rate was due to a more favorable mix of income in lower tax jurisdictions and an increased benefit from utilization of foreign tax credits associated with foreign dividend repatriation, offset by a

reduction in the U.S. research tax credit which expired in December 2007.

With limited exception, the company is no longer subject to U.S. federal, state and local or non-U.S. income tax audits by taxing authorities for years through 2001. The years subsequent to 2001 contain matters that could be subject to differing interpretations of applicable tax laws and regulations as it relates to the amount and/or timing of income, deductions and tax credits. Although the outcome of tax audits is always uncertain, the company believes that adequate amounts of tax and interest have been provided for any adjustments that are expected to result for these years.

The amount of unrecognized tax benefits at December 31, 2007 determined in accordance with FASB Interpretation No.48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109", increased by $288 million in the first quarter to $3,382 million. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $2,735 million at March 31, 2008.

The Internal Revenue Service (IRS) commenced its audit of the company’s U.S. tax returns for 2004 and 2005 in the first quarter of 2007. The company anticipates that this audit will be completed by the end of 2008.

The company has certain foreign tax loss carryforwards that have not been reflected in the gross deferred tax asset balance. These losses, the potential tax benefit of which is approximately $1.1 billion, have not been recorded in the Consolidated Statement of Financial Position as the company has not determined if it will claim these losses. The company is currently evaluating whether to claim these losses and expects to make a decision within the next 12 months.

See the 2007 IBM Annual Report, Note O, “Taxes,” for additional information.

Earnings Per Share

Basic earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period.  Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.  Dilutive potential common shares include outstanding stock options, stock awards and convertible notes.

					Yr. To Yr.
					Percent
For the three months ended March 31:	2008		2007		Change
Earnings per share from continuing operations:
Assuming dilution	$	1.65	$	1.21	36.4	%
Basic	$	1.68	$	1.23	36.6	%
Weighted-average shares outstanding: (in millions)
Assuming dilution	1,404.3		1,522.8		(7.8	)%
Basic	1,383.0		1,499.5		(7.8	)%

Actual shares outstanding at March 31, 2008 was 1,373.5 million. The weighted-average number of common shares outstanding assuming dilution was lower by 118.5 million in the first quarter of 2008 compared to the first quarter of 2007, primarily as a result of the company’s common share repurchase program.

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Financial Position

Dynamics

The assets and debt associated with the Global Financing business are a significant part of the company’s financial position. The financial position amounts appearing on pages 3 and 4 are the consolidated amounts including Global Financing. The amounts appearing in the separate Global Financing section, beginning on page 38,  are supplementary data presented to facilitate an understanding of the Global Financing business.

Working Capital

	At March 31,		At December 31,
(Dollars in millions)	2008		2007
Current assets	$	48,425	$	53,177
Current liabilities	47,048		44,310
Working capital	$	1,377	$	8,867
Current ratio	1.03:1		1.20:1

Working capital decreased $7,490 million compared to the year-end 2007 position primarily as a result of a decrease in current assets. The key drivers are described below:

Current assets decreased $4,752 million, including a currency benefit of $1,355 million, due to:

·A decrease of $4,119 million in cash and cash equivalents and marketable securities including a $176 million currency benefit (see cash flow analysis on page 33); and

·A decline of $1,896 million in short-term receivables driven by:

·a decrease of $2,934 million due to collections of higher year-end balances, offset by

·approximately $1,038 million currency impact.

·An increase of $565 million in prepaid expenses and other current assets primarily resulting from:

·an increase of $448 million in derivative assets primarily due to changes in foreign currency rates; and

·approximately $77 million currency impact.

·An increase of $384 million in deferred taxes primarily due to an increase in tax deductions expected to be realized within the next 12 months.

·Growth of $313 million in inventory primarily driven by the manufacturing ramp to support the new Systems and Technology z10 mainframe and POWER6 product announcements.

Current liabilities increased $2,738 million, including a $961 million impact from currency, as a result of:

·An increase in short-term debt of $3,000 million driven by the reclass from long-term debt to short-term debt to reflect debt maturity dates, offset by reductions in commercial paper;

·An increase in deferred income of $1,277 million driven by Software ($722 million) and Global Technology Services ($482 million) which includes $397 million due to currency;

·An increase of $652 million in other accrued expenses and liabilities primarily driven by increased derivative liabilities due to changes in foreign currency rates;

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·      A decrease in accounts payable of $725 million (including a currency impact of $204 million) and a decrease of $826 million (including a currency impact of $138 million) in compensation and benefits reflecting declines from typically higher year-end balances; and

·      A decrease of $640 million in taxes payable primarily due to income tax payments in the first quarter of 2008.

Cash Flow

The company’s cash flow from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows on page 5, is summarized in the table below. These amounts include the cash flows associated with the Global Financing business.

	For the Three Months Ended March 31,
(Dollars in millions)	2008			2007
Net cash provided by/(used in) continuing operations:
Operating activities	$	4,202		$	3,016
Investing activities	(5,778		)	(2,418		)
Financing activities	(2,796		)	(1,717		)
Effect of exchange rate changes on cash and cash equivalents	168			52
Net cash used in discontinued operations	—			(3		)
Net change in cash and cash equivalents	$	(4,205	)	$	(1,070	)

Net cash from operating activities increased $1,186 million as compared to the first quarter of 2007 driven by the following key factors:

·Increase in net income of $475 million;

·An increase in cash provided by accounts receivable of $681 million due to:

·Trade accounts receivable of $351 million driven by improved collections in the first quarter of higher 2007 year-end balances;

·Financing receivables of $330 million primarily resulting from maturities of customer loans exceeding originations due to higher 2007 year-end balances;

·Lower retirement-related plan funding of $506 million ($147 million in 2008 for non-U.S. plans versus $653 million in 2007: $500 million in the U.S. for retiree medical and $153 million funding for non-U.S. plans); partially offset by

·A decrease in cash of $325 million driven by a decrease in tax liabilities due to higher tax payments in the first quarter of 2008.

Net cash used in investing activities increased $3,360 million driven by:

·An increase of $4,756 million in acquisitions primarily driven by the acquisition of Cognos; partially offset by

·The net impact of the purchases and sales of marketable securities and other investments which resulted in an increase in cash of $1,446 million;

Net cash used in financing activities increased $1,079 million as a result of:

·      Increase of $2,012 million in net cash payments to settle debt; partially offset by,

·      Lower common stock repurchases of $970 million.

33

Noncurrent Assets and Liabilities

	At March 31,		At December 31,
(Dollars in millions)	2008		2007
Noncurrent assets	$	73,398	$	67,254
Long-term debt	19,951		23,039
Noncurrent liabilities (excluding debt)	26,096		24,612

The increase in noncurrent assets of $6,144 million was driven by:

·      An increase of $4,339 million in goodwill and an increase of $1,015 million in intangible assets - net was primarily driven by the acquisition of Cognos; and

·      An increase of $1,043 million ($463 million due to currency) in prepaid pension assets.

Long-term debt decreased $3,088 million primarily due to a reclass to short-term debt as certain instruments approach maturity.

Other noncurrent liabilities, excluding debt, increased $1,484 million primarily driven by:

·      An increase in retirement and nonpension benefit obligations of $680 million primarily due to changes in foreign currency rates;

·      An increase of $312 million in income tax reserves reflecting current year additions related to unrecognized tax benefits;

·      An increase of $175 million in noncurrent deferred income driven primarily by Global Technology Services; and

·      An increase in noncurrent derivative liabilities of $112 million primarily resulting from changes in foreign currency rates.

Debt

The company’s funding requirements are continually monitored and strategies are executed to manage the overall asset and liability profile. Additionally, the company maintains sufficient flexibility to access global funding sources as needed.

	At March 31,		At December 31,
(Dollars in millions)	2008		2007
Total company debt	$	35,186	$	35,274
Total Global Financing segment debt	$	26,237	$	24,532
Debt to support external clients	22,349		21,072
Debt to support internal clients	3,888		3,460

Global Financing provides funding predominantly for the company’s external client assets as well as for assets under contract by other IBM units. These assets, primarily for Global Services, generate long-term, stable revenue streams similar to the Global Financing asset portfolio. Based on their nature, these Global Services assets are leveraged with the balance of the Global Financing asset base. The debt analysis above is further detailed in the Global Financing section on pages 41 and 42.

In January, IBM International Group Capital LLC, an indirect, wholly-owned subsidiary of the company, issued $3.5 billion of 18 month floating rate notes. The proceeds were used to reduce the 364-day bridge loan associated with the 2007 ASR. As of March 31, 2008, the bridge loan was fully paid off.

Non-global financing debt decreased $1,793 million and the debt-to-capitalization ratio decreased to 26.4 percent from 30.0 percent at December 31, 2007. The company’s long-term debt-to-capitalization ratio objective is 20 to 30 percent. This ratio can vary from period to period as the company manages its global cash and debt positions.

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Equity

Stockholders’ equity increased $258 million primarily as a result of an increase in retained earnings of $1,737 million driven by net income, partially offset by a decrease in net stock transactions of $1,611 million.

Looking Forward

The following key drivers impacting IBM’s business are described in more detail in the 2007 IBM Annual Report on page 22.

·Economic environment and corporate spending budgets

·Internal business transformation and global integration initiatives

·Innovation initiatives

·Open standards

·Investing in growth opportunities

The company has a significant global presence, operating in 170 countries, with approximately 63 percent of its 2007 revenue and 65 percent of its first quarter 2008 revenue generated outside the U. S. In addition, approximately 69 percent of the company’s employees are located outside the United States, including about 35 percent in Asia Pacific. This global reach gives the company access to markets, with well-established organizations and management systems who understand the clients and their challenges and who can respond to these opportunities with value-add solutions. The company’s transformation to a globally integrated enterprise provides the capabilities to service clients globally and deliver the best skills and cost from anywhere in the world.

In May 2007, the company met with investors and analysts and discussed a road map to deliver earnings per share in 2010 in the range of $10 to $11 per share, or 14 to 16 percent compound growth rate from 2006. The company’s 2010 road map is to generate earnings per share growth through a combination of revenue growth, margin improvement, growth initiatives, acquisitions, the current projected benefit of retirement-related cost and effective capital deployment to fund growth and provide returns to shareholders through dividends and common stock repurchases. In March 2008, the company met again with investors and analysts and discussed the progress the company is making on its 2010 roadmap.

The company’s performance in the first quarter highlighted the benefits of its global reach and the strength of its business model. The financial results reflected solid progress on major elements of the long-term goals, however, the company measures the success of its business model over the long term, not any individual quarter or year. The company’s strategies, investments and actions are all taken with an objective of optimizing long-term performance.

In the emerging growth markets, the company will continue to invest for revenue growth and leadership. The company is focused on identifying growth opportunities and following a disciplined investment policy to capitalize on these opportunities. Through its investments, the company has developed extensive capabilities in emerging countries to capture these growth opportunities. In 2008, the company is implementing a new organization and management structure that will increase its focus on these emerging nations and markets.

The company is a proven infrastructure provider of IT technology. The company’s broad product and services portfolio delivers value to clients — through a combination of services, hardware and software. The portfolio is focused on high-value solutions that can deliver measurable benefit to clients with offerings that can address a wide scope of client issues including: energy savings, security and resiliency, risk management and cost reduction among many others.

The company remains committed to technology leadership and will continue to focus internal investments, complemented with strategic acquisitions, on high-value, high-growth opportunities. In April, the company closed on three additional acquisitions that will expand its capabilities going forward: Telelogic, FilesX Inc. and Diligent Technologies Corporation.

The continued investments in Software have led to this segment’s emergence as a strong source of revenue growth and the largest contributor to the company’s profit in 2007. The Software business is differentiated in the industry by both the strength of its individual products and the breadth of the software offerings. The key to continued Software growth stems  from the ability to maintain and grow this industry-leading software business, and by continuing to capitalize on industry

35

trends such as SOA and Information on Demand. The company expects to accomplish this through a combination of internal development and strategic acquisitions. These products will be rapidly developed and integrated to bring continued value to clients.

Within the Global Services business, revenue and profit growth improved and the company continues to see significant results from the targeted actions and investments it has made the last few years. The Global Services business enters the second quarter with strong executional momentum and with a revenue backlog of $118 billion, an increase of $2 billion from the prior year. The portfolio is strong with a complement of offerings and capabilities that deliver both high value and productivity to clients. The overall Global Services business is well positioned going forward to take advantage of opportunities in the marketplace.

In the Systems and Technology business, the company will focus its investments on differentiating technologies with high-growth potential including POWER6, BladeCenter-S, high-performance computing, virtualization and energy efficiency. The transition to POWER6 technology will be completed in the first half of 2008. The April product announcements in System i and System p are expected to provide momentum for these brands going-forward. In addition, the new z10 enterprise class server will be available for the full second quarter. Within Storage, the company has started to integrate the recently acquired (December 2007) XIV technologies into its portfolio.

The company expects 2008 pre-tax retirement-related plan cost to be approximately $1.6 billion, a decrease of $950 million to $1 billion compared to 2007. This estimate reflects current pension plan assumptions and the impacts of pension plan redesign efforts. See the company’s 2007 Annual Report Note U, “Retirement-Related Benefits,” on page 105 for additional information.

The company expects that its effective tax rate in 2008 will be approximately 27.5 percent. This rate is lower than the 2007 tax rate of 28.1 percent due to an expectation of a more favorable mix of income in lower tax jurisdictions and an increased benefit from utilization of foreign tax credits associated with foreign dividend repatriation, offset by a reduction in the U.S. research credits which expired in December 2007. The rate will change year to year based on non-recurring events, such as the settlement of income tax audits, as well as recurring factors including the geographic mix of income before taxes, the timing and amount of foreign dividend repatriation, state and local taxes and the effects of various global income tax strategies.

In 2007 and 2006, the company’s cash tax rate was approximately 18 percent and 16 percent, respectively.

The company’s cash tax rate represents the amount of income taxes paid during the year over Income from continuing operations before income taxes. The cash tax rate differs from the company’s effective tax rate due to a number of variables including, but not limited to, certain items of income and expense that are recognized in different years for financial reporting purposes than for income tax purposes, differences in currency rates used in the translation of the non-U.S. income tax provision and income tax payments and current year cash tax payments or refunds that are related to prior years. The company anticipates that its cash tax rate may increase in the near term as a result of the settlement of audits.

Currency Rate Fluctuations

Changes in the relative values of non-U.S. currencies to the U.S. dollar affect the company’s results. At March 31, 2008, currency changes resulted in assets and liabilities denominated in local currencies being translated into more dollars than at year-end 2007. The company uses a variety of financial hedging instruments to limit specific currency risks related to financing transactions and other foreign currency-based transactions. Further discussion of currency and hedging appears in the 2007 IBM Annual Report in Note K, “Derivatives and Hedging Transactions,” on pages 88 to 91.

In the first quarter of 2008, the company earned approximately 50 percent of its pre-tax income from continuing operations in countries other than the U.S. The company maintains hedging programs to limit the volatility of currency impacts on the company’s financial results. These hedging programs limit the impact of currency changes on the company’s financial results but do not eliminate them. In addition to the translation of earnings, the impact of currency changes also may affect the company’s pricing and sourcing actions. For example, the company may procure components and supplies in multiple functional currencies and sell products and services in other currencies. Therefore, it is impractical to quantify the impact of currency on these transactions and on consolidated net income.

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Generally, the company believes that extended periods of dollar weakness are positive for net income and extended periods of dollar strength are negative, although the precise impact is difficult to assess.

For non-U.S. subsidiaries and branches that operate in U.S. dollars or whose economic environment is highly inflationary, translation adjustments are reflected in results of operations, as required by SFAS No. 52, “Foreign Currency Translation.” Generally, the company manages currency risk in these entities by linking prices and contracts to U.S. dollars and, as needed, by entering into foreign currency hedge contracts.

Liquidity and Capital Resources

In the company’s 2007 IBM Annual Report, on pages 44 to 46, there is a discussion of the company’s liquidity including two tables that present five years of data. The table presented on page 44 includes net cash from operating activities, cash and marketable securities and the size of the company’s global credit facilities for each of the past five years. For the three months ended, or as of, as applicable, March 31, 2008, those amounts are $4.2 billion for net cash from operating activities, $12.0 billion of cash and marketable securities and $10 billion in global credit facilities, respectively.

The major rating agencies’ ratings on the company’s debt securities at March 31, 2008 appear in the table below and remain unchanged from December 31, 2007. The company has no contractual arrangements that, in the event of a change in credit rating, would result in a material adverse effect on its financial position or liquidity.

	Standard and poor’s	moody’s investors service	Fitch ratings
Senior long-term debt	A+	A1	A+
Commercial paper	A-1	Prime-1	F1

The table appearing on page 45 of the 2007 Annual Report presents the format in which management reviews cash flows for each of the past five years and is accompanied by a description of the way cash flow is managed, measured and reviewed. While the company prepares its Consolidated Statement of Cash Flows in accordance with SFAS No. 95, “Statement of Cash Flows,” on page 5 of this Form 10-Q and discusses causes and events underlying sources and uses of cash in that format on page 33, the following is the management view of cash flows for the first quarter of 2008 and 2007 prepared in a manner consistent with the table on page 45 of the 2007 Annual Report:

(Dollars in millions) For the three months ended March 31:	2008			2007
Net cash from operating activities (Continuing Operations):	$	4,202		$	3,016
Less: Global Financing accounts receivable	2,397			2,067
Net cash from operating activities (Continuing Operations), excluding
Global Financing accounts receivable	1,804			949
Capital expenditures, net	(1,212		)	(1,132		)
Free cash flow (excluding Global Financing accounts receivable)	593			(183		)
Acquisitions	(4,962		)	(205		)
Divestitures	29			—
Share repurchase	(2,427		)	(3,398		)
Dividends	(554		)	(452		)
Non-Global Financing debt	(1,720		)	368
Other (includes Global Financing accounts receivable and Global Financing debt)	4,921			3,995
Change in cash, cash equivalents and short-term marketable securities	$	(4,119	)	$	125

Free cash flow for the first quarter increased $776 million versus the first quarter of 2007. The improvement year to year was driven by the increase in net income, good working capital management, particularly in accounts receivable, and lower retirement-related plan funding. There were several significant uses of cash in the quarter including the Cognos acquisition, capital investments and the reduction in non-global financing debt. Also, in the quarter, $3.0 billion was returned to shareholders through dividends and share repurchases.

In February, the company’s Board of Directors authorized $15 billion in additional funds for use in the company’s

37

common stock repurchase program. The company anticipates spending up to $12 billion on share repurchases in 2008. At March 31, 2008, the company had $13.5 billion of share repurchase authorization remaining.

At December 31, 2007, the company had liabilities of $937 million, representing the fair value of derivative investments in qualifying net investment hedge relationships. In the first quarter, the company took actions to reduce hedge levels in some currencies.  See the 2007 Annual Report, Note K, “Derivatives and Hedging Transactions,” for additional information. In the first quarter, the company had a use of cash in investing activities of $82 million related to these instruments. The company will reflect a use of cash in investing activities of $531 million and $519 million for the years 2008 and 2009, respectively, related to these liabilities.

Events that could temporarily change the historical cash flow dynamics discussed above include significant changes in operating results, material changes in geographic sources of cash, unexpected adverse impacts from litigation or future pension funding during periods of severe and prolonged downturn in the capital markets. Whether any litigation has such an adverse impact will depend on a number of variables, which are more completely described in Note 14 on pages 15 to 17 of this Form 10-Q. With respect to pension funding, the company is not quantifying any future impact from pension funding because it is not possible to predict future movements in the capital markets.

Global Financing

Global Financing is a reportable segment that is measured as if it were a standalone entity. Accordingly, the information presented in this section is consistent with this separate company view.

Results of Operations

	For the Three Months Ended March 31,
(Dollars in millions)	2008			2007
External revenue	$	633		$	614
Internal revenue	386			349
Total revenue	1,019			963
Total cost	448			427
Gross profit	$	571		$	536
Gross profit margin	56.0		%	55.7		%
Pre-tax income	$	388		$	374
After-tax income*	$	252		$	236
Return on equity*	27.8		%	28.6		%

* See page 42 for the details of the After-tax income and the Return on equity calculation.

The increase in revenue, in the first quarter of 2008, as compared to the same period in 2007, was primarily due to:

·An increase in external revenue of 3.0 percent (3 percent decline adjusted for currency), due to growth in financing revenue (up 12.3 percent to $495 million), offset by a decrease in used equipment sales (down 20.7 percent to $138 million); and

·Growth in internal revenue of 10.7 percent driven by an increase in internal financing (up 14.0 percent to $204 million) and an increase in used equipment sales to the System and Technology segment (up 7.3 percent to $182 million).

The increase in external and internal financing revenue was due to higher average asset balances and higher asset yields.

Global Financing gross profit increased 6.5 percent compared to the same period in 2007, with gross margin increasing 0.4 points. This was primarily due to a mix towards higher margin financing activity.

Global Financing pre-tax income increased 3.9 percent in the first quarter of 2008 compared to the prior year, primarily driven by the increase in gross profit of $35 million, offset partially by an increase in selling, general and administrative expense of $14 million.

The decrease in return on equity from first quarter 2008 to the same period in 2007 was primarily due to a higher average equity balance.

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Financial Condition

Balance Sheet

(Dollars in millions)	At March 31, 2008		At December 31, 2007
Cash	$	1,016	$	755
Net investment in sales-type and direct financing leases	10,908		10,876
Equipment under operating leases:
External clients (a)	2,403		2,401
Internal clients(b) (c)	1,921		1,872
Client loans	10,632		10,667
Total client financing assets	25,864		25,816
Commercial financing receivables	4,698		6,375
Intercompany financing receivables(b) (c)	2,959		2,984
Other receivables	361		368
Other assets	1,336		1,288
Total financing assets	$	36,234	$	37,586
Intercompany payables(b)	$	3,715	$	6,934
Debt(d)	26,237		24,532
Other liabilities	2,492		2,672
Total financing liabilities	32,444		34,138
Total financing equity	3,790		3,448
Total financing liabilities and equity	$	36,234	$	37,586

(a) Includes intercompany mark-up, priced on an arms-length basis, on products purchased from the company's product divisions, which is eliminated in IBM's consolidated results.

(b) Entire amount eliminated for purposes of IBM's consolidated results and therefore does not appear on pages 5 and 6.

(c) These assets, along with other financing assets in this table, are leveraged at the value in the table using Global Financing debt.

(d) Global Financing debt is comprised of intercompany loans and external debt. A portion of Global Financing debt is in support of the company's internal business, or related to intercompany mark-up embedded in the Global Financing assets.  See table on page 42.

Sources and Uses of Funds

      The primary use of funds in Global Financing is to originate client and commercial financing assets. Client financing assets for end users consist primarily of IBM hardware, software and services, but also include non-IBM equipment, software and services to meet IBM clients’ total solutions requirements. Client financing assets are primarily sales-type, direct financing and operating leases for equipment as well as loans for hardware, software and services with terms generally from two to seven years. Global Financing’s client loans are primarily for software and services and are unsecured. These loans are subjected to additional credit analysis in order to mitigate the associated risk. Loan agreements include credit protective language and dollar limits on how much can be financed in order to minimize credit risk. Client financing also includes internal activity as described on page 51 of the 2007 IBM Annual Report.

      Commercial financing receivables arise primarily from inventory and accounts receivable financing for dealers and remarketers of IBM and non-IBM products. Payment terms for inventory financing and accounts receivable financing generally range from 30 to 90 days.  These short-term receivables are primarily unsecured and are also subject to additional credit actions in order to mitigate the associated risk.

39

Originations

      The following are total external and internal financing originations.

	For the Three Months Ended March 31,
(Dollars in millions)	2008		2007
Client financing:
External	$	2,933	$	2,956
Internal	270		251
Commercial financing	7,079		6,554
Total	$	10,283	$	9,761

       Cash collections of commercial financing assets exceeded new financing originations in both the first quarter of 2008 and 2007, which resulted in a net decline in total financing assets for these periods. The increase in originations was due to improving volumes in commercial financing.

      Cash generated by Global Financing was primarily deployed to pay the intercompany payables and dividends to IBM.

Global Financing Receivables and Allowances

      The following table presents external financing receivables, excluding residual values, and the allowance for doubtful accounts.

(Dollars in millions)	At March 31, 2008			At December  31, 2007
Gross financing receivables	$	25,942		$	27,642
Specific allowance for doubtful accounts	249			230
Unallocated allowance for doubtful accounts	119			138
Total allowance for doubtful accounts	368			368
Net financing receivables	$	25,574		$	27,274
Allowance for doubtful accounts coverage	1.4		%	1.3		%

Roll-Forward of Financing Receivables Allowance for Doubtful Accounts

(Dollars in millions)

Dec. 31, 2007		Allowance Used*			Additions/ (Reductions) Bad Debt Expense			Other**		March 31, 2008
$	368	$	(10	)	$	(5	)	$	15	$	368

*   Represents reserved receivables, net of recoveries, which were disposed of during the period.

** Primarily represents translation adjustments.

       The percentage of financing receivables reserved increased from 1.3 percent at December 31, 2007, to 1.4 percent at March 31, 2008 primarily due to the increase in the specific allowance for doubtful accounts.  Specific reserves increased 8.2 percent from $230 million at December 31, 2007 to $249 million at March 31, 2008. Unallocated reserves decreased $19 million from $138 million at December 31, 2007 to $119 million at March 31, 2008 due to the decline in gross financing receivables.

      Global Financing’s bad debt expense was a reduction of $5 million for the three months ended March 31, 2008, compared with a reduction of $8 million for the three months ended March 31, 2007. The reduction in bad debt expense was primarily due to the decline in gross financing receivables.

40

Residual Value

      Residual value is a risk unique to the financing business and management of this risk is dependent upon the ability to accurately project future equipment values at lease inception.  Global Financing has insight into product plans and cycles for the IBM products under lease.  Based upon this product information, Global Financing continually monitors projections of future equipment values and compares them with the residual values reflected in the portfolio.

      Global Financing optimizes the recovery of residual values by selling assets sourced from end of lease, leasing used equipment to new clients, or extending lease arrangements with current clients. Sales of equipment, which are primarily sourced from equipment returned at end of lease, represented 31.4 percent of Global Financing’s revenue in the first quarter of 2008 and 35.7 percent in the first quarter of 2007. The decrease was due to a decline in external sales, partially offset by an increase in internal sales. The gross margin on these sales was 44.2 percent and 43.9 percent in the first quarter of 2008 and 2007, respectively. The increase was driven primarily by higher margin internal sales.

      The following table presents the recorded amount of unguaranteed residual value for sales-type and direct financing leases and operating leases at December 31, 2007 and March 31, 2008. In addition, the table presents the residual value as a percentage of the related original amount financed and a run out of when the unguaranteed residual value assigned to equipment on leases at March 31, 2008 is expected to be returned to the company. In addition to the unguaranteed residual value below, on a limited basis, Global Financing will obtain guarantees of the future value of the equipment to be returned at end of lease. These third-party guarantees are included in minimum lease payments as provided for by accounting standards in the determination of lease classifications for the covered equipment and provide protection against risk of loss arising from declines in equipment values for these assets. The residual value guarantee increases the minimum lease payments that are utilized in determining the classification of a lease as a sales-type lease or operating lease. The aggregate asset values associated with the guarantees were $198 million and $127 million for the financing transactions originated during the quarters ended March 31, 2008 and March 31, 2007, respectively. The associated aggregate guaranteed future values at the scheduled end of lease were $12 million and $7 million for the financing transactions originated during the quarters ended March 31, 2008 and March 31, 2007, respectively. The cost of guarantees was $1.7 million and $0.9 million for the quarters ended March 31, 2008 and March 31, 2007, respectively.

Unguaranteed Residual Value

							Estimated Run Out of
							March 31, 2008 Balance
	Dec. 31,			March 31,									2011 and
(Dollars in millions)	2007			2008			2008		2009		2010		Beyond
Sales-type and direct financing leases	$	915		$	931		$	161	$	271	$	314	$	185
Operating leases	421			402			112		117		127		46
Total unguaranteed residual value	$	1,336		$	1,333		$	273	$	388	$	441	$	231
Related original amount financed	$	24,517		$	22,598
Percentage		5.4	%		5.9	%

Debt

	At March 31,		At December 31,
	2008		2007
Debt to equity ratio	6.9	x	7.1	x

      The company funds Global Financing through borrowings using a debt-to-equity ratio target of approximately 7 to 1. The debt used to fund Global Financing assets is composed of intercompany loans and external debt. The terms of the intercompany loans are set by the company to substantially match the term and currency underlying the financing receivable and are based on arm’s-length pricing. Both assets and debt are presented in the Global Financing balance sheet on page 39.

      The Global Financing business provides funding predominantly for the company’s external clients but also provides intercompany financing for the company. As previously stated, the company measures Global Financing as if it were a standalone entity and accordingly, interest expense relating to debt supporting Global Financing’s external client and internal

41

business is included in the “Global Financing Results of Operations” on page 38 and in Segment Information on page 48.

       In the company’s Consolidated Statement of Earnings on pages 1 and 2 , however, the interest expense supporting Global Financing’s internal financing to the company is reclassified from cost of financing to interest expense.

       The following table provides additional information on debt. In this table, Intercompany activity is comprised of internal loans and leases at arm’s length pricing in support of Global Services’ long-term contracts and other internal activity. The company believes these assets should be appropriately levered in line with the overall Global Financing business model.

(Dollars in millions)	March 31, 2008					December 31, 2007
Global Financing Segment				$	26,237				$	24,532
Debt to support external clients	$	22,349				$	21,072
Debt to support internal clients	3,888					3,460
Non-Global Financing Segments				8,949					10,743
Debt supporting operations	12,837					14,203
Intercompany activity	(3,888		)			(3,460		)
Total company debt				$	35,186				$	35,274

Liquidity and Capital Resources

      Global Financing is a segment of the company and as such, is supported by the company’s overall liquidity position and access to capital markets. Cash generated by Global Financing was primarily deployed to reduce debt and pay dividends to the company in order to maintain an appropriate debt-to-equity ratio.

Return on Equity

	For the Three Months Ended March 31,
(Dollars in millions)	2008			2007
Numerator :
Global Financing after tax income*	$	252		$	236
Annualized after tax income (A)	$	1,008		$	944
Denominator :
Average Global Financing equity (B)**	$	3,619		$	3,302
Global Financing Return on Equity(A)/(B)	27.8		%	28.6		%

*      Calculated based upon an estimated tax rate principally based on Global Financing’s geographic mix of earnings as IBM’s provision for income taxes is determined on a consolidated basis.

**   Average of the ending equity for Global Financing for the last 2 quarters.

Looking Forward

       The Global Financing business is well positioned to grow in the current environment. The company’s financial position provides substantial flexibility and funding capacity. Global Financing’s assets and new financing volumes are primarily IBM products and services financed to the company’s clients and business partners and substantially all financing assets are IT related assets which provide a stable base of business for future growth.

       The company’s new System z and high-end System p servers are a significant financing opportunity. Global Financing’s offerings are competitive and available to clients as a result of the company’s borrowing cost and access to the capital markets. Overall, Global Financing’s originations will be dependent upon the demand for IT products and services, as well as client participation rates.

Interest rates and the overall economy (including currency fluctuations) will have an effect on both revenue and gross profit. The company’s interest rate risk management policy, however, combined with the Global Financing funding strategy should mitigate gross margin erosion due to changes in interest rates.

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      The economy could impact the credit quality of the Global Financing receivables portfolio and therefore the level of provision for bad debts. Global Financing will continue to apply rigorous credit policies in both the origination of new business and the evaluation of the existing portfolio.

      As discussed on page 41, Global Financing has historically been able to manage residual value risk both through insight into the company’s product cycles, as well as through its remarketing business.

      Global Financing has policies in place to manage each of the key risks involved in financing. These policies, combined with product and client knowledge, should allow for the prudent management of the business going forward, even during periods of uncertainty with respect to the economy.

Forward Looking and Cautionary Statements

Except for the historical information and discussions 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 involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the company’s failure to continue to develop and market new and innovative products and services and to keep pace with technological change; competitive pressures; failure to obtain or protect intellectual property rights; breaches of the company's data security measures; changes in the economic environment and corporate IT spending budgets; fluctuations in revenues and purchases, and volatility of stock prices; the company’s ability to attract and retain key personnel and its reliance on critical skills; adverse affects from tax matters; environmental matters; currency fluctuations and customer financing risks; customer credit risk on receivables; risks from investing in growth opportunities; the company’s failure to maintain the adequacy of its internal controls; the company’s use of certain estimates and assumptions; dependence on certain suppliers; changes in the financial or business condition of the company’s distributors or resellers; the company’s ability to successfully manage acquisitions and alliances; failure to have sufficient insurance; legal, political, health and economic conditions; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Q, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference.  The company assumes no obligation to update or revise any forward-looking statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

      For quantitative and qualitative disclosures about market risk affecting IBM, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II, of the company’s Annual Report on Form 10-K for the year ended December 31, 2007, which is incorporated by reference. The company’s exposure to market risk has not changed materially since December 31, 2007.

ITEM 4. Controls and Procedures

      The company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the company’s disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in the company’s internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

Part II - Other Information

ITEM 1. Legal Proceedings

Refer to Note 14 on pages 15 to 17 of this Form 10-Q.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

The following table provides information relating to the company’s repurchase of common stock for the first quarter of 2008.

					Approximate
					Dollar Value
				Total Number	of Shares that
	Total Number	Average		of Shares Purchased	May Yet Be
	of Shares	Price Paid		as Part of Publicly	Purchased Under
Period	Purchased	per Share		Announced Program	The Program (1)
January 1, 2008 -
January 31, 2008	3,949,710	$	102.46	3,949,710	$	805,547,306
February 1, 2008
February 29, 2008	3,712,125	$	108.17	3,712,125	$	15,404,002,639
March 1, 2008 -
March 31, 2008	16,986,452	$	115.65	16,986,452	$	13,493,746,228	(2)
Total	24,648,287	$	112.41	24,648,287

(1) On April 24, 2007, the IBM Board of Directors authorized $15.0 billion in funds for use in the company’s common stock repurchase program; the company stated that it may repurchase shares on the open market or in private transactions, including structured or accelerated transactions depending on market conditions. See Note 7 on page 11 of this Form 10-Q for additional information regarding the accelerated share repurchase agreements executed in the second quarter of 2007. This authorization was fully utilized by March 2008. On February 26, 2008, the Board of Directors authorized an additional $15.0 billion in funds for use in such programs. IBM has announced that it may repurchase shares on the open market or in private transactions depending on market conditions. The repurchase program does not have an expiration date. This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.

(2) As discussed in Note 7 on page 11, the company received a cash payment for the third settlement under the accelerated stock repurchase agreement in March 2008, resulting in an addition of $54.2 million to the remaining authorization.

ITEM 5. Other Information

(a)  Effective April 29, 2008, Article III, Section 2 of IBM’s By-laws was amended to decrease the number of directors to eleven.  The full text of IBM’s By-laws, as amended, is included as Exhibit 3 to this report.

44

ITEM 6. Exhibits

Exhibit Number
3		The Bylaws of IBM as amended through April 29, 2008.
10	.1	First Amendment to Term Loan Agreement dated as of May 25, 2007, among IBM International Group B.V. (the “Borrower”), the several banks and other financial institutions from time to time parties thereto (the “Lenders”), Morgan Stanley Senior Funding, Inc., as administrative agent for the Lenders, Deutsche Bank AG Cayman Islands Branch, as Documentation Agent, and Lehman Commercial Paper, Inc., as Syndication Agent, filed as Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2007, and hereby incorporated by reference.
10	.2	The IBM Excess 401(k) Plus Plan, a compensatory plan, amended and restated effective as of January 1, 2008 (formerly the IBM Executive Deferred Compensation Plan which is contained in Registration Statement No. 333-33692 on Form S-8, which amended and restated Plan is hereby incorporated by reference into such Registration Statement).
10	.3	The IBM 401(k) Plus Plan, a compensatory play, amended and restated effective as on January 1, 2008 (formerly the IBM savings Plan, which is contained in Registration Statement No. 333-09055 on Form S-8, which amended and restated Plan is hereby incorporated by reference into such Registration Statement).
11		Statement re: computation of per share earnings.
12		Statement re: computation of ratios.
31	.1	Certification by CEO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31	.2	Certification by CFO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1	Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	International Business Machines Corporation
	(Registrant)
Date: April 29, 2008
	By:
			/s/ Timothy S. Shaughnessy
		Timothy S. Shaughnessy
		Vice President and Controller

45

EX-3

EXHIBIT 3

BY-LAWS

of

INTERNATIONAL BUSINESS MACHINES CORPORATION

Adopted April 29, 1958

As Amended Through

April 29, 2008

TABLE OF CONTENTS

ARTICLE I		PAGE
Definitions		1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SEC. 1.	Place of Meetings	1
SEC. 2.	Annual Meetings	1
SEC. 3.	Special Meetings	2
SEC. 4.	Notice of Meetings	2
SEC. 5.	Quorum	2
SEC. 6.	Organization	3
SEC. 7.	Items of Business	3
SEC. 8.	Voting	4
SEC. 9.	List of Stockholders	5
SEC. 10.	Inspectors of Election	5

ARTICLE III

BOARD OF DIRECTORS

SEC. 1.	General Powers	6
SEC. 2.	Number; Qualifications; Election; Term of Office	6
SEC. 3.	Place of Meetings	6
SEC. 4.	First Meeting	6
SEC. 5.	Regular Meetings	6
SEC. 6.	Special Meetings	6
SEC. 7.	Notice of Meetings	6
SEC. 8.	Quorum and Manner of Acting	7
SEC  9.	Organization	7
SEC. 10.	Resignations	7
SEC. 11.	Vacancies	7
SEC. 12.	Retirement of Directors	7

i

ARTICLE IV

EXECUTIVE AND OTHER COMMITTEES

SEC. 1.	Executive Committee	8
SEC. 2.	Powers of the Executive Committee	8
SEC. 3.	Meetings of the Executive Committee	8
SEC. 4.	Quorum and Manner of Acting of the Executive Committee	9
SEC. 5.	Other Committees	9
SEC. 6.	Changes in Committees; Resignations; Removals; Vacancies	10

ARTICLE V

OFFICERS

SEC. 1.	Number and Qualifications	10
SEC. 2.	Resignations	10
SEC. 3.	Removal	11
SEC. 4.	Vacancies	11
SEC. 5.	Chairman of the Board	11
SEC. 6.	Vice Chairman of the Board	11
SEC. 7.	President	11
SEC. 8.	Designated Officers	12
SEC. 9.	Executive Vice Presidents, Senior Vice Presidents and Vice Presidents	12
SEC. 10.	Treasurer	12
SEC. 11.	Secretary	13
SEC. 12.	Controller	14
SEC. 13.	Compensation	14

ii

ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SEC. 1.	Execution of Contracts	14
SEC. 2.	Loans	14
SEC. 3.	Checks, Drafts, etc	15
SEC. 4.	Deposits	15
SEC. 5.	General and Special Bank Accounts	15
SEC. 6.	Indemnification	15
ARTICLE VII
SHARES
SEC. 1.	Stock Certificates	16
SEC. 2.	Books of Account and Record of Stockholders	16
SEC. 3.	Transfers of Stock	16
SEC. 4.	Regulations	17
SEC. 5.	Fixing of Record Date	17
SEC. 6.	Lost, Destroyed or Mutilated Certificates	17
SEC. 7.	Inspection of Records	18
SEC. 8.	Auditors	18
ARTICLE VIII
OFFICES
SEC. 1.	Principal Office	18
SEC. 2.	Other Offices	18
ARTICLE IX
Waiver of Notice		18

iii

ARTICLE X
Fiscal Year	19
ARTICLE XI
Seal	19
ARTICLE XII
Amendments	19

iv

BY-LAWS

OF

INTERNATIONAL BUSINESS MACHINES CORPORATION

ARTICLE I

DEFINITIONS

In these By-laws, and for all purposes hereof, unless there be something in the subject or context inconsistent therewith:

(a) ‘Corporation’ shall mean International Business Machines Corporation.

(b) ‘Certificate of Incorporation’ shall mean the restated Certificate of Incorporation as filed on May 27, 1992, together with any and all amendments and subsequent restatements thereto.

(c)  ‘Board’ shall mean the Board of Directors of the Corporation.

(d) ‘stockholders’ shall mean the stockholders of the Corporation.

(e) ‘Chairman of the Board’, ‘Vice Chairman of the Board’, ‘Chairman of the Executive Committee’, ‘Chief Executive Officer,’ ‘Chief Financial Officer’, ‘Chief Accounting Officer’, ‘President’, ‘Executive Vice President’, ‘Senior Vice President’, ‘Vice President’, ‘Treasurer’, ‘Secretary’, or ‘Controller’, as the case may be, shall mean the person at any given time occupying the particular office with the Corporation.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1.  Place of Meetings.  Meetings of the stockholders of the Corporation shall be held at such place either within or outside the State of New York as may from time to time be fixed by the Board or specified or fixed in the notice of any such meeting.

SECTION 2.  Annual Meetings.  The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the last Tuesday of April of each year, if not a legal holiday, or, if such day shall be a legal holiday, then on the next succeeding day not a legal holiday. If any annual meeting shall not be held on the day designated herein, or if the directors to be elected at such annual

meeting shall not have been elected thereat or at any adjournment thereof, the Board shall forthwith call a special meeting of the stockholders for the election of directors to be held as soon thereafter as convenient and give notice thereof as provided in these By-laws in respect of the notice of an annual meeting of the stockholders. At such special meeting the stockholders may elect the directors and transact other business with the same force and effect as at an annual meeting of the stockholders duly called and held.

SECTION 3.  Special Meetings.  Special meetings of the stockholders, unless otherwise provided by law, may be called at any time by the Chairman of the Board or by the Board.

SECTION 4.  Notice of Meetings.  Notice of each meeting of the stockholders, annual or special, shall be given in the name of the Chairman of the Board, a Vice Chairman of the Board or the President or a Vice President or the Secretary.  Such notice shall state the purpose or purposes for which the meeting is called and the date and hour when and the place where it is to be held. A copy thereof shall be duly delivered or transmitted to all stockholders of record entitled to vote at such meeting, and all stockholders of record who, by reason of any action proposed to be taken at such meeting, would be entitled to have their stock appraised if such action were taken, not less than ten or more than sixty days before the day on which the meeting is called to be held. If mailed, such copy shall be directed to each stockholder at the address listed on the record of stockholders of the Corporation, or if the stockholder shall have filed with the Secretary a written request that notices be mailed to some other address, it shall be mailed to the address designated in such request. Nevertheless, notice of any meeting of the stockholders shall not be required to be given to any stockholder who shall waive notice thereof as hereinafter provided in Article IX of these By-laws. Except when expressly required by law, notice of any adjourned meeting of the stockholders need not be given nor shall publication of notice of any annual or special meeting thereof be required.

SECTION 5.  Quorum.  Except as otherwise provided by law, at all meetings of the stockholders, the presence of holders of record of a majority of the outstanding shares of stock of the Corporation having voting power, in person or represented by proxy and entitled to vote thereat, shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a majority in voting interest of those present in person or represented by proxy and entitled to vote thereat, or, in the absence of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting, may adjourn such meeting from time to time without further notice, other than by announcement at the meeting at which such adjournment shall be taken, until a quorum shall be present thereat. At any adjourned meeting at which a quorum shall be present any business may be transacted which might have been transacted at the meeting as originally called.

2

SECTION  6.  Organization.  At each meeting of the stockholders, the Chairman of the Board, or in the absence of the Chairman of the Board, the President, or in the absence of the Chairman of the Board and the President, a Vice Chairman of the Board, or if the Chairman of the Board, the President, and all Vice Chairmen of the Board shall be absent therefrom, an Executive Vice President, or if the Chairman of the Board, the President, all Vice Chairmen of the Board and all Executive Vice Presidents shall be absent therefrom, a Senior Vice President shall act as chairman. The Secretary, or, if the Secretary shall be absent from such meeting or unable to act, the person whom the Chairman of such meeting shall appoint secretary of such meeting shall act as secretary of such meeting and keep the minutes thereof.

SECTION  7.   Items of Business.  The items of business at all meetings of the stockholders shall be, insofar as applicable, as follows:

· Call to order.

· Proof of notice of meeting or of waiver thereof.

· Appointment of inspectors of election, if necessary.

· A quorum being present.

· Reports.

· Election of directors.

· Other business specified in the notice of the meeting.

· Voting.

· Adjournment.

Any items of business not referred to in the foregoing may be taken up at the meeting as the chairman of the meeting shall determine.

No other business shall be transacted at any annual meeting of stockholders, except business as may be: (i) specified in the notice of meeting (including stockholder proposals included in the Corporation’s proxy materials under Rule 14a-8 of Regulation 14A under the Securities Exchange Act of 1934), (ii) otherwise brought before the meeting by or at the direction of the Board of Directors, or (iii) a proper subject for the meeting which is timely submitted by a stockholder of the Corporation entitled to vote at such meeting who complies fully with the notice requirements set forth below.

For business to be properly submitted by a stockholder before any annual meeting under subparagraph (iii) above, a stockholder must give timely notice in writing of such business to the Secretary of the Corporation.  To be considered timely, a stockholder’s notice must be received by the Secretary at the principal

3

executive offices of the Corporation not less than 120 calendar days nor more than 150 calendar days before the date of the Corporation’s proxy statement released to stockholders in connection with the prior year’s annual meeting.

However, if no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, a stockholder’s notice must be received by the Secretary not later than 60 days before the date the Corporation commences mailing of its proxy materials in connection with  the applicable annual meeting.

A stockholder’s notice to the Secretary to submit business to an annual meeting of stockholders shall set forth: (i) the name and address of the stockholder, (ii) the number of shares of stock held of record and beneficially by such stockholder, (iii) the name in which all such shares of stock are registered on the stock transfer books of the Corporation, (iv) a representation that the stockholder intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (v) a brief description of the business desired to be submitted to the annual meeting, including the complete text of any resolutions intended to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting, (vi) any personal or other material interest of the stockholder in the business to be submitted,  and (vii) all other information relating to the proposed business which may be required to be disclosed under applicable law.   In addition, a stockholder seeking to submit such business at the meeting shall promptly provide any other information reasonably requested by the Corporation.

The chairman of the meeting shall determine all matters relating to the efficient conduct of the meeting, including, but not limited to, the items of business, as well as the maintenance of order and decorum. The chairman shall, if the facts warrant, determine and declare that any putative business was not properly brought before the meeting in accordance with the procedures prescribed by this Section 7, in which case such business shall not be transacted.

Notwithstanding the foregoing provisions of this Section 7, a stockholder who seeks to have any proposal included in the Corporation’s proxy materials shall comply with the requirements of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934, as amended.

SECTION 8.  Voting.  Except as otherwise provided by law, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in the stockholder’s name on the record of stockholders of the Corporation:

(a) on the date fixed pursuant to the provisions of Section 5 of Article VII of these By-laws as the record date for the determination of the stockholders who shall be entitled to vote at such meeting, or

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(b) if such record date shall not have been so fixed, then at the close of business on the day next preceding the day on which notice of such meeting shall have been given, or

(c) if such record date shall not have been so fixed and if no notice of such meeting shall have been given, then at the time of the call to order of such meeting.

Any vote on stock of the Corporation at any meeting of the stockholders may be given by the stockholder of record entitled thereto in person or by proxy appointed by such stockholder or by the stockholder’s attorney thereunto duly authorized and delivered or transmitted to the secretary of such meeting at or prior to the time designated in the order of business for turning in proxies. 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. Unless required by law, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by the stockholder’s proxy as such, if there be such proxy.

SECTION 9.  List of Stockholders.  A list, certified by the Secretary, of the stockholders of the Corporation entitled to vote shall be produced at any meeting of the stockholders upon the request of any stockholder of the Corporation pursuant to the provisions of applicable law, the Certificate of Incorporation or these By-laws.

SECTION  10.   Inspectors of Election.   Prior to the holding of each annual or special meeting of the stockholders, two inspectors of election to serve thereat shall be appointed by the Board, or, if the Board shall not have made such appointment, by the Chairman of the Board. If there shall be a failure to appoint inspectors, or if, at any such meeting, any inspector so appointed shall be absent or shall fail to act or the office shall become vacant, the chairman of the meeting may, and at the request of a stockholder present in person and entitled to vote at such meeting shall, appoint such inspector or inspectors of election, as the case may be, to act thereat. The inspectors of election so appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors at such meeting, with strict impartiality and according to the best of their ability, and the oath so taken shall be subscribed by them. Such inspectors of election shall take charge of the polls, and, after the voting on any question, shall make a certificate of the results of the vote taken. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders.

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ARTICLE III

BOARD OF DIRECTORS

SECTION 1.  General Powers.  The business and affairs of the Corporation shall be managed by the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these By-laws, directed or required to be exercised or done by the stockholders.

SECTION 2.  Number; Qualifications; Election; Term of Office.  The number of directors of the Corporation shall be eleven, but the number thereof may be increased to not more than twenty-five, or decreased to not less than nine, by amendment of these By-laws. The directors shall be elected at the annual meeting of the stockholders. At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes at such election shall be elected. Each director shall hold office until the annual meeting of the stockholders which shall be held next after the election of such director and until a successor shall have been duly elected and qualified, or until death, or until the director shall have resigned as hereinafter provided in Section 10 of this Article III.

SECTION 3.  Place of Meetings.  Meetings of the Board shall be held at such place either within or outside State of New York as may from time to time be fixed by the Board or specified or fixed in the notice of any such meeting.

SECTION 4.  First Meeting.  The Board shall meet for the purpose of organization, the election of officers and the transaction of other business, on the same day the annual meeting of stockholders is held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III.

SECTION 5.  Regular Meetings.  Regular meetings of the Board shall be held at times and dates fixed by the Board or at such other times and dates as the Chairman of the Board shall determine and as shall be specified in the notice of such meetings. Notice of regular meetings of the Board need not be given except as otherwise required by law or these By-laws.

SECTION 6.  Special Meetings.  Special meetings of the Board may be called by the Chairman of the Board.

SECTION 7.  Notice of Meetings.  Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time, place and, if required by law or these By-laws, the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the time at which such

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meeting is to be held. Notice of any such meeting need not be given to any director who shall waive notice thereof as provided in Article IX of these By-laws. Any meeting of the Board shall be a legal meeting without notice thereof having been given, if all the directors of the Corporation then holding office shall be present thereat.

SECTION 8.  Quorum and Manner of Acting.  A majority of the Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting. Participation in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence in person at a meeting. Except as otherwise expressly required by law or the Certificate of Incorporation and except also as specified in Section 1, Section 5, and Section 6 of Article IV, in Section 3 of Article V and in Article XII of these By-laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such.

SECTION  9.   Organization.   At each meeting of the Board, the Chairman of the Board, or in the case of the Chairman’s absence therefrom, the President, or in the case of the President’s absence therefrom, a Vice Chairman, or in the case of the absence of all such persons, another director chosen by a majority of directors present, shall act as chairman of the meeting and preside thereat. The Secretary, or if the Secretary shall be absent from such meeting, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof.

SECTION 10.  Resignations.  Any director of the Corporation may resign at any time by giving written notice of resignation to the Board or the Chairman of the Board or the Secretary. Any such resignation shall take effect at the time specified therein, or if the time when it shall become effective shall not be specified therein, then it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 11.  Vacancies.  Any vacancy in the Board, whether arising from death, resignation, an increase in the number of directors or any other cause, may be filled by the Board.

SECTION 12.  Retirement of Directors. The Board may prescribe a retirement policy for directors on or after reaching a certain age, provided, however, that such

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retirement shall not cut short the annual term for which any director shall have been elected by the stockholders.

ARTICLE IV

EXECUTIVE AND OTHER COMMITTEES

SECTION 1.  Executive Committee.  The Board, by resolution adopted by a majority of the Board, may designate not less than four of the directors then in office to constitute an Executive Committee, each member of which unless otherwise determined by resolution adopted by a majority of the whole Board, shall continue to be a member of such Committee until the annual meeting of the stockholders which shall be held next after designation as a member of such Committee or until the earlier termination as a director. The Chief Executive Officer shall always be designated as a member of the Executive Committee. The Board may by resolution appoint one member as the Chairman of the Executive Committee who shall preside at all meetings of such Committee. In the absence of said Chairman, the Chief Executive Officer shall preside at all such meetings. In the absence of both the Chairman of the Executive Committee and the Chief Executive Officer, the Chairman of the Board shall preside at all such meetings. In the absence of the Chairman of the Executive Committee and the Chief Executive Officer and the Chairman of the Board, the President shall preside at all such meetings. In the absence of all such persons, a majority of the members of the Executive Committee present shall choose a chairman to preside at such meetings. The Secretary, or if the Secretary shall be absent from such meeting, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof.

SECTION 2.  Powers of the Executive Committee.  To the extent permitted by law, the Executive Committee may exercise all the powers of the Board in the management of specified matters where such authority is delegated to it by the Board, and also, to the extent permitted by law, the Executive Committee shall have, and may exercise, all the powers of the Board in the management of the business and affairs of the Corporation (including the power to authorize the seal of the Corporation to be affixed to all papers which may require it; but excluding the power to appoint a member of the Executive Committee) in such manner as the Executive Committee shall deem to be in the best interests of the Corporation and not inconsistent with any prior specific action of the Board. An act of the Executive Committee taken within the scope of its authority shall be an act of the Board. The Executive Committee shall render in the form of minutes a report of its several acts at each regular meeting of the Board and at any other time when so directed by the Board.

SECTION 3.  Meetings of the Executive Committee.  Regular meetings of the Executive Committee shall be held at such times, on such dates and at such places as shall be fixed by resolution adopted by a majority of the Executive Committee,

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of which regular meetings notice need not be given, or as shall be fixed by the Chairman of the Executive Committee or in the absence of the Chairman of the Executive Committee the Chief Executive Officer and specified in the notice of such meeting. Special meetings of the Executive Committee may be called by the Chairman of the Executive Committee or by the Chief Executive Officer. Notice of each such special meeting of the Executive Committee (and of each regular meeting for which notice shall be required), stating the time and place thereof shall be mailed, postage prepaid, to each member of the Executive Committee, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the time at which such meeting is to be held; but notice need not be given to a member of the Executive Committee who shall waive notice thereof as provided in Article IX of these By-laws, and any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given, if all the members of such Committee shall be present thereat.

SECTION 4.  Quorum and Manner of Acting of the Executive Committee.  Four members of the Executive Committee shall constitute a quorum for the transaction of business, and the act of a majority of the members of the Executive Committee present at a meeting at which a quorum shall be present shall be the act of the Executive Committee. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of the Executive Committee. The members of the Executive Committee shall act only as a committee and individual members shall have no power as such.

SECTION 5.  Other Committees.  The Board may, by resolution adopted by a majority of the Board, designate members of the Board to constitute other committees, which shall have, and may exercise, such powers as the Board may by resolution delegate to them, and shall in each case consist of such number of directors as the Board may determine; provided, however, that each such committee shall have at least three directors as members thereof. Such a committee may either be constituted for a specified term or may be constituted as a standing committee which does not require annual or periodic reconstitution. A majority of all the members of any such committee may determine its action and its quorum requirements and may fix the time and place of its meetings, unless the Board shall otherwise provide. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of such other committees.

In addition to the foregoing, the Board may, by resolution adopted by a majority of the Board, create a committee of indeterminate membership and duration and not subject to the limitations as to the membership, quorum and manner of meeting and acting prescribed in these By-laws, which committee, in the event of a major disaster or catastrophe or national emergency which renders the Board

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incapable of action by reason of the death, physical incapacity or inability to meet of some or all of its members, shall have, and may exercise all the powers of the Board in the management of the business and affairs of the Corporation (including, without limitation, the power to authorize the seal of the Corporation to be affixed to all papers which may require it and the power to fill vacancies in the Board). An act of such committee taken within the scope of its authority shall be an act of the Board.

SECTION 6.  Changes in Committees; Resignations; Removals; Vacancies.  The Board shall have power, by resolution adopted by a majority of the Board, at any time to change or remove the members of, to fill vacancies in, and to discharge any committee created pursuant to these By-laws, either with or without cause. Any member of any such committee may resign at any time by giving written notice to the Board or the Chairman of the Board or the Secretary. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any vacancy in any committee, whether arising from death, resignation, an increase in the number of committee members or any other cause, shall be filled by the Board in the manner prescribed in these By-laws for the original appointment of the members of such committee.

ARTICLE V

OFFICERS

SECTION 1.  Number and Qualifications. The officers of the Corporation shall include the Chairman of the Board, and may include one or more Vice Chairmen of the Board, the President, one or more Vice Presidents (one or more of whom may be designated as Executive Vice Presidents or as Senior Vice Presidents or by other designations), the Treasurer, the Secretary and the Controller.  Officers shall be elected from time to time by the Board, each to hold office until a successor shall have been duly elected and shall have qualified, or until death, or until resignation as hereinafter provided in Section 2 of this Article V, or until removed as hereinafter provided in Section 3 of this Article V.

SECTION  2.   Resignations.   Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board, the Chairman of the Board, the Chief Executive Officer or the Secretary. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, then it shall become effective upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

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SECTION  3.  Removal.  Any officer of the Corporation may be removed, either with or without cause, at any time, by a resolution adopted by a majority of the Board at any meeting of the Board.

SECTION  4.  Vacancies.  A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of office which shall be vacant, in the manner prescribed in these By-laws for the regular election or appointment to such office.

SECTION  5.  Chairman of the Board.  The Chairman of the Board shall, if present, preside at each meeting of the stockholders and of the Board and shall perform such other duties as may from time to time be assigned by the Board. The Chairman may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By- laws to some other officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered; and affix the seal of the Corporation to any instrument which shall require it. The Chairman of the Board, when there is no President or in the absence or incapacity of the President, shall perform all the duties and functions and exercise all the powers of the President.

SECTION 6.  Vice Chairman of the Board. Each Vice Chairman of the Board shall assist the Chairman of the Board and have such other duties as may be assigned by the Board or the Chairman of the Board. The Vice Chairman may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered; and affix the seal of the Corporation to any instrument which shall require it.

SECTION  7.  President.  The President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board. The President may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some other officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered, and affix the seal of the Corporation to any instrument which shall require it; and, in general, perform all duties incident to the office of President. The President shall in the absence or incapacity of the Chairman of the Board, perform all the duties and functions and exercise all the powers of the Chairman of the Board.

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SECTION  8.   Designated Officers.   (a)  Chief Executive Officer.  Either the Chairman of the Board, or the President, as the Board of Directors may designate, shall be the Chief Executive Officer of the Corporation. The officer so designated shall have, in addition to the powers and duties applicable to the office set forth in Section 5 or 7 of this Article V, general and active supervision over the business and affairs of the Corporation and over its several officers, agents, and employees, subject, however, to the control of the Board. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect, be an ex officio member of all committees of the Board (except the Audit Committee, the Directors and Corporate Governance Committee, and committees specifically empowered to fix or approve the Chief Executive Officer’s compensation or to grant or administer bonus, option or other similar plans in which the Chief Executive Officer is eligible to participate), and, in general, shall perform all duties incident to the position of Chief Executive Officer and such other duties as may from time to time be assigned by the Board.    (b) Other Designated Officers.  The Board of Directors may designate officers to serve as Chief Financial Officer, Chief Accounting Officer and other such designated positions and to fulfill the responsibilities of such designated positions in addition to their duties as officers as set forth in this Article V.

SECTION 9.  Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. Each Executive and Senior Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President. Each Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or a Senior Vice President. Any Vice President may sign certificates representing shares of stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws.

SECTION 10.  Treasurer.  The Treasurer shall:

(a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, and may invest the same in any securities, may open, maintain and close accounts for effecting any and all purchase, sale, investment and lending transactions in securities of any and all kinds for and on behalf of the Corporation or any employee pension or benefit plan fund or other fund established by the Corporation, as may be permitted by law;

(b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;

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(c) deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board or the Executive Committee;

(d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;

(e) disburse the funds of the Corporation and supervise the investment of its funds, taking proper vouchers therefor;

(f) render to the Board, whenever the Board may require, an account of all transactions as Treasurer; and

(g) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President.

SECTION 11.  Secretary.  The Secretary shall:

(a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the Executive Committee and other committees of the Board and the stockholders;

(b) see that all notices are duly given in accordance with the provisions of these By-laws and as required by law;

(c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;

(d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and

(e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President.

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SECTION  12.  Controller.  The Controller shall:

(a) have control of all the books of account of the Corporation;

(b) keep a true and accurate record of all property owned by it, of its debts and of its revenues and expenses;

(c) keep all accounting records of the Corporation (other than the accounts of receipts and disbursements and those relating to the deposits of money and other valuables of the Corporation, which shall be kept by the Treasurer);

(d) render to the Board, whenever the Board may require, an account of the financial condition of the Corporation; and

(e) in general, perform all the duties incident to the office of Controller and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President.

SECTION 13.  Compensation.  The compensation of the officers of the Corporation shall be fixed from time to time by the Board; provided, however, that the Board may delegate to a committee the power to fix or approve the compensation of any officers. An officer of the Corporation shall not be prevented from receiving compensation by reason of being also a director of the Corporation; but any such officer who shall also be a director shall not have any vote in the determination of the amount of compensation paid to such officer.

ARTICLE VI

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

SECTION 1.  Execution of Contracts.  Except as otherwise required by law or these By-laws, any contract or other instrument may be executed and delivered in the name and on behalf of the Corporation by any officer (including any assistant officer) of the Corporation. The Board or the Executive Committee may authorize any agent or employee to execute and deliver any contract or other instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances as the Board or such Committee, as the case may be, may by resolution determine.

SECTION 2.  Loans.  Unless the Board shall otherwise determine, the Chairman of the Board or a Vice Chairman of the Board or the President or any Vice President, acting together with the Treasurer or the Secretary, may effect loans and advances at any time for the Corporation from any bank, trust company or other

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institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but in making such loans or advances no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation, except when authorized by resolution adopted by the Board.

SECTION 3.  Checks, Drafts, etc.  All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board or the Executive Committee or authorized by the Treasurer  acting together with either the General Manager of an operating unit or a nonfinancial Vice President of the Corporation, which authorization may be general or confined to specific instances.

SECTION 4.  Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board or the Executive Committee may from time to time designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board or the Executive Committee. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer, employee or agent of the Corporation.

SECTION 5.  General and Special Bank Accounts.  The Board or the Executive Committee may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositaries as the Board or the Executive Committee may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board or the Executive Committee. The Board or the Executive Committee may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-laws, as it may deem expedient.

SECTION 6.  Indemnification.  The Corporation shall, to the fullest extent permitted by applicable law as in effect at any time, indemnify any person made, or threatened to be made, a party to an action or proceeding whether civil or criminal (including an action or proceeding by or in the right of the Corporation or any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, for which any director or officer of the Corporation served in any capacity at the request of the Corporation), by reason of the fact that such person or such person’s testator or intestate was a director or officer of the Corporation, or served such other corporation, partnership, joint

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venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys’ fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein. Such indemnification shall be a contract right and shall include the right to be paid advances of any expenses incurred by such person in connection with such action, suit or proceeding, consistent with the provisions of applicable law in effect at any time. Indemnification shall be deemed to be ‘permitted’ within the meaning of the first sentence hereof if it is not expressly prohibited by applicable law as in effect at the time.

ARTICLE VII

SHARES

SECTION 1.  Stock Certificates.  The shares of the Corporation shall be represented by certificates, or shall be uncertificated shares.  Each owner of stock of the Corporation shall be entitled to have a certificate, in such form as shall be approved by the Board, certifying the number of shares of stock of the Corporation owned.  To the extent that shares are represented by certificates, such certificates of stock shall be signed in the name of the Corporation by the Chairman of the Board or a Vice Chairman of the Board or the President or a Vice President and by the Secretary and sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed); provided, however, that where any such certificate is signed by a registrar, other than the Corporation or its employee, the signatures of the Chairman of the Board, a Vice Chairman of the Board, the President, the Secretary, and transfer agent or a transfer clerk acting on behalf of the Corporation upon such certificates may be facsimiles, engraved or printed. In case any officer, transfer agent or transfer clerk acting on behalf of the Corporation ceases to be such officer, transfer agent, or transfer clerk before such certificates shall be issued, they may nevertheless be issued by the Corporation with the same effect as if they were still such officer, transfer agent or transfer clerk at the date of their issue.

SECTION 2.  Books of Account and Record of Stockholders.  There shall be kept at the office of the Corporation correct books of account of all its business and transactions, minutes of the proceedings of stockholders, Board, and Executive Committee, and a book to be known as the record of stockholders, containing the names and addresses of all persons who are stockholders, the number of shares of stock held, and the date when the stockholder became the owner of record thereof.

SECTION 3.  Transfers of Stock.  Transfers of shares of stock of the Corporation shall be made on the record of stockholders of the Corporation only upon authorization by the registered holder thereof, or by an attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed, provided such shares are represented by a certificate, or accompanied by a duly executed stock transfer power and the payment of all taxes thereon.  The person in whose names shares of stock shall stand on the

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record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfers of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to such transfer agent or transfer clerk, such fact shall be stated in the entry of the transfer.

SECTION 4.  Regulations.  The Board may make such additional rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificated or uncertificated shares of stock of the Corporation.  It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates of stock to bear the signature or signatures of any of them.

SECTION 5.  Fixing of Record Date.  The Board shall fix a time not exceeding sixty nor less than ten days prior to the date then fixed for the holding of any meeting of the stockholders or prior to the last day on which the consent or dissent of the stockholders may be effectively expressed for any purpose without a meeting, as the time as of which the stockholders entitled to notice of and to vote at such meeting or whose consent or dissent is required or may be expressed for any purpose, as the case may be, shall be determined, and all persons who were holders of record of voting stock at such time, and no others, shall be entitled to notice of and to vote at such meeting or to express their consent or dissent, as the case may be.  The Board may fix a time not exceeding sixty days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of capital stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests.

SECTION 6.  Lost, Destroyed or Mutilated Certificates.  The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Corporation may, in its discretion, require such owner or the owner’s legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or the issuance of such new certificate. Anything to the contrary notwithstanding, the Corporation, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of New York.

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SECTION 7.  Inspection of Records.  The record of stockholders and minutes of the proceedings of stockholders shall be available for inspection, within the limits and subject to the conditions and restrictions prescribed by applicable law.

SECTION 8.  Auditors.  The Board shall employ an independent public or certified public accountant or firm of such accountants who shall act as auditors in making examinations of the consolidated financial statements of the Corporation and its subsidiaries in accordance with generally accepted auditing standards. The auditors shall certify that the annual financial statements are prepared in accordance with generally accepted accounting principles, and shall report on such financial statements to the stockholders and directors of the Corporation. The Board’s selection of auditors shall be presented for ratification by the stockholders at the annual meeting. Directors and officers, when acting in good faith, may rely upon financial statements of the Corporation represented to them to be correct by the officer of the Corporation having charge of its books of account, or stated in a written report by the auditors fairly to reflect the financial condition of the Corporation.

ARTICLE VIII

OFFICES

SECTION 1.  Principal Office.  The principal office of the Corporation shall be at such place in the Town of North Castle, County of Westchester and State of New York as the Board shall from time to time determine.

SECTION 2.  Other Offices.  The Corporation may also have an office or offices other than said principal office at such place or places as the Board shall from time to time determine or the business of the Corporation may require.

ARTICLE IX

WAIVER OF NOTICE

Whenever under the provisions of any law of the State of New York, the Certificate of Incorporation or these By-laws or any resolution of the Board or any committee thereof, the Corporation or the Board or any committee thereof is authorized to take any action after notice to the stockholders, directors or members of any such committee, or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time, if, at any time before or after such action shall be completed, such notice or lapse of time shall be waived by the person or persons entitled to said notice or entitled to participate in

18

the action to be taken, or, in the case of a stockholder, by an attorney thereunto authorized. Attendance at a meeting requiring notice by any person or, in the case of a stockholder, by the stockholder’s attorney, agent or proxy, shall constitute a waiver of such notice on the part of the person so attending, or by such stockholder, as the case may be.

ARTICLE X

FISCAL YEAR

The fiscal year of the Corporation shall end on the thirty-first day of December in each year.

ARTICLE XI

SEAL

The Seal of the Corporation shall consist of two concentric circles with the IBM logotype appearing in bold face type within the inner circle and the words ‘International Business Machines Corporation’ appearing within the outer circle.

ARTICLE XII

AMENDMENTS

These By-laws may be amended or repealed or new By-laws may be adopted by the stockholders at any annual or special meeting, if the notice thereof mentions that amendment or repeal or the adoption of new By-laws is one of the purposes of such meeting. These By-laws, subject to the laws of the State of New York, may also be amended or repealed or new By-laws may be adopted by the affirmative vote of a majority of the Board given at any meeting, if the notice thereof mentions that amendment or repeal or the adoption of new By-laws is one of the purposes of such meeting.

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EX-10.1

Exhibit 10.1

CONFORMED COPY

AMENDMENT TO  TERM LOAN AGREEMENT

AMENDMENT TO TERM LOAN AGREEMENT (this “Amendment”), dated as of January 15, 2008, among IBM INTERNATIONAL GROUP B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) organized under the laws of The Netherlands (the “Borrower”) with corporate seat in Amsterdam, the Netherlands, the several banks and other financial institutions from time to time parties thereto (the “Lenders”), MORGAN STANLEY SENIOR FUNDING, INC., as administrative agent for the Lenders thereunder (in such capacity, the “Administrative Agent”), DEUTSCHE BANK AG CAYMAN ISLANDS BRANCH, as Documentation Agent (in such capacity, the “Documentation Agent”), and LEHMAN COMMERCIAL PAPER, INC., as Syndication Agent (in such capacity, the “Syndication Agent”, and, together with the Administrative Agent and the Documentation Agent, the “Agents” and each an “Agent”).  Unless otherwise indicated, all capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement referred to below.

W I T N E S S E T H :

WHEREAS the Borrower, the Lenders from time to time party thereto, and the Agents are parties to a Term Loan Agreement, dated as of May 25, 2007 (the “Credit Agreement”); and

WHEREAS, the parties hereto wish to enter into certain amendments regarding the Credit Agreement as herein provided;

NOW, THEREFORE, it is agreed:

I.          Amendments to the Credit Agreement.

The definition of “Net Available Proceeds” appearing in Section 1.01 of the Credit Agreement is hereby amended by deleting the text “$13,000,000,000” appearing in clause (ii) thereof and inserting the text “$14,500,000,000” in lieu thereof.

II.            Miscellaneous Provisions.

1.             In order to induce the Lenders to enter into this Amendment, the Borrower hereby represents and warrants that (i) no Default or Event of Default exists as of the Amendment Effective Date (as defined below) both before and after giving effect to this Amendment and (ii) all of the representations and warranties contained in the Credit Agreement are true and correct in all material respects on the Amendment Effective Date both before after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date).

2.             This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement.

3.             This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.  A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent.

4.             THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

5.             This Amendment shall become effective on the date (the “Amendment Effective Date”)  (x) the Borrower, the Administrative Agent and the  Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and (y) the Guarantor shall have signed an acknowledgment consenting to the Borrower entering into this Amendment and, in each case, shall have delivered (including by way of facsimile or other electronic transmission) the same to White & Case LLP, 1155 Avenue of the Americas, New York, NY 10036; Attention: Omer Duru (facsimile number: 212-354-8113 / email: oduru@whitecase.com).

6.             From and after the Amendment Effective Date, all references in the Credit Agreement and the Guaranty Agreement shall be deemed to be references to the Credit Agreement and the Guaranty Agreement, as modified hereby.

*        *        *

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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written.

IBM INTERNATIONAL GROUP B.V.
By:	/s/ John P. Gianukakis
	Title: Director
MORGAN STANLEY SENIOR FUNDING, INC.,
	Individually and as Administrative Agent
By:	/s/ Stephen B. King
	Title: VP
DEUTSCHE BANK AG CAYMAN ISLANDS
	BRANCH, Individually and as Documentation Agent
By:	/s/ Oliver Schwarz
	Title: Director
By:	/s/ Stefan Freckmann
	Title: Vice President
LEHMAN COMMERCIAL PAPER, INC.,
	Individually and as Syndication Agent
By:	/s/ Ahuva Schwager
	Title: Authorized Signatory

IBM - - First Amendment

SIGNATURE PAGE TO THE AMENDMENT TO TERM LOAN AGREEMENT, DATED AS OF JANUARY 15, 2008, AMONG IBM INTERNATIONAL GROUP B.V., THE LENDERS FROM TIME TO TIME PARTY THERETO MORGAN STANLEY SENIOR FUNDING, INC., AS ADMINISTRATIVE AGENT, DEUTSCHE BANK AG CAYMAN ISLANDS BRANCH, AS DOCUMENTATION AGENT, AND LEHMAN COMMERCIAL PAPER, INC., AS SYNDICATION AGENT
NAME OF INSTITUTION:
LEHMAN BROTHERS HOLDINGS INC.
By:	/s/ Gregory L. Smith
Title: Managing Director
LEHMAN BROTHERS BANK, FSB
By:	/s/ Janine M. Shugan
Title: Authorized Signatorys
UBS LOAN FINANCE LLC
By:	/s/ Irja R. Otsa
Title: Associate Director
By:	/s/ Mary E. Evans
Title: Associate Director

IBM - - First Amendment

THE BANK OF TOKYO – MITSUBISHI UFJ, LTD.,
NEW YORK BRANCH
By:	/s/ Lillian Kim
Title: Authorized Signatory
BNP PARIBAS
By:	/s/ Richard DaCosta
Title: Director
By:	/s/ Berangere Allen
Title: Vice President
JP MORGAN CHASE BANK, N.A.
By:	/s/ John Kowalczuk
Title: Vice President
BARCLAYS BANK PLC
By:	/s/ Nicholas Bell
Title: Director
MERRILL LYNCH COMMERCIAL FINANCE CORP.
By:	/s/ David Millett
Title: Vice President

IBM - First Amendment

The undersigned, being the Guarantor under, and as defined in, the Credit Agreement referenced in the foregoing Amendment, hereby consents to the entering into of the Amendment.

INTERNATIONAL BUSINESS MACHINES
	CORPORATION, as Guarantor
By:	/s/ Martin Schroeter
	Title: Treasurer

IBM - First Amendment

EX-10.2

Exhibit 10.2

IBM EXCESS 401(k) PLUS PLAN

Effective January 1, 2008

(except as otherwise provided herein)

TABLE OF CONTENTS

ARTICLE I.	INTRODUCTION		1
1.01.	Name of Plan and Effective Date		1
1.02.	Purpose		1
1.03.	Legal Status		1
1.04.	Section 409A		1
ARTICLE II.		DEFINITIONS	3
ARTICLE III.	ELIGIBILITY		9
3.01.	Eligibility for Elective Deferrals		9
3.02.	Eligibility for Matching and Match Maximizer Contributions		9
3.03.	Eligibility for Automatic Contributions and Transition Credits		9
3.04.	Eligibility for Section 415 Excess Credits		10
3.05.	Eligibility for Discretionary Awards		10
ARTICLE IV.	ELECTIVE DEFERRALS AND MATCHING CONTRIBUTIONS		11
4.01.	Elective Deferrals		11
4.02.	Matching Contributions		12
ARTICLE V.	NON-ELECTIVE CREDITS		14
5.01.	Automatic Contributions		14
5.02.	Transition Credits		14
5.03.	Section 415 Excess Credits		14
5.04.	Discretionary Awards		14
ARTICLE VI.	VESTING, DEEMED INVESTMENT OF ACCOUNTS		15
6.01.	Individual Accounts		15
6.02.	Vesting of Accounts		15
6.03.	Deemed Investment of Accounts		15

Exhibit A

ARTICLE VII.	PAYMENT OF GRANDFATHERED AMOUNTS	18
7.01.	Grandfathered Treatment of Grandfathered Amounts	18
7.02.	Payment of Grandfathered Amounts Upon Death	18
7.03.	Options for Payment of Grandfathered Amounts Upon Termination of Employment	18
7.04.	Payment of Grandfathered Amounts Upon Termination of Employment	19
ARTICLE VIII.	PAYMENT OF NON-GRANDFATHERED AMOUNTS	20
8.01.	Payment of Non-Grandfathered Amounts Upon Death	20
8.02.	Form of Payment for Non-Grandfathered Amounts Paid Upon a 409A Separation from
	Service.	20
8.03.	Electing and Changing Payment Options for Non-Grandfathered Amounts	21
8.04.	Payment of Non-Grandfathered Upon a 409A Separation from Service	23
8.05.	Special Rules for Payment of Non-Grandfathered Amounts Upon a 409A Separation from
	Service in First Quarter of 2008	24
8.06.	Valuation of Non-Grandfathered Accounts	24
8.07.	Effect of Rehire on Non-Grandfathered Payments	25
ARTICLE IX.	ADMINISTRATION	26
9.01.	Amendment or Termination	26
9.02.	Responsibilities	26
ARTICLE X.	GENERAL PROVISIONS	28
10.01.	Funding	28
10.02.	No Contract of Employment	28
10.03.	Facility of Payment	28
10.04.	Withholding Taxes	29
10.05.	Nonalienation	29

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10.06.	Administration	29
10.07.	Construction	29
ARTICLE XI.	CLAIMS PROCEDURE	30

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ARTICLE I. INTRODUCTION

1.01.Name of Plan and Effective Date.  The IBM Executive Deferred Compensation Plan (the “EDCP”) is hereby renamed and restated as the “IBM Excess 401(k) Plus Plan” (the “Plan”).  The Plan is effective as of January 1, 2008 (the “Effective Date”), except as provided in Section 1.04, below, with respect to amounts earned before the Effective Date.  In addition, the EDCP plan document in effect prior to the Effective Date (the “EDCP document”) continues to govern the portion of the Plan consisting of “deferred shares” (as defined in the EDCP document).  The EDCP document is Appendix A (and will be attached when its restatement is first adopted after the Effective Date).

1.02.Purpose.  The purpose of the Plan is to attract and retain employees by providing a means for employees to defer their pay and obtain matching and other company contributions outside of the IBM 401(k) Plus Plan, which is subject to certain limits under the Internal Revenue Code of 1986, as amended (the “Code”).  All Plan benefits are paid out of the general assets of the Company (as defined in ARTICLE II).

1.03.Legal Status.  The Plan consists of two separate plans:

(a) An unfunded deferred compensation plan for a select group of management or highly compensated employees (within the meaning of Sections 201(2), 301(a)(3), 401(a)(1), 4021(b)(6) of Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), except to the extent that the Plan provides benefits as described in subsection (b), below; and

(b) An “excess benefit plan” (within the meaning of Section 3(36) of ERISA), to the extent the Plan provides benefits that Section 415 of the Code prevents the IBM 401(k) Plus Plan from providing.

1.04.Section 409A.

(a) Grandfathered Amounts under Section 409A.  Benefits earned and vested under the EDCP before January 1, 2005, as adjusted for earnings, gains, or losses on those benefits (“Grandfathered Amounts”) are treated as grandfathered for purposes of Section 409A of the Code.  Grandfathered Amounts are subject to the terms of the EDCP in effect on October 3, 2004, except as provided herein or in Appendix A.  For recordkeeping purposes, the Company will account separately for Grandfathered Amounts.

(b) Non-Grandfathered Amounts.  With respect to benefits under the Plan (including benefits earned before the Effective Date) other than Grandfathered Amounts (“Non-Grandfathered Amounts”), the Plan is intended, and shall be construed, to comply with the requirements of Section 409A of the Code.  Non-Grandfathered Amounts earned before the Effective Date were subject, before

the Effective Date, to the terms of the EDCP, as amended, including, for example, the requirement that any payment to a 409A Key Employee (as defined in ARTICLE II) that would otherwise be paid in the first six months after a separation from service was instead paid in the seventh month.  Notwithstanding anything to the contrary in this Section 1.04, in no event shall the Company, its officers, directors, employees, parents, subsidiaries, or affiliates be liable for any additional tax, interest, or penalty incurred by a Participant or Beneficiary as a result of the Plan’s failure to satisfy the requirements of Section 409A of the Code, or as a result of the Plan’s failure to satisfy any other applicable requirements for the deferral of tax.

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ARTICLE II. DEFINITIONS

The following words and phrases as used herein have the following meanings unless a different meaning is required by the context:

“401(k) Plan” means the IBM 401(k) Plus Plan as in effect from time to time, including, with respect to periods before the Effective Date, the IBM Savings Plan and any other predecessor to the IBM 401(k) Plus Plan, as applicable.

“409A Key Employee” has the meaning described in the IBM Section 409A Umbrella Document, which is Appendix B.

“409A Separation from Service” has the meaning described in the IBM Section 409A Umbrella Document attached to this Plan as Appendix B.

“Account” means a record-keeping account maintained for a Participant under the Plan.  A Participant’s Accounts under the Plan include, where applicable, a Pre-2005 Elective Deferral Account, a Pre-2005 Company Account, a Post-2004 Elective Deferral Account, and a Post-2004 Company Account.

“Actively Employed” means actively employed by the Company, including on a leave of absence other than a bridge leave, a pre-retirement planning leave, or a leave during which the individual is receiving LTD Benefits.

“Automatic Contribution” has the meaning provided in Section 5.01.

“Base Pay” means an Employee’s base pay (determined under the 401(k) Plan) from the Company for employment while on a U.S. payroll, determined before reduction for deferrals under the Plan or the 401(k) Plan or for amounts not included in income on account of salary reductions under Code section 125 or 132(f).  However, Base Pay does not include any pay during a Deferral Period that is paid after an Employee’s 409A Separation from Service (except amounts paid in the pay period in which the Employee’s 409A Separation from Service occurs and Rehire Pay).

“Beneficiary” means a person who is designated by a Participant or by the terms of the Plan to receive a benefit under the Plan by reason of the Participant’s death.  Each Participant’s Beneficiary under the Plan shall be the person or persons designated as the Participant’s Beneficiary under the Plan, in the form and manner prescribed by the Plan Administrator.  If no such beneficiary designation is in effect under the Plan at the time of the Participant’s death, or if no designated beneficiary under the Plan survives the Participant, the Participant’s Beneficiary shall be the person or persons determined to be the Participant’s beneficiary under the 401(k) Plan (including the default beneficiary rules under the 401(k) Plan, if no beneficiary is designated under that plan).

“Board” means the Board of Directors of IBM.

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“Code” means the Internal Revenue Code of 1986, as amended from time to time.  All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered.

“Combined Base Pay Election” has the meaning provided in Section 4.01(a)(1).

“Committee” means the Executive Compensation and Management Resources Committee (the “ECMRC”) appointed by the Board or any other person or committee that the ECMRC has delegated its responsibilities to under the Plan.

“Company” means International Business Machines Corporation (“IBM”), a New York corporation having its principal place of business at Armonk, New York, and its Domestic Subsidiaries that are participating employers in the 401(k) Plan.

“Company Contributions” means amounts credited to a Participant’s Post-2004 Company Account, including Matching Contributions, Match Maximizer Contributions, Automatic Contributions, Transition Credits, Discretionary Awards, Section 415 Excess Credits, and any similar credits under the EDCP.

“Deferral Election” means an Eligible Employee’s election to defer Base Pay or Performance Pay under Section 4.01.

“Deferral Period” means a period that begins on or after the Effective Date that (a) starts on January 1 and ends on the next following December 31 for Base Pay and (b) starts on April 1 and ends on the next following March 31 for Performance Pay.

“Discretionary Award” means a credit to a Participant’s Account as described in Section 5.04.

“Domestic Subsidiary” means a “Domestic Subsidiary” as defined in the 401(k) Plan.

“EDCP” means the IBM Executive Deferred Compensation Plan in effect before the Effective Date.

“Effective Date” means January 1, 2008.

“Elective Deferrals” means deferrals of Base Pay or Performance Pay credited to the Participant’s Post-2004 Elective Deferral Account pursuant to a Participant’s election under Section 4.01(a) or any similar provision of the EDCP.

“Eligible Employee” means, with respect to a Plan Year, an Employee who is eligible to make Elective Deferrals or to receive Company Contributions during the Plan Year pursuant to ARTICLE III.

“Employee” means an employee of the Company who is eligible to participate in the 401(k) Plan and is not a Supplemental Employee.  Notwithstanding the foregoing, an

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individual who, on or after January 1, 2009, was an Employee and becomes a Supplemental Employee or begins receiving LTD Benefits before or during a Deferral Period with respect to which the individual has a valid, irrevocable Deferral Election and without first incurring a 409A Separation from Service shall continue to be considered to be an Employee solely for purposes of the individual’s eligibility during such Deferral Period to make Elective Deferrals (but not for purposes of the individual’s eligibility for any Company Contribution).  For example, an individual who is receiving LTD Benefits is not eligible to participate in the 401(k) Plan (as in effect on the Effective Date) and is therefore not an Employee, except that if the individual has not incurred a 409A Separation from Service, the Employee’s Elective Deferrals shall continue pursuant to any irrevocable Deferral Election.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Excess 401(k) Eligible Pay” means, for each payroll period that ends after an Eligible Employee reaches his or her Program Eligibility Date, the excess, if any, of (A) the Eligible Employee’s eligible compensation under the 401(k) Plan for such payroll period determined without regard to the Pay Limit, over (B) the Eligible Employee’s eligible compensation under the 401(k) Plan during such payroll period determined taking into account the Pay Limit.  Solely for purposes of each payroll period in Plan Year 2008:

(a)Excess 401(k) Eligible Pay of an Eligible Employee who is an executive includes Performance Pay that is paid during the payroll period and is not eligible compensation under the 401(k) Plan minus Elective Deferrals made with respect to such Performance Pay; and

(b)solely for purposes of calculating Match Maximizer Contributions, Excess 401(k) Eligible Pay does not include Growth Driven Profit-Sharing amounts and employee sales or services incentives that are paid in the first quarter of 2008 (however, these amounts are Excess 401(k) Eligible Pay for purposes of calculating Automatic Contributions and Transition Credits).

“Grandfathered Amounts” has the meaning provided in Section 1.04(a).

“IBM” means International Business Machines Corporation, any predecessor, or any successor by merger, purchase, or otherwise.

“LTD Benefits” means benefits under the Company’s long-term disability plan.

“Matching Contribution” has the meaning provided in Section 4.02(a).

“Match Maximizer Contribution” has the meaning provided in Section 4.02(b).

“Non-Grandfathered Amounts” has the meaning provided in Section 1.04(b).

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“Participant” means an individual who has a positive balance in an Account under the Plan.

“Pay Limit” means, for a Plan Year, the limit on compensation that may be taken into account during such Plan Year under a tax-qualified plan as determined under Code Section 401(a)(17).

“Performance Pay” means an Employee’s performance pay (determined under the 401(k) Plan) from the Company for employment while on a U.S. payroll, determined before reduction for deferrals under the Plan or the 401(k) Plan or for amounts not included in income on account of salary reductions under Code section 125 or 132(f).  However, Performance Pay does not include any pay during a Deferral Period that is paid after an Employee’s 409A Separation from Service (except amounts paid in the pay period in which the Employee’s 409A Separation from Service occurs and Rehire Pay).  Notwithstanding this definition, Performance Pay that is paid in the first quarter of 2008 is subject to the following special rules:

(a)such Performance Pay does not include Growth Driven Profit-Sharing and employee sales or services incentives;

(b)such Performance Pay includes incentive pay (such as Annual Incentive Plan payments or sales or services incentives) that is paid to an executive; and

(c)an Employee’s deferral election with respect to such Performance Pay is subject to the advance election and deferral percentage limit terms of the EDCP.

“Plan” means this IBM Excess 401(k) Plus Plan.

“Plan Administrator” means the VP HR On-Demand, or such other person or committee appointed pursuant to ARTICLE IX, which shall be responsible for reporting, recordkeeping, and related administrative requirements.  If appointed as a committee, any one of the members of the committee may act individually on behalf of the committee to fulfill the committee’s duties.

“Plan Year” means the calendar year.

“Pre-2005 Accounts” means a Participant’s Pre-2005 Company Account and Pre-2005 Elective Deferral Account.

“Pre-2005 Company Account” means, for any Participant, the aggregate of the company contributions (including any discretionary awards) credited to the Participant under the EDCP before January 1, 2005, to the extent such contributions were vested as of December 31, 2004, and earnings, gains, or losses credited on those contributions, but reduced for any prior distribution under the EDCP or the Plan.

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“Pre-2005 Elective Deferral Account” means, for any Participant, the aggregate of  the elective deferrals credited to the Participant under the EDCP before January 1, 2005, and earnings, gains, or losses credited on those elective deferrals, but reduced for any prior distribution under the EDCP or the Plan.

“Post-2004 Accounts” means a Participant’s Post-2004 Company Account and Post-2004 Elective Deferral Account.

“Post-2004 Company Account” means, for any Participant, the aggregate of (a) the Company Contributions credited to the Participant under the EDCP or the Plan on or after January 1, 2005, plus (b) any such contributions credited under the EDCP before January 1, 2005, to the extent such contributions were not vested as of December 31, 2004, and earnings, gains, or losses credited on amounts described in (a) and (b), but reduced for any prior distribution under the EDCP or the Plan.

“Post-2004 Elective Deferral Account” means, for any Participant, the aggregate of the Elective Deferrals credited to the Participant under the EDCP or the Plan on or after January 1, 2005, and earnings, gains, or losses credited on those Elective Deferrals, but reduced for any prior distribution under the EDCP or the Plan.

“Program Eligibility Date” means an Eligible Employee’s “Program Eligibility Date” under the 401(k) Plan.

“Rehire Pay” means Base Pay or Performance Pay, as applicable, that is payable on or after the date an Employee returns to active employment with the Company following a 409A Separation from Service or, if later, after the end of the Deferral Period in which the Employee’s 409A Separation from Service occurred.  For example, if an Employee incurs a 409A Separation from Service in April 2009 (whether on account of a leave in excess of six months or because of a termination of employment with IBM) and returns to active employment with IBM in November 2009, the Employee’s Rehire Pay would include (a) Base Pay payable on or after January 1, 2010 (i.e., the beginning of the Base Pay Deferral Period after the 409A Separation from Service), and (b) Performance Pay payable on or after April 1, 2010 (i.e., the beginning of the Performance Pay Deferral Period after the 409A Separation from Service).  By contrast, if instead the Employee returned to active employment on February 1, 2010, the Employee’s Rehire Pay would include (a) Base Pay payable on or after on February 1, 2010, and (b) Performance Pay payable on or after April 1, 2010.

“Retirement-Eligible Participant” means a Participant who:

(a)when his or her 409A Separation from Service occurs, (1) is at least age 55 with at least 15 years of service, (2) is at least age 62 with at least 5 years of service, (3) is at least age 65 with at least 1 year of service, or (4) begins to receive LTD Benefits;

7

(b)as of June 30, 1999, had at least 25 years of service and, when his or her 409A Separation from Service occurs, has at least 30 years of service; or

(c)as of June 30, 1999, was at least age 40 with at least 10 years of service and, when his or her 409A Separation from Service occurs, has at least 30 years of service.

For purposes of this definition, “year of service” means a year of “Eligibility Service” as defined in the IBM Personal Pension Plan.  In addition, for purposes of Section 7.04 (payment of grandfathered amounts upon termination of employment), this definition of “Retirement-Eligible Participant” is applied by replacing “409A Separation from Service” with “termination of employment.”  Furthermore, the conditions in (a), (b), and/or (c) above are modified to the extent necessary to be consistent with the retirement-eligibility criteria in the EDCP.

“Section 415 Excess Credit” means a credit to a Participant’s Account as described in Section 5.03.

“Subsidiary” means a “Subsidiary” as defined in the 401(k) Plan.

“Supplemental Employee” means an employee who is designated by the Company as a “long-term supplemental employee” or a “supplemental employee” in accordance with the Company’s established personnel practices.

“Transition Credit” means a credit to a Participant’s Account as described in Section 5.02.

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ARTICLE III. ELIGIBILITY

3.01.Eligibility for Elective Deferrals.  An Employee shall be eligible to make Elective Deferrals for a Deferral Period if:

(a) he or she qualifies as an Employee (i.e., an employee of the Company who is eligible to participate in the 401(k) Plan and is not a Supplemental Employee) and is Actively Employed on both August 31 and December 31 immediately preceding the first day of the Deferral Period;

(b) the Plan Administrator, in its sole discretion, estimates as of the September 1 immediately preceding the first day of the Deferral Period (or such other date prescribed by the Plan Administrator) that the Employee’s pay for the calendar year immediately preceding the first day of the Deferral Period will exceed the Pay Limit as then in effect; and

(c) the Plan Administrator notifies the Employee between September 1 and December 31 immediately preceding the Deferral Period that he or she will be eligible to make Elective Deferrals under the Plan during the Deferral Period.

3.02.Eligibility for Matching and Match Maximizer Contributions.  An Employee shall be eligible for Matching and Match Maximizer Contributions for a payroll period that ends after the Employee has reached his or her Program Eligibility Date, provided that the Employee is eligible for, and makes, Elective Deferrals during the Plan Year in which the payroll period ends.  However, an Employee shall not be eligible for Matching and Match Maximizer Contributions during any payroll period:

(a)  beginning after the Employee has a 409A Separation from Service and ending before the Employee returns to active employment as an Employee;

(b) beginning after the Employee receives a hardship withdrawal under the 401(k) Plan and within the same Plan Year as such hardship withdrawal occurs; or

(c) beginning after the Employee becomes a Supplemental Employee or begins to receive LTD Benefits (whether or not he or she makes Elective Deferrals) and ending before he again becomes an Employee.

3.03.Eligibility for Automatic Contributions and Transition Credits.

(a) General Rule.  Except as provided in subsection (b) (regarding Employees hired before September 1, 2007) and subsection (c) (regarding the period following a 409A Separation from Service), an Employee shall be eligible for Automatic Contributions and Transition Credits during a payroll period if:

(1) with respect to eligibility for Automatic Contributions, the Employee is eligible during that payroll period for “automatic contributions”

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under the 401(k) Plan, and, with respect to eligibility for Transition Credits, the Employee is eligible during that payroll period for “transition credits” under the 401(k) Plan; and

(2) the Employee is eligible to make Elective Deferrals during the payroll period (regardless of whether the Employee has elected to make Elective Deferrals for the payroll period).

If the individual is eligible to make Elective Deferrals during the Plan Year only with respect to Performance Pay during the Performance Pay Deferral Period that ends in the Plan Year, the individual is eligible for Automatic Contributions and Transition Credits, if at all, only during payroll periods ending during such Performance Pay Deferral Period and only with respect to the portion of the Performance Pay actually deferred under this Plan (except as provided in subsection (b), below).  For example, if an individual is eligible to make Elective Deferrals for Deferral Periods that begin in 2008 but is not eligible to make Elective Deferrals for Deferral Periods that begin in 2009, the individual is not eligible for Automatic Contributions and Transition Credits in 2009 except with respect to any Elective Deferrals of Performance Pay for the Performance Pay Deferral Period ending March 31, 2009 (and except as provided in subsection (b), below).

(b) Employees Hired Before September 1, 2007.   Notwithstanding subsection (a), above, an Employee who is continuously employed by the Company since August 31, 2007, shall be eligible for Automatic Contributions and Transition Credits during a payroll period if the Employee is eligible during that payroll period, respectively, for “automatic contributions” and “transition credits” under the 401(k) Plan as described in subsection (a)(1), above, even if the Employee is not eligible to make Elective Deferrals during the payroll period.

(c) Eligibility after 409A Separation from Service.  An Employee shall not be eligible for Automatic Contributions or Transition Credits during any payroll period that begins after the Employee has a 409A Separation from Service and ends before the Employee returns to active employment as an Employee.

3.04.Eligibility for Section 415 Excess Credits.  An Employee shall be eligible for Section 415 Excess Credits during a payroll period if the Employee’s allocations during the payroll period under the 401(k) Plan are limited by Section 415 of the Code.  However, an Employee shall not be eligible for Section 415 Excess Credits during any payroll period that begins after the Employee has a 409A Separation from Service and ends before the Employee returns to active employment as an Employee.

3.05.Eligibility for Discretionary Awards.  An Employee shall be eligible for Discretionary Awards during a Plan Year as determined by the Company, in its discretion.

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ARTICLE IV. ELECTIVE DEFERRALS AND MATCHING CONTRIBUTIONS

4.01.Elective Deferrals.  Beginning with the payroll period that includes the Effective Date, Elective Deferrals made pursuant to an Eligible Employee’s Deferral Election, as described below, shall be credited to the Employee’s Post-2004 Elective Deferral Account on the date on which the amount would otherwise be paid to the Eligible Employee absent a Deferral Election.

(a) Amount of Elective Deferrals.

(1) Amount of Base Pay Deferrals.  An Employee who, pursuant to Section 3.01, is eligible to make Elective Deferrals under the Plan for a Deferral Period with respect to Base Pay may elect to defer Base Pay in the amounts specified below, subject to any restriction imposed by the Plan Administrator to ensure sufficient pay remains for other deductions and withholding, which limitations shall be imposed prior to the date on which the election becomes irrevocable.

i.Standard Base Pay Election.  From 1% to 80%, in 1% increments, of the Eligible Employee’s Base Pay, if any, for each payroll period that ends during the Deferral Period; or

ii.Combined Base Pay Election.  From 1% to 80%, in 1% increments, of the Eligible Employee’s Base Pay, if any, for each payroll period that ends during the Deferral Period, reduced (but not below zero) by the product of (A) the company matching contribution percentage applicable to the Eligible Employee under the 401(k) Plan and (B) 1/24 of the Pay Limit in effect for the Deferral Period.

(2) Amount of Performance Pay Deferrals.  An Employee who, pursuant to Section 3.01, may elect to make Elective Deferrals under the Plan for a Deferral Period with respect to Performance Pay may elect to make Deferrals from 1% to 80%, in 1% increments, of his or her Performance Pay, if any, paid during the Deferral Period.

(b) Timing of Deferral Elections.  An Eligible Employee’s Deferral Elections under subsection (a), above, shall be made as follows:

(1) Election Period.  The election must be made while the individual is an Employee and Actively Employed, in the form and manner prescribed by the Plan Administrator, and during the time period prescribed by the Plan Administrator, which shall begin no earlier than the September 1 and end no later than the December 31 of the Plan Year

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immediately preceding the first day of the Deferral Period to which the election applies.

(2) Irrevocability.  The election must become irrevocable on the December 31st immediately preceding the Plan Year during which the applicable Deferral Period begins.  Once a Deferral Election becomes irrevocable, an Eligible Employee’s Deferral Election shall apply for the entire Deferral Period to which it relates and shall cease to apply after such Deferral Period except to the extent that the individual makes a new Deferral Election in accordance with this Section for subsequent Deferral Periods, subject to the cancellation rules in subsection (c), below.

(c) Cancellation of Deferral Election upon a 401(k) Plan Hardship Distribution. Notwithstanding the irrevocability of elections in subsection (b)(2), above, an individual’s Deferral Election shall not apply with respect to:

(1) any payroll period that ends after the Employee receives a hardship withdrawal under the 401(k) Plan and within the same Plan Year as the hardship withdrawal occurs; or

(2) any payroll period for which Performance Pay would, absent a Deferral Election, be paid to the individual during a Deferral Period that begins during the Plan Year in which the hardship withdrawal occurs.

For example, if an individual receives a hardship withdrawal on June 1, 2009, the individual’s Deferral Election with respect to Performance Pay is cancelled for the remainder of the Deferral Period ending March 31, 2010.  Furthermore, if the individual instead receives a hardship withdrawal on March 1, 2009, the individual’s Deferral Election is cancelled with respect to the remainder of the Deferral Period ending on March 31, 2009, and for the Deferral Period beginning on April 1, 2009, and ending on March 31, 2010.

4.02.Matching Contributions.  Beginning with the payroll period that includes the Effective Date, Matching Contributions and Match Maximizer Contributions shall be credited to the Post-2004 Company Account for each Eligible Employee who satisfies the eligibility requirements described in Section 3.02 for such payroll period in an amount equal to the sum of the Matching Contribution and Match Maximizer Contribution described below.

(a) Matching Contribution.  An Eligible Employee’s Matching Contribution is the sum of the following:

(1) the lesser of (A) the company matching contribution percentage applicable to the Eligible Employee under the 401(k) Plan or (B) the Elective Deferral percentage elected by the Eligible Employee (without regard to any Combined Base Pay Election) for such payroll period,

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multiplied by the Eligible Employee’s Elective Deferrals for such payroll period; and

(2) the lesser of (A) the company matching contribution percentage applicable to the Eligible Employee under the 401(k) Plan or (B) the Elective Deferral percentage elected by the Eligible Employee (without regard to any Combined Base Pay Election) for such payroll period, multiplied by the Eligible Employee’s Excess 401(k) Eligible Pay for such payroll period;

provided that the sum of (1) and (2) shall not exceed the Elective Deferrals credited to the Eligible Employee for such payroll period.

(b) Match Maximizer Contribution.  An Eligible Employee’s Match Maximizer Contribution for a payroll period is determined as described below.  The formula differs (as noted in paragraph (ii), below) depending on whether or not the Eligible Employee elected the Combined Base Pay Election for the Plan Year. The Match Maximizer Contribution shall equal:

The lesser of: (1) The company matching contribution percentage applicable to the Eligible Employee under the 401(k) Plan or (2) the percentage derived from the ratio of:

 (i)the aggregate Elective Deferrals previously credited to the Eligible Employee’s Post-2004 Elective Deferral Account for the portion of the Plan Year after the Eligible Employee’s Program Eligibility Date, to

(ii)the sum, aggregated for the portion of the Plan Year that is after the Eligible Employee’s Program Eligibility Date and determined as of the date the applicable payroll period ends, of (A) the Eligible Employee’s Elective Deferrals, (B) the Eligible Employee’s Excess 401(k) Eligible Pay, and (C) if the Eligible Employee did not elect a Combined Base Pay Election for the Plan Year, the compensation eligible for a matching contribution under the 401(k) Plan.

Multiplied by: The Eligible Employee’s Excess 401(k) Eligible Pay plus the Eligible Employee’s Elective Deferrals, each aggregated only for the portion of the Plan Year that is after the Eligible Employee’s Program Eligibility Date and until the applicable payroll period ends.

Minus: The Matching Contributions and Match Maximizer Contributions previously credited to the Eligible Employee through the date the applicable payroll period ends.

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ARTICLE V. NON-ELECTIVE CREDITS

5.01.Automatic Contributions.  Beginning with the payroll period that includes the Effective Date, an Automatic Contribution shall be credited to the Post-2004 Company Account of an Employee who is eligible for Automatic Contributions under Section 3.03 in an amount equal to the sum of:

(a) the Employee’s “automatic contribution percentage” under the 401(k) Plan multiplied by the Employee’s Elective Deferrals, if any, for the applicable payroll period; plus

(b) the Employee’s “automatic contribution percentage” under the 401(k) Plan multiplied by the Employee’s Excess 401(k) Eligible Pay, if any, for the applicable payroll period.

5.02.Transition Credits.  Beginning with the payroll period that includes the Effective Date, a Transition Credit shall be credited to the Post-2004 Company Account of an Employee who is eligible for Transition Credits under Section 3.03 in an amount equal to the sum of:

(a) the Employee’s “transition credit percentage” under the 401(k) Plan multiplied by, if any, the Employee’s Elective Deferrals for the applicable payroll period; plus

(b) the Employee’s “transition credit percentage” under the 401(k) Plan multiplied by the Employee’s Excess 401(k) Eligible Pay, if any, for the applicable payroll period.

5.03.Section 415 Excess Credits.  Beginning with the payroll period that includes the Effective Date, a Section 415 Excess Credit shall be credited to the Post-2004 Company Account of an Employee who is eligible for Section 415 Excess Credits under Section 3.04 in an amount equal to the excess of (A) the amount that would have been allocated to the Employee’s account under the 401(k) Plan (including any forfeiture that would have been allocated to such account in lieu of such a contribution) for such payroll period if the limits imposed by Section 415 of the Code did not apply to such allocation over (B) the amount actually allocated to such Employee’s account under the 401(k) Plan (including any forfeiture allocated in lieu of such a contribution) for such payroll period.

5.04.Discretionary Awards.  From time to time on and after the Effective Date, the Company, in its discretion, may credit an Eligible Employee’s Post-2004 Company Account with an amount determined under an agreement evidencing the Discretionary Award, and such award shall be subject to the terms specified in such agreement in addition to the terms of this Plan.

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ARTICLE VI. VESTING, DEEMED INVESTMENT OF ACCOUNTS

6.01.Individual Accounts.  For record-keeping purposes only, the Plan Administrator shall maintain, or cause to be maintained, records showing the individual balances of each Account maintained for a Participant from time to time under the Plan.  Periodically, each Participant shall be furnished with a statement setting forth the value of his or her Accounts under the Plan.

6.02.Vesting of Accounts.  A Participant shall be fully vested in all Accounts maintained for the Participant under the Plan; provided, however, that Discretionary Awards credited to a Participant’s Post-2004 Company Account and earnings, gains, or losses on those contributions, shall become vested only as set forth in the agreement evidencing the award and, to the extent not vested, shall not be paid.

6.03.Deemed Investment of Accounts.  A Participant’s Accounts under the Plan shall be adjusted for deemed earnings, gains, or losses.  Earnings, gains, or losses for any period before the Effective Date shall be determined in accordance with the applicable provisions of the EDCP.  Earnings, gains, or losses for any period on or after the Effective Date shall be determined in accordance with the following:

(a) Deemed Investment Options Available.

(1) General Rule.  A Participant’s Account shall be treated as if the Participant had invested such accounts in certain 401(k) Plan investment funds in accordance with subsection (b), below, except with respect to certain amounts credited before the Effective Date and attributable to Matching Contributions or the Buy-First Program as described in paragraphs (2) and (3), below.

(2) Matching Contributions Credited Before the Effective Date.  The portion of a Participant’s Pre-2005 Company Account (if any) and the Participant’s Post-2004 Company Account attributable to Matching Contributions credited to the Participant before the Effective Date (and related earnings but not dividend equivalents) shall be treated as if invested at all times in the IBM Stock Fund under the 401(k) Plan.  Notwithstanding the foregoing, if a Participant has a termination of employment for purposes of the 401(k) Plan and his or her entire Plan benefit is not immediately payable in a lump sum, amounts described in this paragraph (2) shall no longer be subject to the restrictions of this paragraph (2) and may be invested as described in paragraph (1), above.

(3) Amounts Attributable to Buy-First Executive Equity Program. Any portion of a Participant’s Post-2004 Elective Deferral Account that is attributable to a Participant’s deferrals under the EDCP through the IBM  Buy-First Executive Equity Program before the Effective Date (and related earnings but not dividend equivalents) shall, for the three-year period

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following the date such deferrals were credited, be treated as if invested in the IBM Stock Fund under the 401(k) Plan; provided, however, that if a Participant has a termination of employment for purposes of the 401(k) Plan before the end of such three-year period and his or her entire Plan benefit is not immediately payable in a lump sum, amounts described in this paragraph (3) shall no longer be subject to the restrictions of this paragraph (3) and may be invested as described in paragraph (1), above.

(b) Elections for Deemed Investment Options.

(1) Initial Election For Future Credits.  A Participant shall designate, in such form and at such time in advance as may be prescribed by the Plan Administrator, the proportions (in multiples of 1%) in which Elective Deferrals and Company Contributions credited to his or her Plan Accounts on or after the Effective Date shall be treated as if they had been allocated among any or all of the investment funds that are available under the 401(k) Plan (other than the mutual fund window) at the time such amounts are credited.  If the Participant makes no such designation, the Participant shall be deemed to have designated the default investment fund under the 401(k) Plan.

(2) Change in Election for Future Credits.  A Participant may elect, in such form and at such time in advance as may be prescribed by the Plan Administrator, to change his or her investment elections for future Elective Deferrals and Company Contributions credited to his or her Plan Accounts.  Any restrictions on investment election changes that apply under the 401(k) Plan shall also apply under the Plan.

(3) Transfers Among Deemed Investment Options.  A Participant may elect, in such form and at such time in advance as may be prescribed by the Plan Administrator, to transfer balances in his or her Plan Accounts (other than amounts described in subsections (a)(1), (a)(2), or (a)(3) that are required to be treated as invested in IBM stock or the IBM Stock Fund) among the available investment funds, provided that:

i.Transfers must be made in multiples of 1%, provided that the minimum amount transferred shall be $250 if that is greater than 1% (provided, however, that the Plan Administrator may specify a different percentage and/or a different dollar amount to be applied in this paragraph);

ii.Any restrictions on transfers into or out of investment funds that apply under the 401(k) Plan shall also apply under the Plan; and

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iii.The Committee may impose such additional rules and limits upon transfers between investment funds as the Committee may deem necessary or appropriate.

(c) Administrative Fee.  Each calendar quarter, an administrative fee shall be deducted pro rata from each Participant’s Accounts.  The amount of the fee shall be determined by the Plan Administrator and, as of the Effective Date is $8 each quarter.

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ARTICLE VII. PAYMENT OF GRANDFATHERED AMOUNTS

7.01.Grandfathered Treatment of Grandfathered Amounts.  Pre-2005 Accounts are paid in accordance with the EDCP in effect on October 3, 2004, except as the EDCP is amended, where each such amendment does not constitute a “material modification,” as determined under Section 409A of the Code.  This ARTICLE VII describes the key provisions of the EDCP (as amended), as it applies to Grandfathered Amounts on and after the Effective Date.

7.02.Payment of Grandfathered Amounts Upon Death.   If a Participant dies before his or her Pre-2005 Accounts have been distributed in full, the value of his or her Pre-2005 Accounts shall be paid in a lump sum to the Participant’s Beneficiary as soon as practicable after the Participant’s death.

7.03.Options for Payment of Grandfathered Amounts Upon Termination of Employment.

(a) Forms of Payment.  A Participant may elect, at the time and in the manner described in subsection (b), below, to have the value of his or her Pre-2005 Accounts paid under one of the following options, subject to the limits in Section 7.04, below (regarding retirement-eligibility and $25,000 cash-out limit):

(1) A lump sum payment as soon as practicable following the Participant’s termination from employment;

(2) A lump sum payment as of the last business day in January of the calendar year immediately following the calendar year in which the Participant’s termination from employment occurs; or

(3) From two to 10 annual installments (as elected by the Participant), each paid as of the last business day in January beginning with the January immediately following the calendar year in which the Participant’s termination from employment occurs, until the elected number of installments have been paid.

Solely for purposes of this subsection (a), termination of employment includes the date on which a Participant begins to receive LTD Benefits.

(b) Election of Payment Option.  A Participant shall elect a payment option for his or her Pre-2005 Accounts in the form and manner prescribed by the Plan Administrator.  A payment election made before January 1, 2008, applies to a termination of employment that occurs at least six months after, and in a calendar year after, the payment election is made.  A payment election made on or after January 1, 2008, applies to a termination of employment that occurs at least twelve months after the payment election is made.

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7.04.Payment of Grandfathered Amounts Upon Termination of Employment. The Participant’s Pre-2005 Accounts shall be paid to the Participant in the form and at the time described below:

(a) Non-Retirement-Eligible or Benefit Is Less than $25,000.  If the Participant is not a Retirement-Eligible Participant or if the aggregate value of all of the Participant’s Accounts under the Plan (including, for this purpose, “deferred shares” as defined in the EDCP) is less than $25,000 when the Participant terminates employment, the Participant’s Pre-2005 Accounts shall be paid in an immediate lump sum;

(b) Retirement-Eligible Without Valid Payment Election.  If the Participant is a Retirement-Eligible Participant but has not made a valid payment election, the Participant’s Pre-2005 Accounts shall be paid in a lump sum as of the last business day in January immediately following the calendar year of the Participant’s termination of employment, provided that the aggregate value of all of the Participant’s Accounts (including, for this purpose, “deferred shares” as defined in the EDCP) under the Plan is at least $25,000 when the Participant terminates employment.

(c) Retirement-Eligible With Valid Payment Election.  If the Participant is a Retirement-Eligible Participant and has made a valid payment election, the Participant’s Pre-2005 Accounts shall be paid in accordance with the payment option elected, provided that the aggregate value of all of the Participant’s Accounts under the Plan is at least $25,000 (including, for this purpose, “deferred shares” as defined in the EDCP) when the Participant terminates employment.

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ARTICLE VIII. PAYMENT OF NON-GRANDFATHERED AMOUNTS

8.01.Payment of Non-Grandfathered Amounts Upon Death.  If a Participant dies before his or her Post-2004 Accounts have been distributed in full, the value of his or her Post-2004 Accounts shall be paid in a lump sum to the Participant’s Beneficiary on the date that is 30 days after the date of the Participant’s death (or, if that date is not a business day, the first business day thereafter).  However, the Plan Administrator may make payment on any other day to the extent that such payment is treated as being paid on the date specified in the previous sentence under Treasury Regulation section 1.409A-3(d), which permits payment to be made within thirty days before the specified date and later within the same calendar year, or, if later, within 2-1/2 months following the specified date, provided that the Participant is not permitted to designate the taxable year of payment.  For purposes of determining the amount payable to the Beneficiary, the Participant’s Post-2004 Accounts will be valued as of the date the payment is processed.

8.02.Form of Payment for Non-Grandfathered Amounts Paid Upon a 409A Separation from Service.  A Participant may elect, at the time and in the manner described in Section 8.03, below, to have the value of his or her Post-2004 Accounts paid under one of the following options, subject to the limits in Section 8.04, below (regarding delays for 409A Key Employees) and Section 8.05, below (special rules for separations during the first quarter of 2008):

(a) A lump sum payment as of the first business day that is at least 30 days after the Participant’s 409A Separation from Service;

(b) A lump sum payment as of the last business day in January of the calendar year immediately following the calendar year in which the Participant’s 409A Separation from Service occurs; or

(c) From two to 10 annual installments (as elected by the Participant), each paid as of the last business day in January beginning with the January immediately following the calendar year in which the Participant’s 409A Separation from Service occurs, until the elected number of installments have been paid, subject to Section 8.04(c) (involuntary cash-outs).  This installment option is treated as the entitlement to a single payment for purposes of Treasury Regulation section 1.409A-2(b)(2)(iii).

However, the Plan Administrator may make payment on any other day to the extent that such payment is treated as being paid on the date specified above under Treasury Regulation section 1.409A-3(d), which permits payment to be made within thirty days before the specified date and later within the same calendar year, or, if later, within 2-1/2 months following the specified date, provided that the Participant is not permitted to designate the taxable year of payment.

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8.03.Electing and Changing Payment Options for Non-Grandfathered Amounts.

(a) Election of Payment Option.  A Participant shall elect a payment option for his or her Post-2004 Accounts in the form and manner prescribed by the Plan Administrator and during whichever of the following election periods applies to the Participant (except as provided in Section 8.05, below, with respect to a separation during the first quarter of 2008):

(1) Special Election Period in 2007.  During the special election period designated by the Plan Administrator and ending no later than December 31, 2007, an Employee may elect the payment option that will apply to his or her Post-2004 Accounts under the Plan in the event his 409A Separation from Service occurs on or after April 1, 2008, if the Employee:

i.is eligible to make Elective Deferrals in 2008;

ii.on October 31, 2007, had a balance in his or her EDCP Accounts; or

iii.on October 31, 2007, had a valid EDCP election on file for deferrals in 2007.

Accordingly, an individual who first became an executive after October 31, 2007 and who is not eligible to make Elective Deferrals in 2008, is not eligible to make a payment election under this paragraph (1), even if he or she deferred pay under the EDCP in 2007.

(2) Election in Plan Year Before Initial Eligibility.  An individual who is first eligible to make Elective Deferrals in a Plan Year beginning after the Effective Date, and who before such Plan Year has not earned any other benefit under the Plan (including the EDCP) may, during the annual enrollment period prescribed by the Plan Administrator that immediately precedes such Plan Year, elect the payment option that will apply to his or her Post-2004 Accounts under the Plan, whether or not the individual also elects to make Elective Deferrals during such enrollment period.

(3) Initial Election for Pre-September 1, 2007 Hire.  If, during a Plan Year, an Eligible Employee earns for the first time Automatic Contributions and/or Transition Credits (but not Section 415 Excess Credits), and the benefit the Eligible Employee earns under the Plan for the Plan Year is equal only to the excess of amounts that would otherwise be allocated to the Participant’s account in the 401(k) Plan in the absence of one or more limits applicable to tax-qualified plans over the amount actually credited to the Participant’s account in the 401(k) Plan, the Participant may elect, in accordance with Treas. Reg. § 1.409A-2(a)(7)(iii), the payment option that

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will apply to his or her Post-2004 Accounts under the Plan during the period determined by the Plan Administrator that ends no later than January 31st of the calendar year immediately following the calendar year in which the Automatic and/or Transition Credit is credited, but only if the Participant:

i.was hired by the Company before September 1, 2007 and has been employed continuously since his or her hire date;

ii.was not, during the Plan Year of such credit or any previous Plan Year beginning on or after the Effective Date, eligible to make an Elective Deferral;

iii.was not previously eligible to elect a payment option under this subsection (a);

iv.has not, in any calendar year prior to the calendar year of the contribution, accrued a benefit or deferred compensation under a plan as determined under Treas. Reg. § 1.409A-2(a)(7)(iii).

(b) Irrevocability and Default Payment Option.  If a Participant does not make an election under paragraphs (a)(1), (a)(2), or (a)(3), above (including a Participant who is not eligible to make an election under any of those paragraphs), the Participant’s initial payment election shall be the payment option described in subsection 8.02(a) (immediate lump sum), above.  A Participant’s initial payment election (including the default option described in the previous sentence) becomes irrevocable, and can be changed only in accordance with subsection (c), below, after (i) the deadline specified in paragraphs (a)(1) or (a)(3), for Participants eligible to make elections under those paragraphs, and (ii) December 31 of the Plan Year preceding the Plan Year in which the Participant first earns a credit under the Plan, for all other Participants.

(c) Changing Payment Options.  A Participant may elect, in the form and manner prescribed by the Plan Administrator, to change the Participant’s initial payment option determined under this Section 8.03, provided that:

(1) The Participant must make such election at least 12 months before the date of his 409A Separation from Service;

(2) If the election is made on or after January 1, 2009, the payment date for any lump sum or the start date for any series of installments provided for under the new payment option shall be the fifth anniversary of the payment date or start date that would have applied absent a change in payment option; and

(3) The Participant may change his or her payment option:

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i.only once during 2008; and

ii.only once on or after January 1, 2009.

8.04.Payment of Non-Grandfathered Amounts Upon a 409A Separation from Service.  The value of a Participant’s Post-2004 Accounts shall be paid to the Participant upon his or her 409A Separation from Service on or after the Effective Date in the form and at the time provided in Sections 8.02 and 8.03, above (except as provided in Section 8.05, below (special rules for first quarter of 2008)), subject to the following:

(a) Delay for 409A Key Employees.  If the Participant is a 409A Key Employee on the date of his or her 409A Separation from Service, the payment date for any lump sum or the start date for any series of installments provided for under the applicable payment option shall be the later of (I) the first business day that is six months after the date of the Participant’s 409A Separation from Service, or (II) the otherwise applicable payment date or start date, subject to subsection (b) (death).  If the start date of a series of installments occurs other than as of  the last business day in January due to application of this paragraph, installments after the first installment shall be paid as of the last business day in January of each subsequent year, as scheduled without regard to the delay described in this subsection (a).

(b) Death of Participant After 409A Separation from Service.  If the death of a Participant (including a 409A Key Employee described in subsection (a), above) occurs before the payment date for any lump sum or installment provided for under the applicable payment option, payment shall be made to the Participant’s Beneficiary as provided in Section 8.01.

(c) Involuntary Cash-Out.  If (i) the applicable payment option is the installment option described in subsection
8.02(c), above, and (ii) the aggregate value of all of the Participant’s Accounts under the Plan (including, for this purpose, “deferred shares” as defined in the EDCP) determined as of the date of his or her 409A Separation from Service is less than 50% of the Pay Limit in effect for the calendar year in which the Participant’s 409A Separation from Service occurs, the value of the Participant’s Post-2004 Accounts shall be distributed in a lump sum on the start date that would otherwise have applied for the elected installments, taking into account any applicable delay for a 409A Key Employee described in subsection (a), above.

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8.05.Special Rules for Payment of Non-Grandfathered Amounts Upon a 409A Separation from Service in First Quarter of 2008.  If a Participant’s 409A Separation from Service occurs on or after January 1, 2008, and before April 1, 2008, the Participant’s Post-2004 Accounts shall be paid to the Participant in the form and at the time described below, except that such payments shall be subject to Section 8.04(a) (delay for 409A Key Employees) and Section 8.04(b) (death of Participant after 409A Separation from Service):

(a) Non-Retirement-Eligible or Benefit Is Less than $25,000.  If the Participant is not a Retirement-Eligible Participant or if the aggregate value of all of the Participant’s Accounts under the Plan (including, for this purpose, “deferred shares” as defined in the EDCP) is less than $25,000 as of the date of his or her 409A Separation from Service, the Participant’s Post-2004 Accounts shall be paid in an immediate lump sum as described in Section 8.02(a), above;

(b) Retirement-Eligible Without Valid Payment Election.  If the Participant is a Retirement-Eligible Participant but has not made a valid payment election, the Participant’s Post-2004 Accounts shall be paid in a lump sum as of the last business day in January immediately following the calendar year of the Participant’s 409A Separation from Service as described in Section 8.02(b), above, provided that the aggregate value of all of the Participant’s Accounts under the Plan (including, for this purpose, “deferred shares” as defined in the EDCP) is at least $25,000 as of the date of his or her 409A Separation from Service.

(c) Retirement-Eligible With Valid Payment Election.  If the Participant is a Retirement-Eligible Participant and has made a valid payment election, the Participant’s Post-2004 Accounts shall be paid in accordance with the payment option elected, as described in Section 8.02, above, provided that the aggregate value of all of the Participant’s Accounts under the Plan (including, for this purpose, “deferred shares” as defined in the EDCP) is at least $25,000 as of the date of his or her 409A Separation from Service.

For purposes of this Section 8.04, a valid payment election is a payment election made at least six months before the Participant’s 409A Separation from Service in a manner prescribed by the Plan Administrator.  If a Participant did not make a valid payment election for his or her Post-2004 Accounts, the Participant’s valid payment election shall be his or her valid payment election for his or her Pre-2005 Accounts, if any.

8.06.Valuation of Non-Grandfathered Accounts.  For purposes of determining the amount of any payment of the Participant’s Post-2004 Accounts, the Participant’s Post-2004 Accounts will be valued as of the date the payment is processed, except that if payment is required under the terms of the Plan to be made as of the last business day in January of a Plan Year (for example, pursuant to Section 8.02(b)), the Participant’s Post-2004 Accounts with respect to such payment shall be valued as of such last business day in January.  For purposes of determining the amount of any annual installment payment of the Participant’s Post-2004 Accounts, the

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value of the Participant’s Post-2004 Accounts on the valuation date shall be divided by the remaining number of installments.  No adjustment shall be made to the amount of any lump sum or installment after the valuation date.

8.07.Effect of Rehire on Non-Grandfathered Payments.  If a Participant becomes eligible for a payment of benefits on account of a 409A Separation from Service and is rehired as an Employee before his or her Post-2004 Accounts have been distributed in full, payments shall be made as if the Participant had not been rehired.  If the Participant again becomes eligible to make Elective Deferrals or receive Company Contributions following his or her rehire, the Plan Administrator shall arrange separate accounting for Elective Deferrals and Company Contributions (and related earnings, gains, or losses) credited to the Participant’s Post-2004 Accounts following the Participant’s rehire, and the Participant’s opportunity to make an initial distribution election under subsection 8.03(a)(2) (election in Plan Year before initial eligibility) shall be determined without regard to the benefits earned under the Plan prior to the Participant’s rehire.

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ARTICLE IX. ADMINISTRATION

9.01.Amendment or Termination.  This Plan may be amended from time to time for any purpose permitted by law or terminated at any time by written resolution of the Board or the Committee, but only if the Committee’s action is not materially inconsistent with a prior action of the Board.  The authority to amend or terminate the Plan shall include the authority to amend the procedure for amending or terminating the Plan and the authority to amend or terminate any related instrument or agreement.

9.02.Responsibilities.

(a) The following persons and groups of persons shall severally have the authority to control and manage the operation and administration of the Plan as herein delineated:

(1) the Board,

(2) the Committee.

(3) IBM’s chief human resources officer, and

(4) the Plan Administrator and each person on any committee serving as the Plan Administrator.

Each person or group of persons shall be responsible for discharging only the duties assigned to it by the terms of the Plan.

(b) The Board shall be responsible only for designating those persons who will serve on the Committee and for approval of a resolution in accordance with Section 9.01 to amend or terminate the Plan.

(c) The Committee may, pursuant to a duly adopted resolution, delegate to any officer or employee of IBM, or a committee thereof authority to carry out any decision, directive, or resolution of the Committee. The Committee may appoint one or more executives employed by IBM to serve as Plan Administrator or as a committee to fulfill the function of Plan Administrator.

(d) In the sole discretion of the Plan Administrator, the Plan Administrator shall have the full power and authority to:

(1) promulgate and enforce such rules and regulations as shall be deemed to be necessary or appropriate for the administration of the Plan;

(2) adopt any amendments to the Plan that are required by law;

(3) interpret the Plan consistent with the terms and intent thereof; and

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(4) resolve any possible ambiguities, inconsistencies, and omissions.

All such determinations and interpretations shall be in accordance with the terms and intent of the Plan, and the Plan Administrator shall report such actions to the Committee as the Committee requires.

(e) The Committee and the Plan Administrator may engage the services of accountants, attorneys, actuaries, investment consultants, and such other professional personnel as are deemed necessary or advisable to assist them in fulfilling their responsibilities under the Plan.  The Committee, the Plan Administrator, and their delegates and assistants will be entitled to act on the basis of all tables, valuations, certificates, opinions, and reports furnished by such professional personnel.

(f) IBM’s chief human resources officer shall have the discretionary power and authority to:

(1) appoint and designate such IBM employees as may be needed to provide adequate staff services to the Committee and the Plan Administrator;

(2) adopt and implement changes to the Plan relating to:

i.conforming the Plan, to the extent he or she deems appropriate, to the 401(k) Plan, including but not limited to the authority to make changes related to maximum deferral percentages of pay, the amount of Company Contributions, and vesting provisions;

ii.the form and timing of distributions available under the Plan, including the procedures for distribution elections and rules regarding default distributions;

iii.Deferral Elections, including the manner and timing of such elections;

iv.the integration of other deferred compensation liabilities relating to newly hired or acquired employees, and

v.any Plan administration rules that are consistent with the intent of the Plan and do not materially change the Company’s liability.

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ARTICLE X. GENERAL PROVISIONS

10.01.Funding.

(a) All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Company.  Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Company.  In the sole discretion of the Committee, a Participant’s accounts under the Plan may be reduced to reflect allocable administrative expenses.

(b) Neither the Company nor the Committee guarantees the investment alternatives available under the Plan in any manner against loss or depreciation.

10.02.No Contract of Employment.  Nothing herein contained shall be deemed to give any employee the right to be retained in the service of the Company or an affiliate or to interfere with the right of the Company or an affiliate to discharge any employee at any time without regard to the effect that such discharge may have upon the employee under the Plan.  Nothing appearing in or done pursuant to the Plan shall be held or construed to create a contract of employment with the Company, to obligate the Company to continue the services of any employee, or to affect or modify any employee’s terms of employment in any way or to give any person any legal or equitable right or interest in the Plan or any part thereof or distribution therefrom or against the Company except as expressly provided herein.

10.03.Facility of Payment.  In the event the Plan Administrator determines that any Participant or Beneficiary receiving or entitled to receive benefits under the Plan is incompetent to care for his or her affairs and in the absence of the appointment of a legal guardian of the property of the incompetent, benefit payments due under the Plan (unless prior claim thereto has been made by a duly qualified guardian, committee, or other legal representative) may be made to the spouse, parent, brother or sister, or other person, including a hospital or other institution, deemed by the Plan Administrator to have incurred or to be liable for expenses on behalf of such incompetent.  In the absence of the appointment of a legal guardian of the property of a minor, any minor’s share of benefits payable under the Plan may be paid to such adult or adults as in the opinion of the Plan Administrator have assumed the custody and principal support of such minor.  The Plan Administrator, however, in its sole discretion, may require that a legal guardian for the property of such incompetent or minor be appointed before authorizing the payment of benefits in such situation.  Benefit payments made under the Plan in accordance with determinations of the Plan Administrator pursuant to this Section 10.03 shall be a complete discharge of any obligation arising under the Plan with respect to such benefit payments.

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10.04.Withholding Taxes. The Plan Administrator shall have the right to withhold all applicable taxes or other payments from benefits hereunder and to report information to government agencies when required to do so by law.

10.05.Nonalienation.  No benefits payable under the Plan shall be subject to alienation, sale, transfer, assignment, pledge, attachment, garnishment, lien, levy, or like encumbrance.  No benefit under the Plan shall in any manner be liable for or subject to the debts or liabilities of any person entitled to benefits under the Plan. On and after the Effective Date, compliance with any domestic relations order relating to a Participant’s Account that the Plan Administrator determines must be complied with under applicable law shall not be considered a violation of this provision; provided, however, that an administrative fee determined by the Plan Administrator shall be deducted from any Participant’s Account that is subject to a domestic relations order.

10.06.Administration.  All decisions, determinations, or interpretations the Board, the Committee, the Plan Administrator, the Company, or any member, officer or employee thereof are authorized to make under the Plan (including the delegation of any authority hereunder to another party) shall be made in that party’s sole discretion and shall be final, binding, and conclusive on all interested persons.

10.07.Construction.  All rights hereunder shall be governed by and construed in accordance with federal law and, to the extent not preempted by federal law, the laws of the State of New York without regarding to the choice of law rules of any jurisdiction.

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ARTICLE XI. CLAIMS PROCEDURE

If a Participant or Beneficiary believes he or she is entitled to have received benefits but has not received them, the Participant or Beneficiary must accept any payment made under the Plan and make prompt and reasonable, good faith efforts to collect the remaining portion of the payment, as determined under Treas. Reg. § 1.409A-3(g).  For this purpose (and as determined under such regulation), efforts to collect the payment will be presumed not to be prompt, reasonable, good faith efforts, unless the Participant or Beneficiary provides notice to the Plan Administrator within 90 days of the latest date upon which the payment could have been timely made in accordance with the terms of the Plan and the regulations under Code Section 409A, and unless, if not paid, the Participant or Beneficiary takes further enforcement measures within 180 days after such latest date.  In addition, a Participant or Beneficiary must exhaust any other claims procedures established by the Plan Administrator before initiating litigation.

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Appendix A

IBM EXECUTIVE DEFERRED COMPENSATION PLAN

Amended and Restated Effective January 1, 2000

Incorporating Amendments Effective Through January 1, 2008

Appendix A

INTRODUCTION

A.Name of Plan and Purpose.  The IBM Executive Deferred Compensation Plan has been authorized by the Board of Directors of International Business Machines to be applicable effective on and after January 1, 1995.  The purpose of this Plan is to attract and retain executives by providing a means for making compensation deferrals and matching company contributions for those employees eligible to participate in the Savings Plan (as defined in Article 1) with respect to whom compensation deferrals and company contributions under the Savings Plan are or would be limited by application of the limitations imposed on qualified plans by Sections 401(a)(17), 401(a)(30), and 415 of the Internal Revenue Code of 1986, as amended (the “Code”).

B.Legal Status.  This Plan is intended to constitute an unfunded deferred compensation plan for a select group of management or highly compensated employees under Sections 201(2), 301(a)(2), 401(a)(1), and 4021(b)(6) of the Employee Retirement Income Security Act of 1974, as amended.  All benefits payable under the Plan shall be paid out of the general assets of the Company.

C.Restatement.  The Plan is amended and restated herein effective as of January 1, 2000, incorporating amendments effective through January 1, 2008.  The Plan is superseded, effective January 1, 2008, by the IBM Excess 401(k) Plus Plan (the “Excess Plan”), except as provided in Paragraph D, below, with respect to Grandfathered Amounts and Deferred Shares and as otherwise provided in the text of the Plan.

D.Section 409A.

(1)Grandfathered Amounts.  Benefits earned and vested under the Plan before January 1, 2005, as adjusted for earnings, gains, or losses on those benefits (“Grandfathered Amounts”) are treated as grandfathered for purposes of Section 409A of the Code.  Grandfathered Amounts (including Grandfathered Amounts attributable to Deferred Shares) are subject to the terms of the Plan in effect on October 3, 2004, except to the extent such terms have been or are hereafter amended in a manner that does not constitute a “material modification,” as determined under Section 409A of the Code.  An amendment described in the preceding sentence may be accomplished through an amendment to this Plan document and/or through an amendment to the Excess Plan (or any successor plan) document.  For recordkeeping purposes, Grandfathered Amounts shall be accounted for separately.

(2)Non-Grandfathered Amounts.  With respect to benefits earned under the Plan other than Grandfathered Amounts described in Paragraph D(1) above (“Non-Grandfathered Amounts”), the Plan is intended, and shall be construed, to comply with the requirements of Section 409A of the Code:

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(A)On and after January 1, 2005, and before January 1, 2008, the Plan was operated in good faith compliance with the requirements of Section 409A of the Code with respect to Non-Grandfathered Amounts.  In this respect, (I) the timing of deferral elections was modified as described in Articles 2.02(b) and 2.02(f), (II) the application of deferral elections was modified as described in Article 3.01, and (III) distribution rules were modified as described in Article 5.04.  In addition, any payment made during this period that was contingent upon a “termination of employment” or “retirement,” was contingent upon a “separation from service” (as defined in accordance with a good faith, reasonable interpretation of Section 409A of the Code).

(B)On and after January 1, 2008:

(i)Non-Grandfathered Amounts that are not attributable to Deferred Shares shall be distributed in accordance with the provisions of the Excess Plan (or any successor plan).

(ii)Non-Grandfathered Amounts that are attributable to Deferred Shares shall be distributed in accordance with the provisions of ARTICLE 9 of this Plan.

Notwithstanding anything to the contrary in this Paragraph D, in no event shall the Company, its officers, directors, employees, parents, subsidiaries, or affiliates be liable for any additional tax, interest, or penalty incurred by a Participant or Beneficiary as a result of the Plan’s failure to satisfy the requirements of Section 409A of the Code, or as a result of the Plan’s failure to satisfy any other applicable requirements for the deferral of tax.

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Appendix A

IBM EXECUTIVE DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

					Page(s)
ARTICLE 1.				DEFINITIONS	1
ARTICLE 2.				PARTICIPATION	4
2.01			ELIGIBILITY		4
2.02			PARTICIPATION		4
2.03			APPLICATION OF THIS ARTICLE AFTER 2007		5
ARTICLE 3.				CONTRIBUTIONS	6
3.01			AMOUNT OF DEFERRAL CONTRIBUTIONS		6
3.02			MATCHING CONTRIBUTIONS		7
3.03			ADDITIONAL COMPANY CONTRIBUTIONS		7
3.04			INVESTMENT OF ACCOUNTS		7
3.05			VESTING OF ACCOUNTS		8
3.06			INDIVIDUAL ACCOUNTS		8
3.07			DEFERRAL OF RSUS OR PERFORMANCE SHARE UNITS		8
3.08			APPLICATION OF THIS ARTICLE AFTER 2007		8
ARTICLE 4.				INVESTMENT OF DEFERRALS AND DEFERRAL ACCOUNTS	10
4.01			DEEMED SAVINGS PLAN INVESTMENTS; PARTICIPANT CONTROL		10
4.02			CHANGE OF INVESTMENT SELECTION ON FUTURE DEFERRALS		10
4.03			CHANGE OF INVESTMENT SELECTION ON EXISTING DEFERRAL ACCOUNTS		10
4.04			APPLICATION OF THIS ARTICLE AFTER 2007		11
ARTICLE 5.				PAYMENT OF ACCOUNTS	12
5.01		COMMENCEMENT OF DEFERRAL PAYMENTS			12
5.02		METHOD OF PAYMENT			12
5.03		DESIGNATION OF BENEFICIARY			13
5.04		DISTRIBUTIONS TO SPECIFIED EMPLOYEES			13
5.05		APPLICATION OF THIS ARTICLE AFTER 2007			14
ARTICLE 6.				GENERAL PROVISIONS	15
6.01	FUNDING				15
6.02	NO CONTRACT OF EMPLOYMENT				15
6.03	FACILITY OF PAYMENT				16
6.04	WITHHOLDING TAXES				16
6.05	NONALIENATION				16
6.06	ADMINISTRATION				16
6.07	CONSTRUCTION				17
6.08	APPLICATION OF THIS ARTICLE AFTER 2007				17
ARTICLE 7.				MANAGEMENT AND ADMINISTRATION	18
7.01	AMENDMENT OR TERMINATION				18
7.02	RESPONSIBILITIES				18
7.03	APPLICATION OF THIS ARTICLE AFTER 2007				20
ARTICLE 8.				CLAIMS PROCEDURE	21
ARTICLE 9.				PAYMENT OF NON-GRANDFATHERED DEFERRED SHARES ON OR AFTER JANUARY 1, 2008	22
9.01	PURPOSE				22

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9.02	DEFINITIONS	22
9.03	PAYMENT UPON DEATH	22
9.04	FORM OF PAYMENT FOR AMOUNTS PAID UPON A 409A SEPARATION FROM SERVICE	23
9.05	ELECTING AND CHANGING PAYMENT OPTIONS	23
9.06	PAYMENT OF NG DEFERRED SHARES UPON A 409A SEPARATION FROM SERVICE	25
9.07	SPECIAL RULES FOR PAYMENT OF NG DEFERRED SHARES UPON A 409A SEPARATION FROM	25
SERVICE IN FIRST QUARTER OF 2008

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Appendix A

ARTICLE 1.   DEFINITIONS

The following words and phrases as used herein have the following meanings unless a different meaning is required by the context:

1.01“Accounts” shall mean the Company Account and the Deferral Account.

1.02“Beneficiary” shall mean a person other than a Participant who is designated by a Participant or by the terms of the Plan to receive a benefit under the Plan by reason of the death of the Participant.

1.03“Board” shall mean the Board of Directors of IBM.

1.04“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.  All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered.

1.05“Committee” shall mean the Executive Compensation and Management Resources Committee (“ECMRC”) appointed by the Board or any other person or committee that the ECMRC has delegated its responsibilities to under the Plan.

1.06“Company” shall mean International Business Machines Corporation (“IBM”), a New York corporation having its principal place of business at Armonk, New York, and its Domestic Subsidiaries, excluding Foreign Branches of the Company except as may be otherwise provided in these Articles.

1.07“Company Account” shall mean, with respect to a Participant, all amounts credited to the Participant under Articles 3.02, 3.03, and 3.07, and earnings, gains, or losses on those amounts pursuant to Article 3.04.

1.08“Company Contributions” shall mean the amount credited to a Participant under Articles 3.02 and 3.03.

1.09“Compensation” shall mean the Participant’s salary and annual incentive payment for a calendar year which would be payable to a Participant for services rendered to the Company after the Participant is no longer able to actively participate in the Savings Plan, or would have been unable to actively participate in the Savings Plan if the Participant was not an active participant in the Savings Plan, during the calendar year by reason of Code Section 401(a)(17) or Code Section 401(a)(30).  A Participant’s Compensation will be determined without regard to a Participant’s election to make compensation reduction contributions under the Savings Plan, or under a cafeteria plan pursuant to Code Section 125, or to make Deferrals under this Plan.  Compensation shall also include, solely for purposes of Article 3.07, the amount of any RSUs or performance share units that are determined to be eligible for deferral in accordance with Article 3.07.

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1.10“DCP Participant” shall mean a Participant who, for a calendar year, was offered the opportunity by the Company to defer up to 100% of his or her annual incentive payment payable for that calendar year.

1.11“Deferral Account” shall mean, with respect to a Participant, the Participant’s account balance under the Deferred Compensation Plan that has been transferred to this Plan, all amounts credited to a Participant under Article 3.01 and earnings, gains, or losses on those amounts pursuant to Article 3.04.

1.12“Deferral Election Agreement” shall mean the agreement entered into by the Participant pursuant to Article 2.02 under which he or she elects to defer a portion of his or her Compensation under this Plan.

1.13“Deferrals” shall mean the amount credited to a Participant under Article 3.01.

1.14“Deferred Compensation Plan” shall mean the incentive compensation deferral program established by IBM in November 1993.

1.15“Deferred Shares” means a credit to a Participant’s Company Account as described in Article 3.07.

1.16“Domestic Subsidiary” shall mean a Subsidiary organized and existing under the laws of the United States or any state, territory, or possession thereof; provided however, that the Plan shall not be deemed to cover the employees of any Domestic Subsidiary unless authorized by the Company’s chief human resources officer.

1.17“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.18“Effective Date” shall mean January 1, 1995.

1.19“Eligible Employee” shall mean, for a calendar year, a domestic executive employee of the Company.

1.20“Excess Plan” shall mean the IBM Excess 401(k) Plus Plan, effective as of January 1, 2008, as amended from time to time.

1.21“Grandfathered Amounts” has the meaning provided in Paragraph D(1) of the Introduction to this Plan.

1.22“IBM” shall mean International Business Machines Corporation, any predecessor, or any successor by merger, purchase, or otherwise.

1.23“Non-Grandfathered Amounts” has the meaning provided in Paragraph D(2) of the Introduction to this Plan.

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1.24“Participant” shall mean each Eligible Employee who has made the election described in Article 2.02(a) or 3.07, who is credited with an amount under Article 3.03, or whose account balance under the Deferred Compensation Plan has been transferred to the employee’s Deferral Account under this Plan.

1.25“Plan” shall mean this IBM Executive Deferred Compensation Plan, as now in effect or as hereafter amended.

1.26“Plan Administrator” shall mean a person or a committee appointed pursuant to ARTICLE 7 which shall be responsible for reporting, recordkeeping, and related administrative requirements.  If appointed as a committee, any one of the members of the committee may act individually on behalf of the committee to fulfill the committee’s duties.  As of the Effective Date, the Director of Executive Compensation has been appointed as the Plan Administrator.

1.27“Plan Year” shall mean the calendar year with the first Plan Year commencing on January 1, 1995.

1.28“PSU” shall mean a performance share unit payable under an award granted under a Company Long-Term Performance Plan.

1.29“RSU” shall mean a restricted stock unit payable under an award granted under a Company Long-Term Performance Plan.

1.30“Savings Plan” shall mean the IBM TDSP 401(k) Plan before October 1, 2002, the IBM Savings Plan on or after October 1, 2002 and before January 1, 2008, and the IBM 401(k) Plus Plan on or after January 1, 2008, each as amended from time to time.

1.31“Subsidiary” shall mean a corporation or other form of business organization the majority interest of which is owned, directly or indirectly, by the Company.

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ARTICLE 2.   PARTICIPATION

2.01Eligibility

Eligibility is limited, except as provided below, to U.S. executive level Eligible Employees of IBM and selected Domestic Subsidiaries whose rate of annual Compensation (defined as salary and annual incentive rate) is $150,000 or more for calendar year 1995 (adjusted periodically thereafter based on industry trends and government guidelines), or who are members of the Company’s Senior Management Group regardless of rate of annual Compensation.   For this purpose, the defining of “selected Domestic Subsidiaries”, the “executive level” and “Senior Management Group”, as well as the ability to change the rate of annual Compensation threshold are delegated to the chief human resources officer of the Company in his or her sole discretion and are subject to change.  Notwithstanding the above, non-U.S. executives designated by the chief human resources officer are eligible to elect to defer PSUs and RSUs under this Plan.  The Committee shall notify employees of their eligibility for participation in the Plan as soon as practicable after the chief human resources officer has made its determination that such employees qualify as Eligible Employees for a calendar year.

2.02Participation

(a)No later than the end of the calendar year immediately preceding the first day of the calendar year during which an Eligible Employee desires to have contributions credited on his or her behalf pursuant to Article 3.01, an Eligible Employee must execute a Deferral Election Agreement authorizing Deferrals under this Plan for such year in accordance with the provisions of Article 3.01.

(b)If an Eligible Employee becomes an employee of the Company during a calendar year, he or she may execute a Deferral Election Agreement as soon as practical after his or her date of hire.  Effective January 1, 2005, a new Eligible Employee may execute a Deferral Election Agreement within 30 days after becoming eligible.  The Deferral Election Agreement shall apply to Compensation earned by the Eligible Employee in the payroll periods beginning after such agreement is submitted to the Committee.

(c)Each Deferral Election Agreement under the Plan shall be irrevocable for the calendar year to which it relates.

(d)Irrespective of whether an employee has made the election described above, any employee who has been selected by the Committee to have Company Contributions credited on his or her behalf pursuant to Article 3.03 shall be a Participant.

(e)As a condition to participation in the Plan, a Participant may also be required by the Committee to provide such other information as the Committee may deem necessary to properly administer the Plan.

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(f)A DCP Participant’s Deferral Election Agreement with respect to his or her annual incentive payment for calendar year 2005 must be made on or before June 30, 2005 (in compliance with the rule for performance pay under Section 409A of the Code).  A DCP Participant’s Deferral Election Agreement with respect to his or her annual incentive payment for a calendar year that begins after December 31, 2005 must be made before the beginning of such calendar year.

2.03Application of this Article After 2007

This Article 2 shall cease to apply after December 31, 2007.  An individual who was not a Participant on December 31, 2007, shall not become a Participant after that date.  Each individual who was a Participant on December 31, 2007, ceased to be a Participant on that date except to the extent that, on that date, Grandfathered Amounts and/or Deferred Shares were credited to the individual’s Account.

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ARTICLE 3.  CONTRIBUTIONS

3.01Amount of Deferral Contributions

For each payroll period that an Eligible Employee has Compensation beginning on or after the effective date of an Eligible Employee’s Deferral Election Agreement, his or her Deferral Account shall be credited with an amount of Deferrals.  The amount of Deferrals shall be equal to the designated percentage of Compensation elected by the Participant in his or her Deferral Election Agreement.  Under the Deferral Election Agreement, the Eligible Employee may elect to forego receipt of amounts equivalent to 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10%, 11%, 12%, 13%, 14% or 15% (or, effective January 1, 2002, up to 80% in 1% increments) of the Employee’s Compensation (other than his or her annual incentive payment) for each pay period during which the election is in effect, and in the event an Eligible Employee is a DCP Participant for the calendar year, he or she may defer up to 100% of his or her annual incentive payment for the calendar year (provided that, effective January 1, 2007, if the individual is not an Eligible Employee at the beginning of such calendar year, the maximum percentage of his or her annual incentive payment for the calendar year that may be deferred shall be limited, as applicable, in accordance with the following rules: if the individual became an Eligible Employee and submitted a Deferral Election Agreement during the period of January 1-February 15 of the calendar year, the maximum percentage is 79%; if the individual became an Eligible Employee and submitted a Deferral Election Agreement during the period of February 16-May 15 of the calendar year, the maximum percentage is  62%; if the individual became an Eligible Employee and submitted a Deferral Election Agreement during the period from May 16-August 15 of the calendar year, the maximum percentage is 46%; and if the individual became an Eligible Employee after August 16 of the calendar year, then no annual incentive may be deferred for the calendar year).  In addition, any Company officer who is subject to 162(m) of the Internal Revenue Code may defer up to 100% of his or her salary. For calendar years 2006 and 2007, any portion of an Eligible Employee’s annual incentive payment that is a deal team or other transactional payment under the Engagement Team Bonus Plan, the Global Dealmaker Plan, or the Managing Directors Incentive Plan is not eligible for deferral.

Deferrals under this Article 3.01 shall commence for payroll periods for a calendar year at such time as the Participant may no longer actively participate in the Savings Plan for the calendar year (or would have been unable to actively participate in the Savings Plan if the Participant was an active participant in the Savings Plan for the calendar year) by reason of Code Section 401(a)(17) or Code Section 401(a)(30) and has Compensation.  No Deferrals may be made hereunder prior to such time, except for the deferral of a DCP Participant’s annual incentive payment. On and after January 1, 2007, if a Participant takes a hardship withdrawal under the Savings Plan, Deferrals under this Article 3.01 will be cancelled for the remainder of the calendar year in which the hardship was taken.

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3.02Matching Contributions

Effective before January 1, 2005, the amount of Company Matching Contributions credited to a Participant for each payroll period shall be equal to 50% of the Participant’s Deferrals for the payroll period; provided however, that no Company Matching Contributions will be made for a Participant’s Deferrals in excess of 6% of the Participant’s Compensation for that payroll period.  Company Matching Contributions will be made in units of IBM Stock with no right to transfer such units, except as otherwise provided in this Plan.

Effective January 1, 2005, the amount of Company Matching Contributions credited to a Participant who is not a 401(k) Pension Program Participant (as defined in the Savings Plan) for each payroll period shall be equal to 50% of such Participant’s Deferrals for the payroll period and, effective January 1, 2005, the amount of Company Matching Contributions credited to a Participant who is a 401(k) Pension Program Participant shall be equal to 100% of such Participant’s Deferrals for the payroll period; provided, however, that in neither case shall Company Matching Contributions be made for a Participant’s Deferrals in excess of 6% of the Participant’s Compensation for that payroll period.  Company Matching Contributions will be made in units of IBM Stock with no right to transfer such units, except as otherwise provided in this Plan.  No Company Matching Contributions shall be made to a Participant who is a 401(k) Pension Program Participant unless such Participant has, on or before the last day of the payroll period to which such Company Matching Contributions relate, attained his Program Eligibility Date (as defined in the Savings Plan).

3.03Additional Company Contributions

On behalf of any Participant, or any Eligible Employee who is not otherwise a Participant for a particular calendar year, IBM may make any award under this Plan, including an additional amount of Company Matching Contributions or other Company Contributions, in accordance with the terms of the agreement evidencing such award, and the terms of this Plan to the extent not inconsistent with the terms of the agreement.

3.04Investment of Accounts

A Participant’s Deferral Account shall be treated as if the Participant had invested it in certain Savings Plan investment funds in accordance with ARTICLE 4.  Except as provided in Article 3.07 (regarding Deferred Shares), a Participant’s Company Account shall be treated as if it had been invested in the IBM Stock Fund under the Savings Plan; provided however, that in the event a Participant retires from the Company and does not elect to have the entire amount of his or her Accounts then paid to him or her, any amounts credited to the Participant’s Company Account after retirement will be treated as if they were transferred to the Participant’s Deferral Account for purposes of this Article 3.04 and Article 4.

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3.05Vesting of Accounts

A Participant always shall be fully vested in his or her Accounts, except as specified in an agreement between IBM and a Participant with respect to an award of additional Company Contributions.

3.06Individual Accounts

The Committee shall maintain, or cause to be maintained, records showing the individual balances of each Participant’s Accounts.  Periodically, each Participant shall be furnished with a statement setting forth the value of his or her Accounts.

3.07Deferral of RSUs or Performance Share Units

A Participant may also elect, on a form provided by the Company, to defer as Deferred Shares the amount of any RSUs or PSUs that are determined by the Company to be eligible for deferral under this Plan, at the time such RSU or PSU would otherwise be paid to the Participant.  For Deferrals prior to January 1, 2006, such election must be made at the time specified by the Plan Administrator and prior to the end of the vesting period of the PSUs and the RSUs.  On and after January 1, 2006, an election to defer RSUs must be made no later than 30 days after the date of the grant of such RSUs, and an election to defer PSUs must be made no later than six months prior to the end of the performance period to which the PSUs relate.  Notwithstanding the above, for all Non-U.S. executives who are eligible to defer RSUs or PSUs under this Plan, an election to defer any RSUs or PSU, must be made prior to the end of the applicable vesting or performance period. The amount of Deferred Shares shall be determined under the terms of the applicable award and the Participant’s deferral election and shall be credited to the Participant’s Company Account as units of IBM stock, with no right to transfer such units.  No Company Matching Contributions shall be credited for any amounts deferred under this Article of the Plan.

3.08Application of this Article After 2007

After December 31, 2007:

(a)Deferrals with respect to annual incentive payments paid during the first quarter of 2008 shall be determined and credited to Participants’ Accounts in accordance with Participant Deferral Election Agreements made in 2006 for payments with respect to 2007 pursuant to Articles 2.02 and 3.01, and such deferrals shall be credited under the Excess Plan (and any matching or other contributions with respect to such deferrals shall be determined under the Excess Plan);

(b)Deferred Shares shall continue to be credited as units of IBM stock in accordance with elections made by Participants on or before December 31, 2007 pursuant to Article 3.07; and

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(c)Articles 3.04 through 3.06 shall continue to apply with respect to Grandfathered Amounts.

Otherwise, this ARTICLE 3 shall cease to apply after December 31, 2007, and no deferral elections shall be made under the Plan after that date.

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ARTICLE 4.  INVESTMENT OF DEFERRALS AND DEFERRAL ACCOUNTS

4.01Deemed Savings Plan Investments; Participant Control

A Participant shall designate the proportions in which his or her Deferrals shall be treated as if they had been allocated among any or all of the investment funds under the Savings Plan, other than the mutual fund window.  If the Participant does not provide investment instructions, his or her Deferrals shall be treated as if they had been allocated to the default investment fund under the Savings Plan.

The Committee, in its discretion (which discretion may be delegated to the Treasurer or other executive officer of IBM), from time to time may determine that any Savings Plan investment fund may be terminated as an investment measure under this Plan.

A Participant may elect to invest his or her Deferrals entirely in any one of the funds or may elect any combination in 5% multiples.

Notwithstanding anything else in ARTICLE 4, if any portion of a Participant’s Deferrals are covered under the IBM Buy-First Executive Equity Program, such Deferrals are subject to the investment limitations specified under that program.

4.02Change of Investment Selection on Future Deferrals

A Participant may elect to change his or her investment selection for future Deferrals once per month (and, effective January 1, 2002, twice per month).  The Participant must make this election in the manner prescribed by the Committee.

4.03Change of Investment Selection on Existing Deferral Accounts

(a)Before January 1, 2008, with regard to a Participant’s existing Deferral Account balance, a Participant may elect to transfer balances among the available Savings Plan investment funds once per month; provided however, that the portion of the Deferral Account of a Company officer that is allocated to the IBM Stock Fund may not be transferred to another investment fund while the officer remains in Company employment.  The Participant must make this election in the manner and pursuant to the rules prescribed by the Committee and Plan Administrator.

(b)On or after January 1, 2008, a Participant may elect, in such form and at such time in advance as may be prescribed by the Plan Administrator, to transfer balances in his or her Deferral Account among the available Savings Plan investment funds, provided that:

(ii)Transfers must be made in multiples of 1%, provided that the minimum amount transferred shall be $250 if that is greater than 1% (provided, however, that the Plan Administrator may specify a different percentage and/or a different dollar amount to be applied in this paragraph); and

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(iii)Any restrictions on transfers into or out of investment funds that apply under the Savings Plan shall also apply under the Plan.

The Committee may impose such additional rules and limitations upon transfers between investment funds as the Committee may consider necessary or appropriate.

4.04Application of this Article After 2007

Article 4.03 shall continue to apply to Grandfathered Amounts on and after January 1, 2008.  Articles 4.01 and 4.02 shall cease to apply after December 31, 2007.

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ARTICLE 5.  PAYMENT OF ACCOUNTS

5.01Commencement of Deferral Payments

A Participant shall receive payment of his or her Accounts upon the Participant’s (1) termination of employment from the Company for any reason other than retirement from the Company or (2) retirement from the Company with a balance of less than $25,000 in his or her Accounts, as soon as administratively feasible following termination of employment. Any other Participant who retires from the Company shall be entitled to receive payment of his or her Accounts as of the January 31 following the calendar year during which the Participant had a termination of employment from the Company.

5.02Method of Payment

Payment of Accounts shall be made in a single lump sum payment. Payments shall be in cash, except that Deferred Shares shall be paid in shares of IBM stock.  Notwithstanding the foregoing, a Participant with a balance of at least $25,000 in his or her Accounts who retires from the Company may elect to receive (1) a lump sum payment upon his or her termination of employment from the Company, (2) a lump sum payment as of the January 31 following the calendar year during which the Participant has a termination of employment from the Company, or (3) up to ten ratable annual installment payments of the balance in his or her Accounts commencing as of the January 31 following the calendar year during which the Participant had a termination of employment from the Company.  For this election to be effective, at least one full calendar year must pass between the calendar year the Participant makes the election and the calendar year the Participant has a termination of employment from the Company; provided, however, that:

(i)effective July 31, 2001 and before January 1, 2008, such election shall be effective if it is made at least six months in advance of, and in a calendar year preceding, the Participant’s termination of employment; and

(ii)effective January 1, 2008, such election shall be effective if it is made at least twelve months in advance of the Participant’s termination of employment.

The Participant must make this election in the manner prescribed by the Committee and may make a separate election with respect to any Deferred Shares allocated to his or her Company Account. For purposes of this Plan, “retires” means (I) attainment of at least age 55 with at least 15 years of service or age 62 with at least 5 years of service or at least age 65 with at least 1 year of service at termination of employment with the Company, (II) attainment of at least 25 years of service as of June 30, 1999, and completion of at least 30 years of service as of termination of employment with the Company, (III) attainment, as of June 30, 1999, of at least age 40 with at least 10 years of service and completion of at least 30 years of service as of termination of employment with the Company, or (IV) eligibility for benefits under the IBM

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Long-Term Disability Plan (and for purposes of this Plan, termination of employment shall be deemed to have occurred coincident with eligibility for benefits under the IBM Long-Term Disability Plan).

Upon application of a Participant, the Committee may authorize earlier payment to the Participant after termination of employment with the Company of an amount reasonably needed to satisfy the emergency need caused by an unforeseeable emergency that causes severe financial hardship to the Participant.  If a Participant dies before payment of the entire balance of his or her Accounts, an amount equal to the unpaid portion thereof as of the date of his or her death shall be payable in one lump sum to his or her Beneficiary.

Dividend equivalents allocated with respect to a Participant’s Deferred Shares will be paid to the Participant in cash on the date dividends are paid to IBM shareholders, or as soon as practical thereafter (but, with respect to Non-Grandfathered Amounts, no later than the latest date permissible under Section 409A of the Code).

Effective January 1, 2005, payment of Accounts (including in the event of a Participant’s death as described in the preceding sentence) shall be made based on the value of the Account as of the date such payment is processed.

5.03Designation of Beneficiary

Before January 1, 2008, each Participant’s Beneficiary under this Plan shall automatically be the person or persons designated as the Participant’s beneficiary under the Savings Plan even if such designation is found to be invalid under the provisions of ERISA or the Code.  If no such Beneficiary designation is in effect at the time of the Participant’s death, or if no designated Beneficiary survives the Participant, the Participant’s Beneficiary shall be deemed to be the Participant’s beneficiary according to the provisions of the Savings Plan.

On or after January 1, 2008, each Participant’s Beneficiary under the Plan shall be the person or persons designated as the Participant’s Beneficiary under the Plan, in the form and manner prescribed by the Plan Administrator.  If no such beneficiary designation is in effect under the Plan at the time of the Participant’s death, or if no designated beneficiary under the Plan survives the Participant, the Participant’s Beneficiary shall be the person or persons determined to be the Participant’s beneficiary under the Savings Plan (including the default beneficiary rules under the latter plan, if no beneficiary is designated under that plan).

Such Beneficiary shall be entitled to receive the lump sum amount, if any, payable under the Plan upon the Participant’s death pursuant to this Article 5.03; provided however, that the Beneficiary is alive at the time of the Participant’s death.

5.04Distributions to Specified Employees

Notwithstanding any provision in this ARTICLE 5 to the contrary, any payment of Non-Grandfathered Amounts under the Plan that becomes payable to a Participant

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who is a “specified employee” (within the meaning of Section 409A(a)(2)(B)(i) of the Code) within the first six months following his or her separation from service on or after January 1, 2005, shall instead be paid in the seventh month following such separation from service.  If Non-Grandfathered Amounts are paid in installments the first of which would otherwise be paid before January 1, 2008, and in the first six months following the Participant’s separation from service, the first installment shall instead be paid in the seventh month following a separation from service, and the next annual installment, and each annual installment thereafter shall be paid on the anniversary of the date that the first installment was paid.

5.05Application of this Article After 2007

This ARTICLE 5 shall apply on and after January 1, 2008 only with respect to Grandfathered Amounts.

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ARTICLE 6.   GENERAL PROVISIONS

6.01Funding

(a)All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Company.  Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Company, to the extent not paid by a grantor trust established pursuant to paragraph (b) below.  In the sole discretion of the Committee, a Participant’s Accounts may be reduced to reflect allocable administrative expense.

(b)IBM may, for administrative reasons, establish a grantor trust for the benefit of Participants participating in the Plan.  The assets of said trust will be held separate and apart from other Company funds and shall be used exclusively for the purposes set forth in the Plan and the applicable trust agreement, subject to the following conditions:

(i)The creation of said trust shall not cause the Plan to be other than “unfunded” for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended;

(ii)The Company shall be treated as “grantor” of said trust for purposes of Section 677 of the Code; and

(iii)Said trust agreement shall provide that its assets may be used to satisfy claims of the Company’s general creditors in the event of its insolvency, and the rights of such general creditors are enforceable by them under federal and state law.

(c)Neither the Company nor the Committee guarantees the investment alternatives available under the Plan in any manner against loss or depreciation.

6.02No Contract of Employment

Nothing herein contained shall be deemed to give any employee the right to be retained in the service of the Company or an Affiliate or to interfere with the right of the Company or an Affiliate to discharge any employee at any time without regard to the effect that such discharge may have upon the employee under the Plan.  Nothing appearing in or done pursuant to the Plan shall be held or construed to create a contract of employment with the Company, to obligate the Company to continue the services of any Employee, or to affect or modify any Employee’s terms of employment in any way or to give any person any legal or equitable right or interest in the Plan or any part thereof or distribution therefrom or against the Company except as expressly provided herein.

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6.03Facility of Payment

In the event the Plan Administrator determines that any Participant or Beneficiary receiving or entitled to receive benefits under the Plan is incompetent to care for his or her affairs and in the absence of the appointment of a legal guardian of the property of the incompetent, benefit payments due under the Plan (unless prior claim thereto has been made by a duly qualified guardian, committee, or other legal representative) may be made to the spouse, parent, brother or sister, or other person, including a hospital or other institution, deemed by the Plan Administrator to have incurred or to be liable for expenses on behalf of such incompetent.  In the absence of the appointment of a legal guardian of the property of a minor, any minor’s share of benefits payable under the Plan may be paid to such adult or adults as in the opinion of the Plan Administrator have assumed the custody and principal support of such minor.

The Plan Administrator, however, in its sole discretion, may require that a legal guardian for the property of any such incompetent or minor be appointed before authorizing the payment of benefits in such situation. Benefit payments made under the Plan in accordance with determinations of the Plan Administrator pursuant to this ARTICLE 6 shall be a complete discharge of any obligation arising under the Plan with respect to such benefit payments.

6.04Withholding Taxes

The Plan Administrator shall have the right to withhold all applicable taxes or other payments from benefits hereunder and to report information to government agencies when required to do so by law.

6.05Nonalienation

No benefits payable under the Plan shall be subject to alienation, sale, transfer, assignment, pledge, attachment, garnishment, lien, levy, or like encumbrance.  No benefit under the Plan shall in any manner be liable for or subject to the debts or liabilities of any person entitled to benefits under the Plan.  However, compliance with any domestic relations order relating to a Participant’s Account that the Plan Administrator determines must be complied with under applicable law shall not be considered a violation of this provision.

6.06Administration

All decisions, determinations, or interpretations the Board, the Committee, the Plan Administrator, the Company or any member, officer or employee thereof are authorized to make under the Plan (including the delegation of any authority hereunder to another party) shall be made in that party’s sole discretion and shall be final, binding, and conclusive on all interested persons.

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6.07Construction

The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees, and all rights hereunder shall be governed by and construed in accordance with the laws of the State of New York to the extent not governed by the Employee Retirement Income Security Act of 1974, as amended.

6.08Application of this Article After 2007

Effective January 1, 2008, the provisions of this Article 6 shall be superseded by the provisions of Article X of the Excess Plan for any portion of a Participant’s Accounts that is not attributable to Deferred Shares.

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ARTICLE 7.   MANAGEMENT AND ADMINISTRATION

7.01Amendment or Termination

This Plan may be amended from time to time for any purpose permitted by law or terminated at any time by written resolution of the Board or the Committee, but only if the Committee’s action is not materially inconsistent with a prior action of the Board.

The authority to amend or terminate the Plan shall include the authority to amend the procedure for amending or terminating the Plan and the authority to amend or terminate any related instrument or agreement.

7.02Responsibilities

(a)The following persons and groups of persons shall severally have the authority to control and manage the operation and administration of the Plan as herein delineated:

(i)the Board,

(ii)the Committee,

(iii)the chief human resources officer, and

(iv)the Plan Administrator and each person on any committee serving as the Plan Administrator.

Each person or group of persons shall be responsible for discharging only the duties assigned to it by the terms of the Plan.

(b)The Board shall be responsible only for designating those persons who will serve on the Committee and for approval of any resolution to amend or terminate the Plan.

(c)The Committee may, pursuant to a duly adopted resolution, delegate to the chief financial officer or the chief human resources officer, the Treasurer, the Plan Administrator or any other officer or employee of IBM, authority to carry out any decision, directive, or resolution of the Committee.

(d)The Committee shall appoint one or more executives employed by IBM to serve as Plan Administrator or as a committee to fulfill the function of Plan Administrator.  In the sole discretion of the Plan Administrator, the Plan Administrator shall have the full power and authority to:

(i)promulgate and enforce such rules and regulations as shall be deemed be necessary or appropriate for the administration of the Plan;

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(ii)adopt any amendments to the Plan that are required by law;

(iii)interpret the Plan consistent with the terms and intent thereof;and

(iv)resolve any possible ambiguities, inconsistencies, and omissions.

All such determinations and interpretations shall be in accordance with the terms and intent of the Plan, and the Plan Administrator shall report such actions to the Committee on a regular basis.  Additionally, the chief human resources officer shall appoint and designate such other IBM employees as may be needed to provide adequate staff services to the Committee and the Plan Administrator.

(e)The Committee and the Plan Administrator may engage the services of accountants, attorneys, actuaries, investment consultants, and such other professional personnel as are deemed necessary or advisable to assist them in fulfilling their responsibilities under the Plan.  The Committee, the Plan Administrator, and their delegates and assistants will be entitled to act on the basis of all tables, valuations, certificates, opinions, and reports furnished by such professional personnel.

(f)Effective July 31, 2001, the chief human resources officer of IBM, in addition to the powers set forth in Article 7.02(d), shall have the full power and authority to adopt and implement changes to the Plan relating to:

(i)amending the Plan to conform, to the extent he or she deems appropriate, to the Savings Plan, including but not limited to the authority to make changes related to maximum deferral percentages of pay, the amount of IBM match provided based on deferral percentage selected by the Participant, and vesting provisions;

(ii)the form and timing of distributions available under the Plan, including the procedures for distribution elections and rules regarding default distributions;

(iii)deferral elections, including the manner and timing of such elections;

(iv)the integration of other deferred compensation liabilities relating to newly hired or acquired employees; and

(v)any Plan administration rules that are consistent with the intent of the Plan and do not materially change the Company’s liability.

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7.03Application of this Article After 2007

Effective January 1, 2008, the provisions of this Article 7 shall be superseded by the provisions of Article IX of the Excess Plan for any portion of a Participant’s Accounts that is not attributable to Deferred Shares.

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ARTICLE 8.   CLAIMS PROCEDURE

Before January 1, 2008, IBM’s Executive Compensation Department is responsible for advising Participants and Beneficiaries of their benefits under the Plan.  In the event a Participant or Beneficiary believes he or she is entitled to benefits and has not received them, the Participant or Beneficiary must submit a claim to the Director of Executive Compensation, IBM Corporation, New Orchard Road, Armonk, New York 10504.  A written decision setting forth its conclusions will be furnished by the Plan Administrator to the Participant or Beneficiary within 60 days after the request for review is received.  Failure of the Plan Administrator to follow this procedure shall not, in and of itself, give rise to a cause of action for benefits hereunder.  On and after January 1, 2008, claims shall be processed as described in the summary description for the Excess Plan.

Effective January 1, 2008, if a Participant or Beneficiary believes he or she is entitled to have received benefits with respect to his or her Non-Grandfathered Amounts that are attributable to Deferred Shares but has not received them, the Participant or Beneficiary must accept any payment made under the Plan and make prompt and reasonable, good faith efforts to collect the remaining portion of the payment, as determined under Treas. Reg. § 1.409A-3(g).  For this purpose (and as determined under such regulation), efforts to collect the payment will be presumed not to be prompt, reasonable, good faith efforts, unless the Participant or Beneficiary provides notice to the Plan Administrator within 90 days of the latest date upon which the payment could have been timely made in accordance with the terms of the Plan and the regulations under Code Section 409A, and unless, if not paid, the Participant or Beneficiary takes further enforcement measures within 180 days after such latest date.  In addition, a Participant or Beneficiary must exhaust any other claims procedures established by the Plan Administrator before initiating litigation.

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ARTICLE 9.   PAYMENT OF NON-GRANDFATHERED DEFERRED SHARES
ON OR AFTER JANUARY 1, 2008

9.01Purpose

This ARTICLE 9 describes the provisions of the Plan that apply on and after January 1, 2008 to Non-Grandfathered Amounts that are attributable to Deferred Shares (“NG Deferred Shares”).

9.02Definitions

The following words and phrases used in this ARTICLE 9 have the following meanings unless a different meaning is required by the context:

(a)“409A Key Employee” has the meaning described in the IBM Section 409A Umbrella Document.

(b)“409A Separation from Service” has the meaning described in the IBM Section 409A Umbrella Document.

(c)“Pay Limit” means, for a Plan Year, the limit on compensation that may be taken into account under a tax-qualified plan as determined under Code Section 401(a)(17).

(d)“Retirement-Eligible Participant” means a Participant who:

(i)when his or her 409A Separation from Service occurs, is (A) at least age 55 with at least 15 years of service, (B) at least age 62 with at least 5 years of service, (C) at least age 65 with at least 1 year of service, or (D) begins to receive benefits under the Company’s long-term disability plan;

(ii)as of June 30, 1999, had at least 25 years of service and, when his or her 409A Separation from Service occurs, has at least 30 years of service; or

(iii)as of June 30, 1999, was at least age 40 with at least 10 years of service and, when his or her 409A Separation from Service occurs, has at least 30 years of service.

For purposes of this definition, “year of service” means a year of “Eligibility Service” as defined in the IBM Personal Pension Plan.

9.03Payment Upon Death

If a Participant dies before his or her NG Deferred Shares are distributed in full, his or her NG Deferred Shares shall be paid in full in shares of IBM stock to the Participant’s Beneficiary on the date that is 30 days after the date of the Participant’s death (or, if that date is not a business day, the first business day thereafter).  However, the Plan Administrator may make payment on any other day to the extent

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that such payment is treated as being paid on the date specified in the previous sentence under Treasury Regulation section 1.409A-3(d), which permits payment to be made within thirty days before the specified date and later within the same calendar year, or, if later, within 2-1/2 months following the specified date, provided that the Participant is not permitted to designate the taxable year of payment.

9.04Form of Payment for Amounts Paid Upon a 409A Separation from Service

A Participant may elect, at the time and in the manner described in Article 9.05, below, to have his or her NG Deferred Shares paid under one of the following options, subject to the limits in Article 9.06, below (regarding delays for 409A Key Employees) and Article 9.07, below (special rules for separations during the first quarter of 2008):

(a)A lump sum payment as of the first business day that is at least 30 days after the Participant’s 409A Separation from Service;

(b)A lump sum payment as of January 31 of the calendar year immediately following the calendar year in which the Participant’s 409A Separation from Service occurs; or

(c)From two to 10 annual installments (as elected by the Participant), each paid as of January 31 beginning with the January 31 immediately following the calendar year in which the Participant’s 409A Separation from Service occurs, until the elected number of installments have been paid, subject to Article 9.06(c) (involuntary cash-outs).  This installment option is treated as the entitlement to a single payment for purposes of Treasury Regulation section 1.409A-2(b)(2)(iii).

However, the Plan Administrator may make payment on any other day to the extent that such payment is treated as being paid on the date specified above under Treasury Regulation section 1.409A-3(d), which permits payment to be made within thirty days before the specified date and later within the same calendar year, or, if later, within 2-1/2 months following the specified date, provided that the Participant is not permitted to designate the taxable year of payment.  A Participant’s NG Deferred Shares shall be paid in shares of IBM stock.

9.05Electing and Changing Payment Options

(a)Election of Payment Option.  A Participant shall elect a payment option for his or her NG Deferred Shares in the form and manner prescribed by the Plan Administrator and during the special election period in 2007 (except as provided in Article 9.07, below, with respect to a separation during the first quarter of 2008).  During the special election period designated by the Plan Administrator and ending no later than December 31, 2007, an Eligible Employee may elect the payment option that will apply to his or her NG Deferred Shares under the Plan in the event his or her 409A Separation from Service occurs on or after April 1, 2008, if the Eligible Employee:

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(i)is eligible to make elective deferrals under the Excess Plan in 2008;

(ii)on October 31, 2007, had a balance in his or her Accounts; or

(iii)on October 31, 2007, had a valid election on file for Deferrals in 2007.

Accordingly, an individual who first became an executive after October 31, 2007, and who is not eligible to make elective deferrals under the Excess Plan in 2008, is not eligible to make a payment election under this paragraph (a), even if he or she deferred pay under the Plan in 2007.

(b)Irrevocability and Default Payment Option.  If a Participant does not make an election under subsection (a), above (including a Participant who is not eligible to make an election under that subsection), the Participant’s initial payment election shall be the payment option described in Article 9.04(a) (immediate lump sum), above.  A Participant’s initial payment election (including the default option described in the previous sentence) becomes irrevocable, and can be changed only in accordance with subsection (c), below, after the deadline specified in subsection (a).

(c)Changing Payment Options.  A Participant may elect, in the form and manner prescribed by the Plan Administrator, to change the Participant’s initial payment option determined under this Article 9.05, provided that:

(i)The Participant must make such election at least 12 months before the date of his 409A Separation from Service;

(ii)If the election is made on or after January 1, 2009, the payment date for any lump sum or the start date for any series of installments provided for under the new payment option shall be the fifth anniversary of the payment date or start date that would have applied absent a change in payment option; and

(iii)The Participant may change his or her payment option:

(A)only once during 2008; and

(B)only once on or after January 1, 2009.

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9.06Payment of NG Deferred Shares Upon a 409A Separation from Service

A Participant’s NG Deferred Shares shall be paid to the Participant upon his or her 409A Separation from Service on or after January 1, 2008 in the form and at the time provided in Articles 9.04 and 9.05, above (except as provided in Article 9.07, below (special rules for first quarter of 2008)), subject to the following:

(a)Delay for 409A Key Employees.  If the Participant is a 409A Key Employee on the date of his or her 409A Separation from Service, the payment date for any lump sum or the start date for any series of installments provided for under the applicable payment option shall be the later of (I) the first business day that is six months after the date of the Participant’s 409A Separation from Service, or (II) the otherwise applicable payment date or start date, subject to subsection (b) (death).  If the start date of a series of installments occurs other than as of January 31 due to application of this paragraph, installments after the first installment shall be paid as of January 31 of each subsequent year, as scheduled without regard to the delay described in this subsection (a).

(b)Death of Participant After 409A Separation from Service.  If the death of a Participant (including a 409A Key Employee described in subsection (a), above) occurs before the payment date for any lump sum or installment provided for under the applicable payment option, payment shall be made to the Participant’s Beneficiary as provided in Article 9.03.

(c)Involuntary Cash-Out.  If (i) the applicable payment option is the installment option described in Article 9.04(c), above, and (ii) the aggregate value of all of the Participant’s Deferred Shares (including Grandfathered and Non-Grandfathered Amounts) and all of his or her “accounts” under the Excess Plan determined as of the date of his or her 409A Separation from Service is less than 50% of the Pay Limit in effect for the calendar year in which the Participant’s 409A Separation from Service occurs, the Participant’s NG Deferred Shares shall be distributed in a lump sum on the start date that would otherwise have applied for the elected installments, taking into account any applicable delay for a 409A Key Employee described in subsection (a), above.

9.07Special Rules for Payment in First Quarter of 2008

If a Participant’s 409A Separation from Service occurs on or after January 1, 2008, and before April 1, 2008, the Participant’s NG Deferred Shares shall be paid to the Participant in the form and at the time described below, except that such payments shall be subject to Article 9.06(a) (delay for 409A Key Employees) and Article 9.06(b) (death of Participant after 409A Separation from Service):

(a)Non-Retirement-Eligible or Benefit Is Less than $25,000.  If the Participant is not a Retirement-Eligible Participant or if the aggregate value of all of the Participant’s Deferred Shares (including Grandfathered and Non-Grandfathered Amounts) and all of his or her “accounts” under the Excess Plan is less than $25,000

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as of the date of his or her 409A Separation from Service, the Participant’s NG Deferred Shares shall be paid in an immediate lump sum as described in Article 9.04(a), above;

(b)Retirement-Eligible Without Valid Payment Election.  If the Participant is a Retirement-Eligible Participant but has not made a valid payment election, the Participant’s NG Deferred Shares shall be paid in a lump sum as of the January 31 following the year of the Participant’s 409A Separation from Service as described in Article 9.04(b), above, provided that the aggregate value of all of the Participant’s Deferred Shares (including Grandfathered and Non-Grandfathered Amounts) and all of his or her “accounts” under the Excess Plan is at least $25,000 as of the date of his or her 409A Separation from Service.

(c)Retirement-Eligible With Valid Payment Election.  If the Participant is a Retirement-Eligible Participant and has made a valid payment election, the Participant’s NG Deferred Shares shall be paid in accordance with the payment option elected, as described in Article 9.04, above, provided that the aggregate value of all of the Participant’s Deferred Shares (including Grandfathered and Non-Grandfathered Amounts) and all of his or her “accounts” under the Excess Plan is at least $25,000 as of the date of his or her 409A Separation from Service.

For purposes of this Article 9.07, a valid payment election is a payment election made at least six months before the Participant’s 409A Separation from Service in a manner prescribed by the Plan Administrator.  If a Participant did not make a valid payment election for his or her NG Deferred Shares, the Participant’s valid payment election shall be his or her valid payment election for his or her Deferred Shares that are Grandfathered Amounts, if any.

9.08Valuation of NG Deferred Shares.

For purposes of determining the amount of any lump sum, the Participant’s NG Deferred Shares will be determined as of the date the payment is processed.  For purposes of determining the amount of any annual installment, the Participant’s remaining NG Deferred Shares will be determined as of the date the payment is processed and divided by the remaining number of installments.  Any resulting partial share is retained in the Participant’s Account.

9.09Effect of Rehire on Payment of NG Deferred Shares.

If a Participant becomes eligible for a payment of NG Deferred Shares on account of a 409A Separation from Service and is rehired as an employee of the Company before his or her NG Deferred Shares have been distributed in full, payments shall be made as if the Participant had not been rehired.

9.10Payment of Dividend Equivalents on NG Deferred Shares.

Dividend equivalents allocated with respect to a Participant’s NG Deferred Shares will be paid to the Participant (or to the Beneficiary of a deceased Participant) in cash

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as soon as practicable after, but no later than 30 days following, the date dividends are paid to IBM shareholders.

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APPENDIX B

IBM SECTION 409A UMBRELLA DOCUMENT

For purposes of plans of International Business Machines or any member of its controlled group as determined under §414(b) or (c) of the Internal Revenue Code (collectively, “IBM”) that are subject to § 409A of the Internal Revenue Code (“§ 409A”), any benefit subject to § 409A that is paid on account of a separation from service shall be paid on account of a “409A Separation from Service,” as defined below.  In addition, for purposes of applying the six-month delay described in § 409A(a)(2)(B)(i), a “specified employee” is a 409A Key Employee, as defined below.

1.  The term “409A Key Employee” means, for each 12-consecutive-month period beginning on any April 1 that occurs after January 1, 2008 (an “effective period”), an individual who is a “specified employee” of IBM (within the meaning of Treas. Reg. § 1.409A-1(i)) within the 12-consecutive-month period ending on the December 31 immediately preceding the start of such effective period.  For purposes of the preceding sentence, “specified employees” include:

(a)each employee of IBM on IBM’s U.S. payroll, not to exceed 50, who is designated by IBM as an officer and whose pay (as defined under Treas. Reg. § 1.415(c)-2(d)(4)) exceeds the dollar limitation under § 416(i)(1)(A)(i) of the Internal Revenue Code (“§ 416 Pay Limit”); plus

(b)the highest paid Band A executives (as defined by IBM’s rules and regulations) on IBM’s U.S. payroll whose pay exceeds the § 416 Pay Limit (where pay is defined under Treas. Reg. § 1.415(c)-2(d)(4)), such that, when combined with the employees in subsection (a) (designated officers), there are no more than 50 “specified employees” on IBM’s U.S. payroll; plus

(c)if the total number of individuals designated as “specified employees” under subsections (a) and (b) is less than 50, the highest paid other employees on IBM’s U.S. payroll (where pay is defined under Treas. Reg. § 1.415(c)-2(d)(4)), such that, when combined with the employees in subsections (a) (designated officers) and (b) (Band A executives), there are no more than 50 “specified employees” on IBM’s U.S. payroll; plus

(d)each employee of IBM who:  (1) is entitled to a benefit that is subject to § 409A, (2) is not on a U.S. payroll, and (3) is considered to be an officer for purposes of identifying “specified employees” under Treas. Reg. § 1.409A-1(i).

2.  The term “409A Separation from Service” means, effective January 1, 2009, a separation from service within the meaning of Treas. Reg. § 1.409A-1(h), which shall include, but not be limited to, the following events:

(a)A “termination of employment,” as that term is applied for purposes of the IBM 401(k) Plus Plan (except to the extent that an earlier event associated with such termination of employment is described in subsections (b) through (d), below);

(b)The start of a bridge leave or a pre-retirement planning leave;

(c)A permanent reduction in services to no more than 20% of the average level of services performed over the immediately preceding 36-month period (or the full period of services if less);

(d)The six-month anniversary of a leave of absence, when no services are performed (including paid and unpaid leave and including disability leave or any combination thereof) other than a military leave.

From January 1, 2008 through December 31, 2008, a “409A Separation from Service” means a good faith interpretation of “separation from service,” within the meaning of § 409A(a)(2)(A)(i), and includes the following rules:

i.A Participant who is on a bridge leave or a pre-retirement planning leave as of December 31, 2007, shall have a 409A Separation from Service as of December 31, 2007;

ii.If a Participant—

(1)during 2008 has an event described in paragraph (c) or has a six-month anniversary described in paragraph (d),

(2)does not otherwise incur a separation from service prior to December 31, 2008, and

(3)has not returned to active employment (or, in the case of an event described in (c), to full schedule employment) on or before December 31, 2008,

the Participant shall have a 409A Separation from Service as of December 31, 2008.

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EX-10.3

EXHIBIT 10.3

IBM 401(k) PLUS PLAN

(As Amended and Restated effective as of January 1, 2008 )

IBM 401(k) PLUS PLAN

TABLE OF CONTENTS

		Page
IBM 401(k) PLUS PLAN		1
PREAMBLE		1
ARTICLE 1. DEFINITIONS		4
ARTICLE 2. PARTICIPATING EMPLOYERS		30
2.01	Participation of IBM	30
2.02	Participation by Domestic Subsidiaries	30
ARTICLE 3. ELIGIBILITY AND PARTICIPATION		31
3.01	Eligibility	31
3.02	Participation by Election for Employees other than 401(k) Pension Program Participants	32
3.02A	Participation by 401(k) Pension Program Participants after December 31, 2004	32
3.03	Reemployment of Certain Former Employees and Former Participants	35
3.04	Effect of Status Change on Participation	36
3.05	Termination of Participation	37
ARTICLE 4. CONTRIBUTIONS		38
4.01	Deferred Cash Contributions, Catch-Up Contributions, and After-Tax Contributions	38
4.02	Employer Matching Contributions	50
4.02A	Non-Matching Employer Contributions	57
4.03	Rollover Contributions, Roth Rollover Contributions, and After-Tax Rollover Contributions	60
4.04	Changes in Contribution Rates	63
4.05	Suspension and Resumption of Contributions	65
4.06	Actual Deferral Percentage Test	66
4.07	Actual Contribution Percentage Test	69
4.08	Aggregate Contribution Limitation	72
4.09	Additional Discrimination Testing Provisions	73
4.10	Maximum Annual Additions	74
4.11	Contributions for Periods of Military Leave	79
4.12	Return of Contributions	81
ARTICLE 5.	INVESTMENT OF CONTRIBUTIONS AND ELECTIVE DISTRIBUTION OF DIVIDENDS PAYABLE ON STOCK HELD IN IBM STOCK FUND	83
5.01	Investment Funds	83
5.01A	Mutual Fund Window Program	85
5.02	Investment of Contributions to Participants’ Accounts	91
5.03	Change of Investment Election	93
5.04	Reallocation of Accounts Among the Funds	94

5.05	Limitations on Investment Elections and Investment Reallocations Imposed by Contract or by Plan Administrator	96
5.06	Responsibility for Investments	97
5.07	Voting of IBM Shares	98
5.08	ERISA Section 404(c) Compliance	98
5.09	Elective Distribution of Dividends Payable on Stock Held in IBM Stock Fund	98
Article 5A. Disability Protection Program		101
5A.01	Eligibility	101
5A.02	Levels of Coverage under Disability Protection Program	101
5A.03	Enrollment Procedures	102
5A.04	Requirements for Commencement of Coverage under Disability Protection Program	103
5A.05	Investment in Premiums under Disability Insurance Policy and Assessment of Administrative Fee	103
5A.06	Benefits Payable under Disability Protection Program	106
5A.07	Termination of Coverage under Disability Protection Program	107
5A.08	Claims Procedure and Incorporation of Disability Insurance Policy	107
ARTICLE 6. VALUATION OF UNITS AND CREDITS TO ACCOUNTS		109
6.01	Units of Participation	109
6.02	Valuation of Units	109
6.03	Crediting the Accounts	110
6.04	Statements of Participant Accounts	112
ARTICLE 7. VESTED STATUS OF ACCOUNTS		113
7.01	Nonforfeitability Accounts	113
ARTICLE 8. IN-SERVICE WITHDRAWALS		114
8.01	Withdrawal After Age 59½	114
8.01A	Withdrawal from After-Tax Account	114
8.02	Hardship Withdrawal	115
8.03	Procedures and Restrictions	119
8.04	Distributions at Age 70½	120
ARTICLE 9. LOANS TO PARTICIPANTS		121
9.01	Loan Amounts Available and Interest Rate	122
9.02	Terms	124
ARTICLE 10.       DISTRIBUTION OF ACCOUNTS UPON TERMINATION OF EMPLOYMENT, DISABILITY, OR DEATH		128
10.01	Applicability	128
10.02	Forms of Distribution	128
10.03	Mandatory Distribution of Small Accounts	129
10.04	Withdrawals From Account After Termination of Employment	130
10.05	Commencement of Payments	131
10.06	Required Distributions at Age 70½	131
10.07	Effect of Reemployment	133
10.08	Distribution of Account Upon Death	134
10.09	Designation of Beneficiary	135
10.10	Proof of Death and Right of Beneficiary or Other Person	137
10.11	Status of Accounts Pending Distribution	138
10.12	Procedures and Form of Payment	138
10.13	Distribution Limitation	139
10.14	Direct Rollover of Certain Distributions	140

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10.15	Waiver of Notice Period	142
10.16	Distribution of Accounts Upon a Sale of Assets or a Sale of a Subsidiary prior to December 31, 2001	143
ARTICLE 11. ADMINISTRATION OF PLAN		144
11.01	Named Fiduciaries	144
11.02	Authority of the Board of Directors	145
11.03	Responsibilities of Committee	145
11.04	Appointment of Plan Administrator	146
11.05	Responsibilities of Plan Administrator and Effect of Decisions of Plan Administrator	146
11.06	Retention of Professional Advisors	147
11.07	[Reserved]	148
11.08	Service in More Than One Fiduciary Capacity	148
11.09	Compensation and Bonding	148
11.10	Limitation of Liability	149
11.11	Individual Accounts	149
ARTICLE 12. MANAGEMENT OF FUNDS		150
12.01	Trust Agreement	150
12.02	Exclusive Benefit Rule	150
12.03	Expenses	150
ARTICLE 13. AMENDMENT, MERGER, TRANSFERS, AND TERMINATION		152
13.01	Amendment of Plan	152
13.02	Merger, Consolidation or Transfer of Assets and Liabilities	154
13.03	Termination by Participating Employers	158
13.04	Termination of Plan	158
ARTICLE 14. GENERAL PROVISIONS		160
14.01	Nonalienation and Payment Pursuant to Qualified Domestic Relations Orders	160
14.02	Facility of Payment	161
14.03	Tax Withholding	162
14.04	Prevention of Escheat	162
14.05	Elections and Notifications	163
14.06	Information	164
14.07	Conditions of Employment Not Affected by Plan	164
14.08	Construction	165
14.09	Limitation of Time for Filing Claims in Court	165
14.10	Class Action Forum	167
APPENDIX A. SPECIAL PROVISIONS FOR MiCRUS		169
APPENDIX B. SPECIAL PROVISIONS FOR TECHNOLOGY SERVICE SOLUTIONS (“TSS”)		172
APPENDIX C. SPECIAL RULES APPLICABLE TO PUERTO RICO EMPLOYEES		173
4.03	Rollover Contributions, Roth Rollover Contributions, and After-Tax Rollover Contributions	175

iii

APPENDIX D. TOP-HEAVY PROVISIONS	178
APPENDIX E. SPECIAL PROVISIONS APPLICABLE TO PARTICIPANTS IN UNISON, INC. 401(k) SAVINGS AND INVESTMENT PLAN	181
APPENDIX F: SPECIAL PROVISIONS APPLICABLE TO FORMER EMPLOYEES OF PRICEWATERHOUSE COOPERS, LLP	182
APPENDIX G. SPECIAL PROVISIONS APPLICABLE TO FORMER EMPLOYEES OF VF CORPORATION	184
APPENDIX H. SPECIAL RULES APPLICABLE TO PARTICIPANTS IN	185
NONQUALIFIED DEFERRED COMPENSATION PLANS	185
APPENDIX I. SPECIAL PROVISIONS FOR	186
QUALIFIED HURRICANE KATRINA DISTRIBUTIONS	186

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PREAMBLE

International Business Machines Corporation (“IBM”) has established the IBM Tax Deferred Savings Plan (the “Plan”) to assist eligible employees in saving for retirement.  The Plan was initially effective as of July 1, 1983 and has since been amended from time to time.  Effective as of July 1, 1999, the name of the Plan was changed to the IBM TDSP 401(k) Plan.  The Plan was renamed the IBM Savings Plan, effective October 1, 2002.  The Plan was renamed the IBM 401(k) Plus Plan, effective January 1, 2008.

The Plan is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code (the “Code”) that includes a qualified cash or deferred arrangement pursuant to Section 401(k) of the Code.  Effective as of January 1, 2002, the Plan is intended to comprise two constituent plans: a qualified plan under Section 401(a) of the Code that includes a qualified cash or deferred arrangement pursuant to Section 401(k) of the Code, and an employee stock ownership plan, within the meaning of Section 4975(e)(7) of the Code (“the ESOP”).  Except as otherwise explicitly provided, the provisions set forth herein shall apply to each such constituent plan.

The Plan is also intended to be a qualified plan under Section 1165(a) of Puerto Rico Internal Revenue Code (the “Puerto Rico Code”), including a qualified cash or deferred contributions arrangement under Section 1165(e) of the Puerto Rico Code, in furtherance of which intention,

special provisions applicable to employees employed in Puerto Rico are incorporated in the Plan in Appendix C.  The Plan shall, at all times, be construed and administered in a manner consistent with such intentions.

From time to time, the Plan has included and may include, as participating employers, and has covered or may cover eligible employees of, certain entities in which IBM had or has an ownership interest, but which were or are not members of any controlled group of corporations, within the meaning of Section 414(b) of the Code, that included or includes IBM, and were or are not trades or business under common control, within the meaning of Section 414(c) of the Code, with IBM.  Accordingly, at such times, the Plan shall be deemed a plan maintained by more than one employer, within the meaning of Section 413(c) of the Code.  The Plan shall, at such times, be construed and administered in a manner consistent with its status as a multiple employer plan.  All provisions of the Plan shall be applicable to all participating employers and to the employees of all participating employers, except to the extent that any such provision is modified by an Appendix to the Plan that is specifically made applicable to a named participating employer and its employees.

The Plan was amended and restated as of January 1, 2002 (“the January 1, 2002 Restatement”) and was submitted to the Internal Revenue Service for a favorable determination letter.  The Plan was further amended, restated, and recodified as of January 1, 2005 (“the January 1, 2005 Recodification”) in order to incorporate amendments theretofore made to the Plan, including amendments adopted pursuant to Section 401(b) of the Code in connection with and pursuant to the issuance of a favorable determination letter by the Internal Revenue Service on September 10, 2004, and to make additional amendments to the Plan.  The January 1, 2005 Recodification was generally effective as of January 1, 2005, provided, however, that

2

the amendments made to the January 1, 2002 Restatement were effective as specified in the instruments by which such amendments were adopted, and provided further, however, that the effective date of any provision or provisions of the Plan shall, to the extent required by specific provisions of the Plan, the Uruguay Round Agreements Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998, the Community Renewal Tax Relief Act of 2000, the Economic Growth and Tax Relief Reconciliation Act of 2001, or other law, be any such earlier or other effective date required by the Plan, such acts, or such law.

The Plan is hereby amended and restated as of January 1, 2008 (“the 2008 Restatement”), in order to  incorporate amendments that have been made to the Plan after the adoption of the January 1, 2005 Recodification and to make additional amendments to the Plan, including certain changes required or permitted by the Pension Protection Act of 2006.  This 2008 Restatement is generally effective as of January 1, 2008, provided, however, that amendments made to the January 1, 2005 Recodification prior to the adoption of this 2008 Restatement were effective as specified in the instruments by which such amendments were adopted.  This 2008 Restatement includes all provisions of the Plan that are applicable as of its effective date.

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ARTICLE 1.  DEFINITIONS

1.01“Account” means, with respect to each Participant, the total of his Before-Tax Deferral Account, Roth Contributions Account, After-Tax Account, Employer Account, Rollover Account, Roth Rollover Account, Catch-Up Account, Roth Catch-Up Account, After-Tax Rollover Account and any other sub-account established by the Plan Administrator pursuant to Section 13.02(d).  That portion of his Account, if any, that is invested in the IBM Stock Fund pursuant to the provisions of Article 5, and any separate sub-account established in accordance with Section 5.09(d) shall be deemed to be his ESOP Account.

1.02“Actual Contribution Percentage” means, with respect to a specified group of Employees, the average of the ratios, calculated separately for each Employee in that group, of (a) the sum of (i) the Employee’s Matching Contributions for that Plan Year, excluding any Matching Contributions forfeited under the provisions of Sections 4.01(f) and 4.06(c)(iii) plus (ii) the Employee’s After-Tax Contributions for that Plan Year, to (b) his Statutory Compensation for that Plan Year.  The Actual Contribution Percentage for each group and the ratio determined for each Employee in the group shall be calculated to the nearest one one-hundredth of 1% (0.0001).  Any Matching Contributions that are taken into account in determining the Actual Deferral Percentage for any group of Employees for a Plan Year shall not be taken into account in determining the Actual Contribution Percentage for such group of Employees for such Plan Year.  At the election of the Plan Administrator, which election may be made or changed each Plan Year, all or any portion of Non-Matching Employer Contributions made pursuant to

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Section 4.02A with respect to such Plan Year may be taken into account in determining the Average Contribution Percentage of any group or groups of Employees, in accordance with and to the extent permitted by Section 1.401(m)-2(a)(6) of the Regulations.

1.03“Actual Contribution Ratio” means the ratio taken into account with respect to an Employee in the determination of the Actual Contribution Percentage for a group of Employees in which he is included.

1.04“Actual Deferral Percentage” means, with respect to a specified group of Employees, the average of the ratios, calculated separately for each Employee in that group, of (a)  the amount of Deferred Cash Contributions made pursuant to Section 4.01 for a Plan Year, including Deferred Cash Contributions returned to a Highly Compensated Employee under Section 4.01(d) and Deferred Cash Contributions returned to any Employee pursuant to Section 4.01(e), to (b) the Employees’ Statutory Compensation for that Plan Year.  The Actual Deferral Percentage for each group and the ratio determined for each Employee in the group shall be calculated to the nearest one one-hundredth of 1% (0.0001).  For purposes of determining the Actual Deferral Percentage for a Plan Year, Deferred Cash Contributions may be taken into account for a Plan Year only if they:

(i)relate to compensation that either would have been received by the Employee in the Plan Year but for his deferral election, or are attributable to services performed by the Employee in the Plan Year and would have been received by the Employee within 2½ months after the close of the Plan Year but for his deferral election,

5

(ii)           are allocated to the Employee as of a date within that Plan Year and are not contingent on the participation or performance of service after such date, and

(iii)are actually paid to the Trustee no later than 12 months after the end of the Plan Year to which the contributions relate.

At the election of the Plan Administrator, which election may be made or changed each Plan Year, all or any portion of Matching Contributions made pursuant to Section 4.02 or Non-Matching Employer Contributions made pursuant to Section 4.02A with respect to such Plan Year may be taken into account in determining the Average Deferral Percentage of any group or groups of Employees, in accordance with and to the extent permitted by Section 1.401(k)-2(a)(6) of the Regulations.

1.05“Actual Deferral Ratio” means the ratio taken into account with respect to an Employee in the determination of the Actual Deferral Percentage.

1.06“Affiliate” means, with respect to any Employer, any company that is a member of a controlled group of corporations, as defined in Section 414(b) of the Code, which also includes such Employer as a member; any trade or business under common control, as defined in Section 414(c) of the Code, with such Employer; any organization, whether or not incorporated, which is a member of an affiliated service group, as defined in Section 414(m) of the Code, which includes such Employer; and any other entity required to be aggregated with such Employer pursuant to Regulations under Section 414(o) of the Code.  Solely for the purpose of determining whether an individual is a Leased Employee and for purposes of Section 4.10, the definitions in Sections 414(b) and (c) of the Code shall be modified by substituting the phrase “more

6

than 50 percent” for the phrase “at least 80 percent” in each place it appears in Section 1563(a)(1) of the Code.

1.06A“After-Tax Account” means the account credited with the After-Tax Contributions made by a Participant and earnings on those contributions.

1.06B“After-Tax Contributions” means amounts contributed to the Plan in accordance with Section 4.01(h).

1.06C“After-Tax Rollover Account” means the account credited with After-Tax Rollover Contributions and earnings on those contributions.

1.06D“After-Tax Rollover Contributions” means amounts contributed pursuant to Section 4.03(g).

1.07“Annual Dollar Limit” means, for Plan Years commencing after December 31, 1993 and prior to January 1, 2002, $150,000, as adjusted from time to time in accordance with Section 401(a)(17)(B) of the Code, as in effect for Plan Years commencing prior to January 1, 2002; and, effective January 1, 2002, $200,000, as adjusted from time to time in accordance with Section 401(a)(17)(B) of the Code as in effect for Plan Years commencing after December 31, 2001.

1.08“Attributed Earnings” means the amount of investment income attributed to Excess Contributions or Excess Deferrals or to any Deferred Cash Contributions in excess of the limit described in Section 4.10(a), that are required to be returned to the Participant

7

in accordance with Sections 4.01(f), 4.06(c), or 4.10(d)(i) or (ii), as applicable, and the amount of investment income attributed to Excess Aggregate Contributions or any Matching Contributions or any Non-Matching Employer Contributions in excess of the limit described in Section 4.10(a), that are required to be forfeited in accordance with Section 4.07(c) or 4.10(d)(ii).  Attributed Earnings on Excess Deferrals, Excess Contributions, or Deferred Cash Contributions required to be returned shall be determined (i) by multiplying the income earned on the Deferred Account for the Plan Year by a fraction, the numerator of which is the Excess Deferrals, Excess Contributions, or Deferred Cash Contributions that are required to be returned for the Plan Year and the denominator of which is the Deferred Account balance at the end of the Plan Year, disregarding any income or loss occurring during the Plan Year and (ii), effective January 1, 2006, by adding to the amount determined under clause (i) the product of (A) the income earned on the Deferred Account from the end of the Plan Year to the date such Excess Deferrals, Excess Contributions or Deferred Cash Contributions that are required to be returned for the Plan Year are returned to the Participant (the “gap period”), and the denominator of which is the Deferred Account balance on the date distribution, disregarding any income or loss occurring during the gap period; provided, however, that (X) effective January 1, 2008, the sum of the Participant’s Before-Tax Deferral Account and his Roth Contributions Account shall be taken into account in clause (i), in lieu of his Deferred Account; (Y) effective January 1, 2008, clause (ii) shall be disregarded in determining the Attributed Earnings on Excess Contributions; and (Z) clause (ii) shall be disregarded in determining the Attributed Earnings on Excess Deferrals for any Plan Year beginning before January 1, 2008.  Attributed Earnings on Excess Aggregate Contributions, Matching Contributions, or Non-Matching Employer Contributions that are required to be forfeited shall be

8

determined in a similar manner by substituting the Employer Account for the Deferred Account (or, effective January 1, 2008, the sum of the Before-Tax Deferral Account and the Roth Contributions Account), and the Excess Aggregate Contributions or Matching Contributions or Non-Matching Employer Contributions, required to be forfeited for the Excess Deferrals, Excess Contributions, or Deferred Cash Contributions required to be returned in the preceding sentence; provided, however, that effective January 1, 2008, clause (ii) of the preceding sentence shall be disregarded in determining Attributed Earnings on Excess Aggregate Contributions.

1.08A“Automatic Contributions” means contributions made to a Participant’s Employer Account in accordance with Section 4.02A(a).

1.08B “Before-Tax Contributions” means, effective January 1, 2008, Deferred Cash Contributions made on behalf of a Participant, excluding any amount designated as Roth Contributions, in accordance with Section 4.01(a)(x).

1.08C“Before-Tax Deferral Account” means, effective January 1, 2008, the account credited with the Deferred Cash Contributions made on a Participant’s behalf prior to January 1, 2008 and the Before-Tax Contributions made on a Participant’s behalf after December 31, 2007, and earnings on those contributions.  Prior to January 1, 2008, a Participant’s Before-Tax Deferral Account was known as his Deferred Account.

1.09“Beneficiary” means any person, persons or entity designated, or deemed to have been designated, by a Participant to receive any benefits payable in the event of the Participant’s death in accordance with the provisions of Section 10.09.

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1.10         “Board of Directors” or “Board” means the Board of Directors of IBM.

1.11“Catch-Up Account” means the account credited with the Catch-Up Contributions made on a Participant’s behalf and earnings on those contributions.

1.12“Catch-Up Contributions” means amounts contributed to the Plan that satisfy the requirements of Section 4.01(g) and, effective January 1, 2008, excluding any amount designated as Roth Catch-Up Contributions, in accordance with Section 4.01(g)(viii).

1.12A“Certificate of Disability Insurance” means the certificate issued in accordance with the terms of the Disability Insurance Policy by the Disability Insurer and furnished to a Participant who has elected, in accordance with Section 5A.03(a), to invest a portion of his Account in the payment of premiums under the Disability Insurance Policy.

1.13“Code” means the Internal Revenue Code of 1986, as amended from time to time.  References to specific sections of the Code shall be deemed to refer to such sections as they may be amended or redesignated.

1.14“Committee” means the Retirement Plans Committee of IBM, which shall consist of the individuals with the following positions (or successor positions) at IBM: Senior Vice President and Chief Financial Officer; Senior Vice President, Human Resources; Vice President & Treasurer; and Senior Vice President & General Counsel.

1.15“Compensation” means the cash remuneration paid to an Employee for services rendered to the Employer, including salary, commission payments, and recurring

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payments under any form of variable compensation plan and additional compensation paid for nonscheduled workdays, overtime, and shift premium, determined after any reduction pursuant to deferrals made under the IBM Excess 401(k) Plus Plan, or any predecessor or successor plan, and then determined before any reduction pursuant to Section 4.01 or pursuant to a cafeteria plan under Section 125 of the Code, or pursuant to a qualified transportation fringe under Section 132(f) of the Code, but excluding special awards, other nonrecurring payments, expenses or relocation reimbursements, sign-on bonuses, separation pay, termination incentive payments, payments for accrued or deferred vacations, and payments made to Executives during the first quarter of 2008 under the Employer’s Annual Incentive Plan or other sales and services incentives programs.  Amounts other than Variable Pay paid after the first regularly scheduled payroll date coincident with or next following the date of an Employee’s termination of employment shall not be taken into account as Compensation.  Any amount of Variable Pay shall not be taken into account if the payroll processing for an Employee’s termination of employment preceded the payroll processing date for such Variable Pay. Compensation shall not include any amount earned during, or payable on the basis of, employment with any entity at a time when such entity was not an Employer, regardless of when or by what entity such amount may be paid.  Compensation shall not include any amount payable as a retention bonus or retention incentive to any person who becomes an Employee in connection with the acquisition of any entity, or of the assets of any entity, by an Employer.  The Plan Administrator, in its discretion, shall determine whether any form of remuneration not described in this Section shall be treated as Compensation for purposes of the Plan.  Compensation taken into account for a Plan Year shall not exceed the Annual Dollar Limit.

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1.16“Deferred Account” means the account credited with the Deferred Cash Contributions made on a Participant’s behalf prior to January 1, 2008 and Before-Tax Contributions made on a Participant’s behalf after December 31, 2007, and earnings on those contributions.  Effective January 1, 2008, a Participant’s Deferred Account shall be known as his Before-Tax Deferral Account.

1.17“Deferred Cash Contributions” means amounts contributed pursuant to Section 4.01(a).  For Plan Years beginning after December 31, 2007, the term Deferred Cash Contributions shall be deemed to include both Before-Tax Contributions and Roth Contributions.

1.17A“Designated Mutual Fund” means a mutual fund that is established and maintained in accordance with the requirements of Investment Company Act of 1940, that offers shares for purchase by the general public, and that is designated by the Committee, in accordance with Section 5.01A(a), to be available to Participants for investment under the terms of the Mutual Fund Window Program, as in effect from time to time.  A Designated Mutual Fund shall not be deemed an Investment Fund for purposes of Section 5.01.

1.17B“Disability Insurance Policy” means the insurance policy underwritten by the Disability Insurer under which premiums are paid through investments made in accordance with the Disability Protection Program and benefits are payable in accordance with the Disability Protection Program.

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1.17C“Disability Insurer” means the insurance company selected by the Plan Administrator that underwrites the Disability Insurance Policy.

1.17D“Disability Protection Program” means the program provided in Article 5A, effective as of January 1, 2005, under which a Participant who satisfies specified eligibility requirements is permitted to elect to invest a portion of his Account in the payment of premiums under the Disability Insurance Policy and pursuant to which benefit payments made from the Disability Insurance Policy and in accordance with the Certificate of Disability Insurance are allocated to the Accounts of Participants who suffer a Total and Permanent Disability while enrolled thereunder.

1.17E“Domestic Partner” means a person who is named as the Participant’s domestic partner on a form that is acceptable to the Plan Administrator, and who is unable to legally marry the Participant under applicable state law.  For purposes of Section 10.09, Domestic Partner means a person who is the legal spouse of the Participant under applicable state law.

1.18“Domestic Subsidiary” means a Subsidiary organized and existing under the laws of the United States, or any state, territory, or possession thereof.

1.19“Effective Date” means July 1, 1983.  The Effective Date of this amendment and restatement of the Plan shall be January 1, 2008, except as otherwise specified herein, and subject to the Preamble hereto.

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1.20“Employee” means an employee of any Employer who receives stated compensation other than a pension, severance pay, retainer, or fee under contract.  The term “Employee” excludes any Leased Employee and any person who is included in a unit of employees covered by a collective bargaining agreement that does not provide for his membership in the Plan.  Any person deemed to be an independent contractor by any Employer and paid by the Employer in accordance with its practices for the payment of independent contractors, including the provision of tax reporting on Internal Revenue Service Form 1099, shall be excluded from the definition of Employee for all purposes under the Plan, notwithstanding any subsequent reclassification of such person for any purpose under the Code, whether agreed to by the Employer or adjudicated under applicable law.

1.21“Employer” means IBM or any successor by merger, purchase or otherwise, with respect to its employees, or any other entity participating in the Plan as provided in Article 2, with respect to its employees.  All entities that are members of a controlled group of corporations, within the meaning of Section 414(b) of the Code, or a group of trades or businesses under common control, within the meaning of Section 414(c) of the Code, and that are participating in the Plan in accordance with Article 2, shall be deemed to be a single Employer for all purposes under the Plan.

1.22“Employer Account” means the account credited with Matching Contributions, Automatic Contributions, Transition Credit Contributions, and Special Savings Award Contributions, and earnings on those contributions. The Plan Administrator shall establish rules for the maintenance of sub-accounts within a Participant’s Employer Account.

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1.22A“Employer Contributions” mean any contributions made by the Employer that are either Matching Contributions, Automatic Contributions, Transition Credit Contributions or Special Savings Awards.

1.23“Enrollment Date” means the date on which a Participant makes the election described in Section 4.01.

1.24“Excess Aggregate Contributions” means the amount of Matching Contributions and, effective as of January 1, 2004, After-Tax Contributions on behalf of Highly Compensated Employees in excess of the limitation described in Section 4.07(a) for a Plan Year, as determined in accordance with Section 4.07(c)(i).

1.25“Excess Contributions” means the amount of Deferred Cash Contributions on behalf of Highly Compensated Employees in excess of the limitation described in Section 4.06(a) for a Plan Year, as determined in accordance with Section 4.06(c)(i).

1.26“Excess Deferrals” means the amount of Deferred Cash Contributions on behalf of a Participant that, taken together with similar contributions on his behalf to any other plan described in Section 401(a)(30) of the Code, exceed the dollar limitation described in Section 4.01(c) for a calendar year.

1.27“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.  References to sections of ERISA shall be deemed to refer to such sections as they may be amended or redesignated.

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1.27A“Executive”means an Employee who is classified as an executive, based on the compensation band to which he is assigned, in accordance with the personnel policies and practices of his Employer.

1.28“Five Percent Owner” means with respect to a corporation, any person who owns or is considered as owning within the meaning of Section 318 of the Code more than 5% of the outstanding stock of the corporation, or stock possessing more than 5% of the total voting power of the corporation.

1.29“Foreign Branch” means a branch, division, or other unit of IBM or a Domestic Subsidiary that operates principally outside the United States, its territories, or possessions.

1.29A“401(k) Pension Program Participant”means a Participant who becomes a participant in the Plan in accordance with Section 3.02A.

1.30“Fund” or “Investment Fund” means the IBM Stock Fund and the other separate funds authorized by the Committee in accordance with Section 5.01(c) in which Plan assets are invested.  Amounts invested under the Mutual Fund Window Program, effective as of January 1, 2005, shall not be deemed to be invested in any of the Investment Funds.

1.31“Highly Compensated Employee” means for a Plan Year commencing on or after January 1, 1997, any employee of the Employer or an Affiliate, whether or not eligible to participate in the Plan, who

(i)            was a Five Percent Owner for such Plan Year or the prior Plan Year, or

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(ii)for the preceding Plan Year received Statutory Compensation in excess of the dollar amount specified in Section 414(q)(1)(B)(i) of the Code, which amount, as in effect for 1997 was $80,000 and has been adjusted to $105,000 for 2008, and, effective with respect to Plan Years commencing on or after January 1, 2002, was among the highest 20% of employees for the preceding Plan Year when ranked by Statutory Compensation paid for that year.  No employee shall be excluded under Section 414(q)(5) of the Code for purposes of determining the number of such employees.  The dollar amount in this paragraph (ii) shall be further adjusted from time to time in accordance with Section 414(q)(1) of the Code.

Notwithstanding the foregoing, employees who are nonresident aliens and who receive no earned income from the Employer or an Affiliate which constitutes income from sources within the United States shall be disregarded for all purposes of this Section. The provisions of this Section shall be further subject to such additional requirements as shall be described in Section 414(q) of the Code and Regulations thereunder, which shall override any provisions of this Section inconsistent therewith.

1.32“Hour of Service” means each hour for which an employee is paid or entitled to payment for the performance of duties for the Employer or an Affiliate.

1.33“IBM” means International Business Machines Corporation, a corporation organized and existing under the laws of the State of New York.

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1.34“IBM Staff Investment Manager” means one or more IBM employees who have been appointed by the Committee to direct, either jointly or severally, the management of the acquisition and disposition of all or any portion of the assets of the Trust Fund.

1.35“IBM Stock Fund” means the Investment Fund of the Plan that is invested in the common stock of IBM, in accordance with Section 5.01(b) and which shall be included within the ESOP.

1.36“Independent Investment Manager” means any person or entity that satisfies the requirements of Section 3(38)(B) of ERISA, which has been appointed by the Committee to manager, acquire, and dispose of all or any portion of the assets of the Trust Fund and which has acknowledged in writing that it is a fiduciary with respect to the Plan.

1.37“Investment Manager” means any Independent Investment Manager or any IBM Staff Investment Manager.

1.38“Leased Employee” means any person (other than a common law employee of the Employer) who, pursuant to an agreement between the Employer and any other person (“leasing organization”), has performed services for the Employer or any related persons determined in accordance with Section 414(n) of the Code on a substantially full-time basis for a period of at least one year and such services are performed under the primary direction of or control by the Employer.  In the case of any person who is a Leased Employee before or after a period of service as an Employee, the entire period during which he has performed services as a Leased Employee shall be counted as

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service as an Employee for all purposes of the Plan, except that he shall not, by reason of that status, become a participant in the Plan.

1.38A“Long-Term Supplemental Employee”means, effective as of January 1, 2004, a Supplemental Employee so designated by his Employer as a Long-Term Supplemental Employee, in accordance with its established personnel practices.  A Supplemental Employee who has not been explicitly designated as a Long-Term Supplemental Employee by his Employer shall not be a Long-Term Supplemental Employee.

1.39“Matching Contributions” means amounts contributed pursuant to Section 4.02.  For purposes of Section 1.401(k)-1(b)(5) of the Regulations, Matching Contributions made under the Plan shall be deemed “Qualified Matching Contributions,” provided, however, that, for the period commencing on January 1, 2002 and ending on December 31, 2004, Matching Contributions that are determined on the basis of Catch-Up Contributions made on a Participant’s behalf shall not be deemed “Qualified Matching Contributions”.

1.39A“Mutual Fund Window Program”means the program provided in Section 5.01A, as in effect from time to time, pursuant to which a Participant is permitted to elect to invest a portion of his Account in one or more Designated Mutual Funds.

1.39B“Non-Executive” means an Employee who is not an Executive.

1.39C“Non-Exempt Employee” means an Employee whose terms and conditions of employment are not exempt from the requirements of the Fair Labor Standards Act.

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1.40“Non-Highly Compensated Employee” means for any Plan Year an employee of the Employer or an Affiliate who is not a Highly Compensated Employee for that Plan Year.

1.40A“Non-Matching Employer Contributions” means the Automatic Contributions, Transition Credit Contributions, and Special Savings Award Contributions made to a Participant’s Employer Account in accordance with Section 4.02A.

1.41“Notice” means a specification by the Employee of his designation, election, or intention under any provision of the Plan, through written, electronic, or telephonic means, as provided for the particular purpose by the Plan Administrator, pursuant to Section 14.05.

1.41A“One-Year Period of Service”means with respect to any employee, effective as of January 1, 2005, a 12-month period of employment with the Employer or any Affiliate, whether or not as an Employee, beginning on the date he first completes an Hour of Service. For the purpose of determining whether an employee has completed a One-Year Period of Service, the following rules shall apply:

(a)If an employee’s employment is terminated and he is later reemployed within one year of the date that is the earlier of (i) his date of termination of service or (ii) the first day of an absence from service immediately preceding his date of termination, the period between such date and his date of reemployment shall be included as a period of employment in determining whether he has completed a One-Year Period of Service, provided, however, that, effective as of January 1, 2007, this subsection shall apply only if the employee was a Regular Employee as of the date of his termination of service.

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(b)If an employee’s employment is terminated and he is later reemployed more than one year after the date that is the earlier of (i) his date of termination of service or (ii) the first day of an absence from service immediately preceding his date of termination, his period of employment prior to such date shall be aggregated with his period of employment after his reemployment in determining whether he has completed a One-Year Period of Service, provided, however, that, effective as of January 1, 2007, this subsection shall apply only if the employee was a Regular Employee as of the date of his termination of service.

(c)If an employee’s employment with a Foreign Branch is terminated and he is later reemployed by an Employer within one year after the date that is the earlier of (i) his date of termination of service or (ii) the first day of an absence from service immediately preceding his date of termination, the period between such date and his date of reemployment shall be included as a period of employment in determining whether he has completed a One-Year Period of Service.

(d)If an employee’s employment with a Foreign Branch is terminated and is later reemployed by an Employer one or more years after the date that is the earlier of (i) his date of termination of service, or (ii) the first date of an absence from service immediately preceding his date of termination, but less than five years after such termination, the Participant’s period of employment prior to such termination date shall be aggregated with his period of employment after his reemployment in determining whether he has completed a One-Year Period of Service.

(e)If an employee’s employment with a Foreign Branch is terminated and is later reemployed by an Employer more than five years after the date that is the earlier

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of (i) his date of termination of service, or (ii) the first date of an absence from service immediately preceding his date of termination, and the Participant’s prior service was less than the break in service, the Participant’s prior service will not be counted in determining whether he has completed a One-Year Period of Service.

(f)If an employee’s employment with a Foreign Branch is terminated and is later reemployed by an Employer more than five years after the date that is the earlier of (i) his date of termination of service, or (ii) the first date of an absence from service immediately preceding his date of termination, and the Participant’s prior service was greater than or equal to the break in service, the Participant’s prior service will be counted in determining whether he has completed a One-Year Period of Service.

(g)For the purpose of determining whether an employee has completed a One-Year Period of Service, his Recognized Predecessor Employment shall be taken into account as if it were employment with an Employer.

1.41B“PCF Participant” means an Employee who was a participant in the IBM Personal Pension Plan on December 31, 2007 and was employed as a Regular Employee on such date, whose benefit on December 31, 2007 was determined, in whole or in part, on the basis of the Pension Credit Formula of the IBM Personal Pension Plan who remains continuously employed as a Regular Employee after December 31, 2007.   For purposes of the foregoing sentence, a Participant who was on a leave of absence due to long term disability on December 31, 2007, and who returned to employment on or after January 1, 2008 will be deemed to have been in employment as a Regular Employee on

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December 31, 2007 until the date of his return to employment.  A PCF Participant who terminates employment and is later rehired as an Employee shall not be a PCF Participant after his reemployment, and shall be subject to the provisions applicable to 401(k) Pension Program Participants.

1.41C“PPA Participant” means a Participant who was a participant in the IBM Personal Pension Plan on December 31, 2007 and was employed as a Regular Employee on such date, whose benefit on December 31, 2007, was determined, on the basis of the Personal Pension Account provisions of the IBM Personal Pension Plan, and who remains continuously employed as a Regular Employee after December 31, 2007. For purposes of the foregoing sentence, a Participant who was on a leave of absence due to long term disability on December 31, 2007, and who returned to employment on or after January 1, 2008 will be deemed to have been employed as a Regular Employee on December 31, 2007 until the date of his return to employment.  A PPA Participant who terminates employment and is later rehired as an Employee shall not be a PPA Participant after his reemployment, and shall be subject to the provisions applicable to 401(k) Pension Program Participants.

1.42“Participant” means any person who has been admitted to participation in the Plan in accordance with Section 3.02, Section 3.02A, or Section 3.02B and has not ceased to be a Participant in accordance with Section 3.05.  Except to the extent otherwise specified, references to a Participant shall be deemed also to refer to a 401(k) Pension Program Participant and provisions of the Plan that apply to Participants shall apply equally to 401(k) Pension Program Participants.

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1.43“Plan” means the IBM 401(k) Plus Plan, as set forth in this document or as amended from time to time.  Effective as of January 1, 2002, the IBM Stock Fund maintained pursuant to Section 5.01, together with any separate sub-account established pursuant to Section 5.09(d) shall be designated as an ESOP, within the meaning of Section 4975(e)(7) of the Code and shall be a separate constituent plan.

1.44“Plan Year” means the 12-month period beginning on any January 1, on or after the Effective Date.

1.44A“Predecessor Employment” means employment with any entity prior to the date that (a) such entity becomes a member of a controlled group of corporations that also includes any Employer as a member, (b) substantially all of the assets of such entity are acquired by a member of a controlled group of corporations that includes any Employer as a member, or (c) such entity enters into a contractual relationship with an Employer pursuant to which employees of such entity become Employees.  For purposes of this Section, the term “controlled group of corporations” shall have the meaning specified in Section 414(b) of the Code.

1.45“Profits” means both (a) the accumulated earnings and profits of an Employer and (b) an Employer’s current net taxable income, before deduction of Federal, state, or local income taxes and before any contributions made by the Employer to this Plan or any other employee benefit plan, as determined by its independent public accountants in accordance with generally accepted accounting principles.

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1.45A“Program Eligibility Date” means, with respect to a 401(k) Pension Program Participant, the earliest day during his employment or reemployment as a Regular Employee that is coincident with or next following the date as of which he completes or is deemed to have completed a One-Year Period of Service.

1.45B“Recognized Predecessor Employment” means Predecessor Employment that is taken into account under the Plan pursuant to rules established by the Plan Administrator, which rules shall apply uniformly to all individuals who become Employees as the result of the same transaction.

1.46“Regular Employee” means an Employee as so defined by the rules and regulations of his Employer, who is (i) compensated by salary or by commission, or partly by salary and partly by commission, (ii) subject to the Employer’s performance evaluation program, and (iii) employed for an indefinite period.

1.47“Regulations” means the Income Tax Regulations Code codified at Title 26 of the Code of Federal Regulations, as amended from time to time.  References to specific sections of the Regulations shall be deemed to refer to such sections as they may be amended or redesignated.

1.48“Rollover Account” means the account credited with the Rollover Contributions made by a Participant and earnings on those contributions.

1.49         “Rollover Contributions” means amounts contributed pursuant to Section 4.03.

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1.49A	“Roth Catch-Up Account” means, effective January 1, 2008 the account credited with the Roth Catch-Up Contributions made on a Participant’s behalf and earnings on those contributions.
1.49B	“Roth Catch-Up Contributions” means, effective January 1, 2008, amounts contributed to the Plan that satisfy the requirements of Section 4.01(g) and, with respect to which a designation is made in accordance with Section 4.01(g)(viii), and pursuant to Section 402A(c)(1)(B) of the Code, that such amount should not be excluded from his gross income.
1.49C	“Roth Contributions” means, effective January 1, 2008, any amount of Deferred Cash Contributions made on behalf of a Participant with respect to which a designation is made in accordance with Section 4.01(a), and pursuant to Section 402A(c)(1)(B) of the Code, that such amount should not be excluded from his gross income.
1.49D	“Roth Contributions Account” means the account credited with Roth Contributions and earnings on those contributions.
1.49E	“Roth Rollover Account” means the account credited with the Roth Rollover Contributions made by a Participant and earnings on those contributions.
1.49F	“Roth Rollover Contributions” means, effective January 1, 2008, amounts contributed pursuant to Section 4.03(f).

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1.50	“Severance Date” means the earlier of (a) the date an employee quits, retires, is discharged or dies, or (b) the first anniversary of the date on which an employee is first absent from service, with or without pay, but without interruption, for any reason such as vacation, sickness, disability, layoff or leave of absence.
1.50X	“Special Savings Award Contributions” means contributions made to the Employer Accounts of PCF Participants who are Non-Exempt Employees, in accordance with Section 4.02A(c).
1.50A	“Stable Value Fund” means an Investment Fund that is invested in contractual instruments, including, without limitation, a fund of guaranteed investment contracts or a fund that includes benefit-responsive contracts that are determined by the Investment Manager of such fund to be “synthetic guaranteed investment contracts.
1.51	“Statutory Compensation” means the wages, salaries, and other amounts paid in respect of an employee for services actually rendered to an Employer or an Affiliate, including, by way of example, overtime, bonuses and commissions, but excluding deferred compensation, stock options and other distributions which receive special tax benefits under the Code. For purposes of determining Highly Compensated Employees and key employees under Appendix D, Statutory Compensation shall include amounts contributed by the Employer pursuant to a salary reduction agreement which are not includible in the gross income of the employee under Sections 125, 132(f)(4) (with respect to Plan Years commencing after December 31, 2000), 402(e)(3) (with respect to Plan Years commencing prior to January 1, 1998), 402(g)(3) (with respect to Plan Years beginning after December 31, 1997), 402(h) or 403(b), or 457 of the Code. For all other

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	purposes, Statutory Compensation shall also include the amounts referred to in the preceding sentence, unless the Plan Administrator directs otherwise for a particular Plan Year. For Plan Years beginning after 1988, Statutory Compensation shall not exceed the Annual Dollar Limit, provided that such Annual Dollar Limit shall not be applied in the determination of Highly Compensated Employees.
	In determining the compensation of a Participant for purposes of the application of the Annual Dollar Limit, for Plan Years commencing prior to January 1, 1997, the rules of Section 414(q)(6) (as in effect on the day before the date of enactment of Public Law 104-188) shall apply, except that in applying such rules, the term “family” shall include only the Spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If, as a result of the application of such rules, the Annual Dollar Limit is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual’s compensation as determined prior to the application of this limitation.
1.52	“Subsidiary” means a corporation or other form of business organization, the majority interest of which is owned directly or indirectly by IBM.
1.53	“Supplemental Employee” means an Employee so designated by his Employer in accordance with its established personnel practices who is not classified as a Regular Employee.
1.53A	“Total and Permanent Disability” means a condition that provides a predicate for the payment of benefits from the Disability Insurance Policy, and shall be determined in

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	accordance with the terms of Disability Insurance Policy and the Certificate of Disability Insurance.
1.54B	“Transition Credit Contributions” means contributions made to the Employer Accounts of PPA Participants, in accordance with Section 4.02A(b).
1.54	“Trust” or “Trust Fund” means the fund established as part of the Plan into which contributions are to be made and from which benefits are to be paid in accordance with the terms of the Plan.
1.55	“Trustee” means the trustee holding the funds of the Plan as provided in Article 12.
1.56	“Valuation Date” means each trading day of the New York Stock Exchange, except as may be determined by the Plan Administrator in accordance with Section 6.02(b).
1.57	“Variable Pay” means that portion of a Participant’s Compensation which is determined and paid in accordance with the provisions of the Employer’s annual performance-based compensation program, including, but not limited to, any payments made to Executives under the Employer’s annual incentive compensation plan or sales and services incentive plans after March 31, 2008.

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ARTICLE 2.  PARTICIPATING EMPLOYERS

2.01	Participation of IBM
	IBM shall be a participating Employer under the Plan, provided, however, that no Foreign Branch of IBM shall be included as an Employer and IBM shall not be a participating Employer with respect to the employees of any Foreign Branch.
2.02	Participation by Domestic Subsidiaries
(a)	Domestic Subsidiaries of IBM that were acquired or established prior to July 1, 1983 shall be participating Employers under the Plan, and shall be subject to subsection (c).
(b)	Any entity that becomes, is established as, or is acquired as a Domestic Subsidiary on or after July 1, 1983 shall become a participating Employer under the Plan if and only if the Committee authorizes its participation by resolution and such entity takes such actions as may be necessary for it to adopt the Plan. With the consent of the Plan Administrator, a Domestic Subsidiary that adopts the Plan may also adopt special provisions that shall be applicable to its employees, which special provisions shall be set forth in an Appendix to the Plan. A Domestic Subsidiary that becomes a participating Employer shall be subject to the provisions of subsection (c).
(c)	No Foreign Branch of a Domestic Subsidiary shall be included as an Employer under the Plan and no Domestic Subsidiary shall be a participating Employer under the Plan with respect to the employees of a Foreign Branch.

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ARTICLE 3.  ELIGIBILITY AND PARTICIPATION

3.01	Eligibility
(a)	Except as provided in subsection (c), each Employee of an Employer shall be eligible to become a Participant at any time during service as a Regular Employee.
(b)	Effective as of January 1, 2004, each Employee of an Employer shall be eligible to become a Participant at any time during service as a Long-Term Supplemental Employee.
(c)	Effective as of January 1, 2005, subsection (a) shall be applicable only to an Employee who, (i) as of December 31, 2004, was (A) actively employed as a Regular Employee, or (B) on authorized leave of absence from employment as a Regular Employee and (ii) has remained in employment as a Regular Employee from December 31, 2004 through the date as of which he files a Notice described in Section 3.02(a) or (b). An Employee for whom subsection (a) is made inapplicable by this subsection shall be eligible to become a Participant only in accordance with subsection (b), or Section 3.02A.
3.02	Participation by Election for Employees other than 401(k) Pension Program Participants
	An eligible Employee who is eligible to become a Participant in accordance with Section 3.01(a) or 3.01(b) shall become a Participant as of:

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(a)the first day of the first payroll period beginning after the date he files with the Plan Administrator the Notice prescribed by the Plan Administrator in which he:

(i)makes the election described in Section 4.01(a), and

(ii)authorizes the Employer to reduce his Compensation by the percentage or the amount specified in his election; or, if earlier,

(b)the first day of the first payroll period beginning after July 1, 2004 after the date he files with the Plan Administrator the Notice prescribed by the Plan Administrator in which he

(i)makes the election described in Section 4.01(h), and

(ii)authorizes the Employer to withhold from his Compensation, on an after-tax basis, the percentage specified in his election and to pay the amount so withheld to the Plan on his behalf.

3.02AParticipation by 401(k) Pension Program Participants after December 31, 2004

(a)The provisions of this Section shall be applicable to any Employee who becomes a Regular Employee after December 31, 2004.

(b)An Employee described in subsection (a) shall be become a 401(k) Pension Program Participant as of:

(i)the first day of the first payroll period beginning after the date he files with the Plan Administrator the Notice prescribed by the Plan Administrator in which he:

(A)makes the election described in Section 4.01(a), and

(B)authorizes the Employer to reduce his Compensation by the percentage or the amount specified in his election; or, if earlier,

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(ii)the first day of the first payroll period beginning after the date he files with the Plan Administrator the Notice prescribed by the Plan Administrator in which he

(A)makes the election described in Section 4.01(h), and

(B)authorizes the Employer to withhold from his Compensation, on an after-tax basis, the percentage specified in his election and to pay the amount so withheld to the Plan on his behalf.

(c)(i)An Employee described in subsection (a) who becomes a Regular Employee prior to November 17, 2007 and who has not become a 401(k) Pension Program Participant in accordance with subsection (b) shall be deemed to have made an election in accordance with Section 4.01(a), effective as of the first payroll processing date that occurs on or after the 30^th day following his date of hire, to reduce his Compensation by 3% and to have that amount contributed to the Plan by his Employer as a Deferred Cash Contribution, and shall become a 401(k) Pension Program Participant as of such date, unless he revokes such deemed election in advance of the effective date thereof, by electing, in accordance with Section 4.04(f), not to reduce his Compensation.

(ii)An Employee described in subsection (a) who was hired on or after January 1, 2008 who has not become a 401(k) Pension Program Participant in accordance with subsection (b) shall be deemed to have made an election in accordance with Section 4.01(a), effective as of the first payroll processing date that occurs on or after the 30^th day following his date of hire, to reduce his Compensation by 5% and to have that amount contributed to the Plan by his Employer as a Deferred Cash Contribution, and shall become a 401(k) Pension Program Participant as of such date, unless he revokes such deemed election in advance of the effective date thereof, by electing, in accordance with Section 4.04(f), not to reduce his Compensation.  Notwithstanding the

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foregoing, the date on which an Employee described in subsection (a) who was hired after November 16, 2007, and prior to January 1, 2008, who has not become a 401(k) Pension Program Participant in accordance with subsection (b) shall be deemed to have made an election in accordance with Section 4.01(a), shall be February 27, 2008, and not the payroll processing date that is on or after the 30^th day following the Participant’s date of hire.

(iii)A 401(k) Program Participant who became a Participant in accordance with subsection (c)(i) and who has not made any election in accordance with Section 4.04(a) or 4.04(f) to change the election he was deemed to have made pursuant to subsection (c)(1) shall be deemed to have made an election effective as of the first payroll processing date that occurs on or after January 1, 2008 to increase the percentage by which his Compensation is reduced from 3% to 5%, unless he revokes such deemed election in advance of the effective date thereof, in accordance with Section 4.04(f).

(iv)          For purposes of this Section 3.02A (c), for Participants who are hired on and after January 1, 2005 but before November 16, 2007, and for Participants who are hired on and after January 1, 2009, Compensation shall include Variable Pay.  For Participants who are hired on and after November 16, 2007 but before January 1, 2009, Compensation shall exclude Variable Pay.

(d)An Employee who is eligible to become a 401(k) Pension Program Participant in accordance with subsection (b) but who does not become a Participant in accordance with subsection (c), because he made an election in accordance with Section 4.04(f) not to reduce his Compensation, shall remain eligible to become a Participant and shall become a Participant in accordance with the procedures set forth in Section 3.02.  An

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	Employee who becomes a Participant in accordance with this subsection shall be a 401(k) Pension Program Participant.
(e)	For purposes of this Section, if an Employee described in subsection (a) became a Participant prior to January 1, 2005, but becomes a Regular Employee after December 31, 2004, and whose participation had not terminated in accordance with Section 3.05, such Employee shall not be deemed to be a Participant in accordance with this Section 3,02A. The provisions of this subsection shall not have any effect on the Employee’s rights under the Plan with respect to that portion of his Account attributable to contributions made prior to January 1, 2005.
3.03	Reemployment of Certain Former Employees and Former Participants
(a)	Any person who is reemployed by an Employer after December 31, 2003 as a Long-Term Supplemental Employee and who had not become a Participant prior to the date of his reemployment, shall become a Participant upon the filing of Notice in accordance with Section 3.02.
(b)	Any person who is reemployed by an Employer after December 31, 2003 as a Long-Term Supplemental Employee, who had become a Participant prior to the date of his reemployment, but who had subsequently ceased to be a Participant in accordance with Section 3.05, shall again become a Participant upon the filing of Notice in accordance with Section 3.02.
(c)	Any person who is reemployed by an Employer after December 31, 2003 as a Long-Term Supplemental Employee, who had become a Participant prior to the date of his

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reemployment, and who has not ceased to be a Participant in accordance with Section 3.05, shall be permitted to make an election under Section 4.01 immediately upon reemployment by an as a Long-Term Supplemental Employee.

3.04Effect of Status Change on Participation

(a)Except as provided in subsection (b), a Participant who

(i)had been employed by the Employer or an Affiliate as a Regular Employee, then

(ii)ceases to be a Regular Employee, but

(iii)remains in the employ of an Employer or an Affiliate

shall continue to be a Participant in the Plan, but shall not be eligible to receive allocations of Deferred Cash Contributions or any Employer Contributions, as applicable, and shall not be eligible to make After-Tax Contributions, while his employment status is other than as a Regular Employee.

(b)Notwithstanding the provisions of subsection (a), a Participant who

(i)had been employed by the Employer or an Affiliate as a Regular Employee, then

(ii)ceases to be a Regular Employee, but

(iii)remains in the employ of an Employer or an Affiliate as a Long-Term Supplemental Employee after December 31, 2003

shall, effective as of January 1, 2004, be eligible to receive allocations of Deferred Cash Contributions, and shall. effective July 1, 2004, be eligible to make After-Tax Contributions, but ineligible to receive allocations of any Employer Contributions, as applicable, while his employment status remains that of a Long-Term Supplemental Employee.

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(c)A Participant who

(i)had been employed by the Employer or an Affiliate as a Long-Term Supplemental Employee after December 31, 2003, then

(ii)ceases to be a Long-Term Supplemental Employee, but

(iii)remains in the employ of the Employer or an Affiliate (other than as a Regular Employee)

shall continue to be a Participant in the Plan, but shall not be eligible to receive allocations of Deferred Cash Contributions and shall not be eligible to make After-Tax Contributions.

(d)A Participant who

(i)had been employed by the Employer or an Affiliate as a Long-Term Supplemental Employee after December 31, 2003, then

(ii)ceased to be a Long-Term Supplemental Employee prior to January 1, 2005, but

(iii)upon ceasing to be a Long-Term Supplemental Employee remained in the employ of the Employer as a Regular Employee, which status became effective for the Participant prior to January 1, 2005,

shall continue to be a Participant in the Plan, shall continue to be eligible to receive allocations of Deferred Cash Contributions, shall be eligible to receive allocations of Employer Contributions, as applicable, and shall be eligible to make After-Tax Contributions.

3.05Termination of Participation

Participation shall terminate on the latest of (a) the date a Participant is no longer employed by an Employer or any Affiliate, (b) the date that a Participant receives a distribution that reduces the balance of his Account to zero, or (c) the date of the Participant’s death.

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ARTICLE 4.  CONTRIBUTIONS

4.01Deferred Cash Contributions, Catch-Up Contributions, and After-Tax Contributions

(a)A Participant may elect in the Notice filed under Section 3.02(a), Section 3.02A(b), Section 4.04(c), or Section 4.05(b), as applicable, to reduce his Compensation payable while a Participant and have the amount by which his Compensation is so reduced contributed to the Plan by his Employer as Deferred Cash Contributions. A Participant’s election under this subsection shall be subject to the following conditions:

(i)Except as provided in paragraph (xi), the minimum reduction shall be 1%, the maximum shall be 15%, and the Participant’s election shall be in multiples of 1%. Effective as of January 1, 2002, the 15% maximum specified in the foregoing sentence shall be increased to 80%.

(ii)The amount of the reduction may, in the discretion of the Plan Administrator, be rounded to the next higher or lower multiple of $1.00 per pay period.

(iii)Deferred Cash Contributions shall be further limited as provided in subsections (c), (d), and (e) and in Sections 4.06, 4.09 and 4.10.

(iv)A Participant’s election pursuant to this subsection shall become effective as soon as administratively practicable after his provision of Notice, but shall in any event be effective as of the first day of a payroll period.

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(v)Any Deferred Cash Contributions shall be paid to the Trustee as soon as practicable.  Deferred Cash Contributions attributable elections applicable to Compensation payable prior to January 1, 2008 shall be allocated to the Participant’s Deferred Account.  Deferred Cash Contributions attributable to elections applicable to Compensation payable after December 31, 2007 shall be allocated to the Participant’s Before-Tax Deferral Account, except that, to the extent that such Deferred Cash Contributions have been designated as Roth Contributions pursuant to paragraph (x), the amount so designated shall be allocated to the Participant’s Roth Contributions Account.

(vi)An election made by a Participant in accordance with this subsection, including for this purpose any separate Deferred Cash Contribution election with respect to Variable Pay in accordance with paragraph (vii), shall remain in effect until it is changed in accordance with Section 4.04 or suspended in accordance with Sections 4.05, 8.02(c)(iii), or 9.02(c)(i), provided however, that any election shall cease to be effective upon a Participant’s termination of employment.

(vii)Effective for the period beginning on January 1, 2002 and ending on December 31, 2004, and effective on and after January 1, 2008, a Participant may make separate Deferred Cash Contribution elections with respect to that portion of his Compensation that is not Variable Pay and with respect to that portion of his Compensation that is Variable Pay.  Effective for the period commencing January 1, 2005 and ending on December 31, 2007, a Participant may make separate Deferred Cash Contribution Elections with respect to that portion of his Compensation that is not Variable Pay and with respect to (I) any portion of his

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Compensation that is Variable Pay paid under a program maintained by an Employer for Non-Executives or (II) any portion of his Compensation that is Variable Pay paid under a program maintained by an Employer for Executives and attributable to any period of employment in which the Participant was a Non-Executive, provided, however, that:

(A)if a Participant fails to make a separate Deferred Cash Contribution election with respect to any portion of his Compensation that is Variable Pay that is payable to him after December 31, 2005 and before January 1, 2007, he shall be deemed to have made a 0% Deferred Cash Contribution election with respect to such Variable Pay;

(B)if a Participant fails to make a separate Deferred Cash Contribution election with respect to any portion of his Compensation that is Variable Pay that is payable to him after December 31, 2006, he shall be deemed to have made a Deferred Cash Contribution election with respect to such Variable Pay of the same percentage that is then in effect with respect to that portion of his Compensation that is not Variable Pay; and

(C)effective January 1, 2008, a Participant who makes a Deferral Maximizer Election pursuant to paragraph (xi) shall be deemed to have made a 0% Deferred Cash Contribution Election with respect to such Variable Pay.

(viii)        Effective for the period beginning January 1, 2005 and ending December 31, 2007, a Participant’s Deferred Cash Contribution Election shall apply only to his Compensation as determined without regard to any Variable Pay paid under any program maintained by an Employer for Executives and shall not be effective with respect to any portion of his Compensation that is Variable Pay

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paid under any program maintained by an Employer for Executives, except as provided in paragraph (vii) with respect to amounts attributable to any period of employment in which the Participant was a Non-Executive.   Effective January 1, 2008, a Participant who makes a Deferral Maximizer Election pursuant to paragraph (xi) shall be deemed to have made a 0% Deferred Cash Contribution Election with respect to his Variable Pay.

(ix)Effective January 1, 2002, Deferred Cash Contributions that are allocated to the IBM Stock Fund in accordance with the provisions of Section 5.02 shall be deemed to be contributions to the ESOP.

(x)Effective January 1, 2008, a Participant who has made, or is deemed to have made, an election to reduce his Compensation may elect, in accordance with procedures prescribed by the Plan Administrator, that all or a portion of the Deferred Cash Contributions that otherwise would be contributed to his Before-Tax Deferral Account as Before-Tax Contributions shall instead be designated as Roth Contributions and included in his gross income at the time of deferral.  The Deferred Cash Contributions so designated shall be contributed to his Roth Contributions Account.  An election pursuant to this paragraph may be revoked only with respect to Deferred Cash Contributions to be contributed after the effective date of the revocation election.

(xi)Effective January 1, 2008, in accordance with procedures established by the Plan Administrator, a Participant may elect that his Compensation be reduced by a dollar amount per payroll period that will cause his total Deferred Cash Contributions for the Plan Year to equal the amount permitted to be deferred

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under Code Section 402(g) and Code Section 414(v), as applicable, for such Plan Year in accordance with subsection (c) (“Deferral Maxizimer Election”).  No Deferral Maximizer Election with respect to a Plan Year may be made under this paragraph after June 30 of such Plan Year, or such later date as determined by the Plan Administrator.  In the event that a Participant has made a Deferral Maximizer Election under this paragraph and later terminates employment with the Employer, no reduction will be applied to Compensation payable to him for the payroll period that includes his final day of employment or any subsequent payroll period.  A Participant who makes a  Deferral Maximizer Election may not make an election pursuant to paragraph (x), except for an election to designate all of his Deferred Cash Contributions as Roth Contributions for the period during which his Deferral Maximizer Election is in effect.  A Participant who makes a Deferral Maximizer Election may revoke such election at any time during the Plan Year and, coincident with or subsequent to such revocation, may make a percentage election in accordance with paragraph (i), provided, however, that (A) no such percentage election shall be permitted if the Participant’s Compensation for the Plan Year prior to the effective date of the percentage election has exceeded the Annual Dollar Limit, and (B) a Participant who revoked the Deferral Maximizer Election and who is prevented from making a percentage election by clause (A) shall not be permitted to make another Deferral Maximizer Election for such Plan Year.  If a Participant makes a Deferral Maximizer Election, and thereafter goes on a leave of absence from employment, the Deferral Maximizer Election will not be automatically restarted upon returning from such leave of absence.  For purposes of this subsection (xi) Compensation shall exclude any

42

Compensation that is not paid on a bi-monthly basis (including amount paid on a weekly basis or amounts that are paid for overtime).

(b)Notwithstanding any other provision of this Section, the Plan Administrator, in its sole discretion, may restrict the percentage of Compensation reduction that may be elected by any Highly Compensated Employee, in order to achieve or maintain compliance with the limitations described in Sections 4.06, 4.07, and 4.08.

(c)In no event shall the Participant’s Deferred Cash Contributions and similar contributions made on his behalf by an Employer or an Affiliate to all plans, contracts or arrangements subject to the provisions of Section 401(a)(30) of the Code, in any calendar year commencing prior to January 1, 2002, exceed $7,000, as adjusted from time to time pursuant to Section 402(g)(4) of the Code (as in effect on the day before the date of enactment of Public Law 107-16).  The Participant’s Deferred Cash Contributions and similar contributions made on his behalf by an Employer or an Affiliate to all plans contracts or arrangements subject to the provisions of Section 401(a)(30) in calendar years beginning after December 31, 2001 and prior to January 1, 2009 shall be limited in accordance with the following table:

Calendar Year	Dollar Limitation
2002	$	11,000
2003	$	12,000
2004	$	13,000
2005	$	14,000
2006	$	15,000
2007	$	15,500
2008	$	15,500

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Deferred Cash Contributions made on a Participant’s behalf with respect to any calendar year beginning after December 31, 2008 are limited to $15,500 (or such higher dollar limit as may be in effect with respect to such year in accordance with Section 402(g)(4) of the Code (as amended and redesignated by Public Law 107-16), as in effect for calendar years beginning after December 31, 2001).  If a Participant’s Deferred Cash Contributions in a calendar year reach the dollar limitation in effect for such calendar year, his election of Deferred Cash Contributions for the remainder of the calendar year will be canceled.  As of the first pay period of the calendar year following such cancellation, the Participant’s election of Deferred Cash Contributions shall again become effective in accordance with his previous election, unless a Participant changes his elections.

(d)If a Participant makes elective deferrals, within the meaning of Section 402(g)(3) of the Code, under any other qualified defined contribution plan maintained by an Employer or Affiliate for any calendar year and the sum of such elective deferrals and his Deferred Cash Contributions under the Plan exceed the dollar limitation specified in subsection (c) for that calendar year, then the amount by which such sum exceeds such limitation shall be deemed Excess Deferrals for such calendar year.  The Participant shall be deemed to have elected to receive a return from this Plan of the full amount of any Excess Deferrals determined in accordance with this subsection.  A return of Excess Deferrals pursuant to this subsection shall be subject to the provisions of subsection (f).

(e)If a Participant makes elective deferrals, within the meaning of Section 402(g)(3) of the Code, under a qualified defined contribution plan maintained by an employer other than any Employer or any Affiliate for any calendar year, and the sum of such elective

44

deferrals and his Deferred Cash Contributions under the Plan exceed the dollar limitation specified in Section 4.01(c) for that calendar year, then the amount by which such sum exceeds such limitation shall be deemed Excess Deferrals for such calendar year.  The Participant may elect to receive a return from this Plan of all or a portion of any Excess Deferrals determined in accordance with this subsection, provided, however, that the Plan shall not be required to make a return of Excess Deferrals, unless the Participant notifies the Plan Administrator, in writing, by March 1 of the following calendar year of the amount of the Excess Deferrals that the Participant wishes to have returned by this Plan.  A return of Excess Deferrals pursuant to this subsection shall be subject to the provisions of subsection (f).

(f)Any return of Excess Deferrals required under subsection (d) or (e) shall include Attributed Earnings and shall be made no later than the April 15 following the end of the calendar year in which the Excess Deferrals were made.  The amount of Excess Deferrals to be returned for any calendar year shall be reduced by any Deferred Cash Contributions previously returned to the Participant under Section 4.06 for that calendar year.  In the event any Deferred Cash Contributions required to be returned under subsection (d) or (e) were matched by Matching Contributions under Section 3.02, those Matching Contributions, together with Attributed Earnings, shall be forfeited and used to reduce Employer contributions.

(g)Effective for Plan Years commencing after December 31, 2001, a Participant who satisfies the requirements of paragraph (i) for a Plan Year may elect, in accordance with paragraph (ii), to reduce his Compensation and to have the amount by which his Compensation is so reduced contributed to the Plan by his Employer as a Catch-Up

45

Contribution, provided, however, that such Catch-Up Contributions shall be subject to the conditions set forth in paragraphs (iii), (iv), (v), (vi) , (vii), and (viii).

(i)A Participant satisfies the requirements of this paragraph for a Plan Year if:

(A)his 50^th birthday is coincident with or prior to the last day of the Plan Year; and

(B)the Deferred Cash Contributions made on his behalf for the Plan Year have reached the applicable dollar limitation for the calendar year coincident with such Plan Year, as set forth in subsection (c).

(ii)A Participant described in paragraph (i) shall be deemed to have elected to continue to reduce his Compensation at the rate in effect under his most recent Deferred Cash Contribution election, including for this purpose any separate Deferred Cash Contribution with respect to Variable Pay then in effect for the Participant in accordance with subsection (a)(vii), and to have the amount contributed to the Plan by his Employer as a Catch-Up Contribution, unless he provides Notice, in accordance with procedures established by the Plan Administrator, that he elects not to continue to reduce his Compensation.

(iii)Any Catch-Up Contributions shall be paid to the Trustee as soon as practicable . Catch-Up Contributions attributable elections applicable to Compensation payable prior to January 1, 2008 shall be allocated to the Participant’s Catch-Up Account.  Catch-Up Contributions attributable to elections applicable to Compensation payable after December 31, 2007 shall be allocated to the Participant’s Catch-Up Account, except that, to the extent that such Catch-Up

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Contributions have been designated as Roth Catch-Up Contributions pursuant to paragraph (vii), the amount so designated shall be allocated to the Participant’s Roth Catch-Up Account.

(iv) A Participant’s Catch-Up Contributions in calendar years beginning after December 31, 2001 and prior to January 1, 2009 shall be limited in accordance with the following table:

Calendar Year	Dollar Limitation
2002	$	1,000
2003	$	2,000
2004	$	3,000
2005	$	4,000
2006	$	5,000
2007	$	5,000
2008	$	5,000

Catch-Up Contributions made on a Participant’s behalf with respect to any calendar year beginning after December 31, 2008 shall limited to $5,000, as adjusted in accordance with Section 414(v)(2)(C) of the Code.  In no event shall the Participant’s Catch-Up Contributions for a Plan Year exceed the excess of his Statutory Compensation for such Plan Year over his Deferred Cash Contributions for such Plan Year.

(v)Catch-Up Contributions that are allocated to the IBM Stock Fund in accordance with the provisions of Section 5.02 shall be deemed to be contributions to the ESOP.

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(vi)The provisions of this subsection shall be subject to the requirements of Section 414(v) of the Code and Regulations thereunder.

(vii)An election in accordance with this subsection shall apply only to that portion of the Participant’s Compensation to which a Deferred Cash Contribution would be applicable in accordance with subsection (a), but for the limitation imposed by subsection (c).

(viii)Effective January 1, 2008, a Participant is deemed to have made an election to reduce his Compensation in accordance with paragraph (ii) may elect, in accordance with procedures prescribed by the Plan Administrator, that all or a portion of the amounts that otherwise would be contributed to his Catch-Up Account as Catch-Up Contributions shall instead be designated as Roth Catch-Up Contributions and included in the Participant’s gross income at the time of deferral.  An amount so designated shall be contributed to the Participant’s Roth Catch-Up Account.  An election pursuant to this paragraph may be revoked only with respect to amounts to be contributed after the effective date of the revocation election.

(h)Effective July 1, 2004, a Participant may elect in the Notice filed under Section 3.02(b), Section 3.02A(b)(ii), Section 4.04(e), or Section 4.05(b), as applicable, to make After-Tax Contributions, provided, however, that After-Tax Contributions shall be subject to the conditions set forth in paragraphs (i), (ii), (iii), (iv) and (v).

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(i)The Participant’s election to make After-Tax Contributions shall specify the rate of After-Tax Contributions as a percentage of his Compensation, which rate shall not exceed 10% and shall be an integral multiple of 1%.

(ii)Any After-Tax Contributions shall be paid to the Trustee as soon as practicable and shall be allocated to the Participant’s After-Tax Account.

(iii)After-Tax Contributions that are allocated to the IBM Stock Fund in accordance with the provisions of Section 5.02 shall be deemed to be contributions to the ESOP.

(iv)A Participant may make separate After-Tax Contribution elections with respect to that portion of his Compensation that is not Variable Pay and with respect to that portion of his Compensation that is Variable Pay.  Effective January 1, 2005, a Participant may make separate After-Tax Contribution elections with respect to that portion of his Compensation that is not Variable Pay and with respect to any portion of his Compensation that is Variable Pay paid under a program maintained by an Employer for Non-Executives, provided, however, that if a Participant fails to make a separate After-Tax Contribution election with respect to any portion of his Compensation that is Variable Pay that is payable to him after December 31, 2005, he shall be deemed to have made a 0% After-Tax Contribution election with respect to such Variable Pay.

(v)[Reserved]

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(vi)Notwithstanding any other provision of this subsection, the Plan Administrator, in its sole discretion, may reduce the rate of After-Tax Contributions that may be elected by any Highly Compensated Employee, in order to achieve or maintain compliance with the limitations described in Sections 4.07, 4.09, and 4.10.

4.02Employer Matching Contributions

(a)(i)Matching Contributions for Participants other than 401(k) Pension Program Participants:

(A)For Plan Years commencing after December 31, 1994 and prior to January 1, 2008, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who is not a 401(k) Pension Program Participant and who elects to make Deferred Cash Contributions, an amount equal to 50% of the Deferred Cash Contributions made on behalf of the Participant to the Plan during each payroll period, provided, however, that for this purpose Deferred Cash Contributions in excess of 6% of the Participant’s Compensation for a payroll period shall not be taken into account.  In no event shall the Matching Contributions pursuant to this Section with respect to a Plan Year exceed 3% of the Participant’s Compensation while a Participant during such Plan Year.

(B)For Plan Years commencing after December 31, 2007, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who is not a 401(k) Pension Program Participant and who elects to make Deferred Cash Contributions, an amount equal to 100% of the Deferred Cash Contributions made on behalf of the Participant to the Plan during each payroll period, provided, however, that for this purpose Deferred

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Cash Contributions in excess of 6% of the Participant’s Compensation for a payroll period shall not be taken into account.  In no event shall the Matching Contributions pursuant to this Section with respect to a Plan Year exceed 6% of the Participant’s Compensation while a Participant during such Plan Year.

(ii)Matching Contributions for 401(k) Pension Program Participants:

(A)Effective January 1, 2005, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who (I) is a 401(k) Pension Program Participant, (II) elects or is deemed to have elected to make Deferred Cash Contributions, and (III) has, on or before the last day of the payroll period, attained his Program Eligibility Date an amount equal to 100% of the Deferred Cash Contributions made on behalf of the Participant to the Plan during each payroll period, provided, however, that for this purpose Deferred Cash Contributions in excess of 6% of the Participant’s Compensation for a payroll period shall not be taken into account.  In no event shall the Matching Contributions pursuant to this Section with respect to a Plan Year exceed 6% of the Participant’s Compensation while a Participant during such Plan Year.

(B)Effective January 1, 2008, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who (I) is a 401(k) Pension Program Participant, (II) elects or is deemed to have elected to make Deferred Cash Contributions, and (III) has, on or before the last day of the payroll period, attained his Program Eligibility Date an amount equal to 100% of the Deferred Cash Contributions made on behalf of the

51

Participant to the Plan during each payroll period, provided, however, that for this purpose Deferred Cash Contributions in excess of 5% of the Participant’s Compensation for a payroll period shall not be taken into account.  In no event shall the Matching Contributions pursuant to this Section with respect to a Plan Year exceed 5% of the Participant’s Compensation while a Participant during such Plan Year.

(iii)Employer Matching Contributions made in accordance with paragraph (i) or paragraph (ii) shall be paid to the Trustee as soon as practicable and shall be allocated to the Participant’s Employer Account.

(iv)Match Maximizer for 401(k) Pension Program Participants for 2005, 2006, and 2007 Plan Years:

Effective as of January 1, 2005, if as of the last day of the Plan Year, the amount of Matching Contributions allocated in accordance with paragraph (ii) for such Plan Year to the Employer Account of a 401(k) Pension Program Participant who satisfies the requirements set forth in the following sentence is less than the lesser of (A) 6% of his Compensation or (B) the amount contributed on behalf of such Participant as Deferred Cash Contributions for the Plan Year, the Employer shall make a special Matching Contribution on behalf of such Participant in an amount equal to the lesser of (X) such difference or (Y) the excess of (I) the dollar limitation determined in accordance with Section 4.01(c) over (II) the amount of Matching Contributions allocated in accordance with paragraph (ii).  A Participant shall satisfy the requirements set forth in this sentence for a Plan Year if (A) he remains in employment with the Employer on the last day of such

52

Plan Year, (B) he was a Non-Executive at all times during such Plan Year, provided, however, that this requirement shall apply only for the Plan Year beginning before January 1, 2006, and (C) no portion of his Compensation was deferred in accordance with any salary deferral election or incentive pay deferral election under any plan maintained by the Employer, including but not limited to the Executive Deferred Compensation Plan, but excluding this Plan, at any time during such Plan Year, provided, however, that this requirement shall apply only to Plan Years beginning after December 31, 2005. For purposes of this paragraph, a Participant’s Compensation shall not include any amount earned prior to the first day of the payroll period that includes  his Program Eligibility Date, shall not include any amount earned during a period in which Deferred Cash Contributions were not permitted to be made on his behalf in accordance with Sections 8.02(c) or 9.02(c)(i), shall not include any amount of Variable Pay attributable to any period in any prior Plan Year during which he was an Executive, and shall not include Compensation earned during any period in which the Participant was not a Regular Employee.    Any special Matching Contribution made pursuant to this paragraph shall be paid to the Trustee as soon as practicable following the close of the Plan Year to which it relates and the determination of the amount thereof by the Plan Administrator or its designee.  This paragraph shall not apply for Plan Years beginning after December 31, 2007.

(v)Employer Matching Contributions that are allocated to the IBM Stock Fund in accordance with the provisions of Section 5.02 shall be deemed to be contributions to the ESOP.

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(vi)A Participant’s Compensation, as taken into account for purposes of this subsection, shall be determined in accordance with the requirements set forth in Section 4.01 for the determination of Compensation to which a Deferred Cash Contribution Election shall be applicable.

(vii)Match Maximizer for Participants other than 401(k) Pension Program Participants for 2006 and 2007 Plan Years:

Effective as of January 1, 2006, if as of the last day of the Plan Year, the amount of Matching Contributions allocated in accordance with paragraph (ii) for such Plan Year to the Employer Account of a Participant who satisfies the requirements set forth in the following sentence is less than the lesser of (A) 3% of his Compensation or (B) 50% of the amount contributed on behalf of such Participant as Deferred Cash Contributions for the Plan Year, the Employer shall make a special Matching Contribution on behalf of such Participant in an amount equal to the lesser of (X) such difference or (Y) the excess of (I) 50% of the dollar limitation determined in accordance with Section 4.01(c) over (II) the amount of Matching Contributions allocated in accordance with paragraph (ii).  A Participant shall satisfy the requirements set forth in this sentence for a Plan Year if (A) he is not a 401(k) Pension Program Participant, (B) he remains in employment with the Employer on the last day of such Plan Year, and (C) no portion of his Compensation was deferred in accordance with any salary deferral election or incentive pay deferral election under any plan maintained by the Employer, including but not limited to the Executive Deferred Compensation Plan, but excluding this Plan, at any time during such Plan Year. For purposes of this paragraph, a Participant’s Compensation shall not include any amount earned during a period in which Deferred Cash Contributions were

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not permitted to be made on his behalf in accordance with Sections 8.02(c) or 9.02(c)(i), shall not include any amount of Variable Pay attributable to any period in any prior Plan Year during which he was an Executive, and shall not include Compensation earned during any period in which the Participant was not a Regular Employee.  Any special Matching Contribution made pursuant to this paragraph shall be paid to the Trustees as soon as practicable following the close of the Plan Year to which it relates and the determination of the amount thereof by the Plan Administrator or its designee. This paragraph shall not apply for Plan Years beginning after December 31, 2007.

(viii)Match Maximizer for Plan Years beginning after 2007:

(A)Match Maximizer for Participants other than 401(k) Pension Program Participants:

Effective January 1, 2008, and subject to the provisions of subparagraph (C), if as of the close of any payroll period, the amount of Matching Contributions allocated in accordance with paragraph (ii) and this paragraph (viii) to the Employer Account of a Participant other than a 401(k) Pension Program Participant for such period and for all payroll periods to date ending within such Plan Year is less than the lesser of (A) 6% of his Compensation or (B) 100% of the amount contributed on behalf of such Participant as Deferred Cash Contributions for all payroll periods to date ending within the Plan Year, the Employer shall make a special Matching Contribution on behalf of such Participant in an amount equal to the lesser of (X) such difference or (Y) the excess of (I) 100% of the dollar limitation determined in accordance with Section 4.01(c) over (II) the amount of Matching Contributions allocated in accordance with paragraph (ii) and this paragraph (viii).

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(B)Match Maximizer for 401(k) Pension Program Participants:

Effective January 1, 2008, and subject to the provisions of subparagraph (C), if as of the close of any payroll period, the amount of Matching Contributions allocated in accordance with paragraph (ii) and this section (viii) to the Employer Account of a 401(k) Pension Program Participant for such period and for all prior payroll periods to date ending within such Plan Year is less than the lesser of (A) 5% of his Compensation or (B) 100% of the amount contributed on behalf of such Participant as Deferred Cash Contributions for all payroll periods to date ending within the Plan Year, the Employer shall make a special Matching Contribution on behalf of such Participant in an amount equal to the lesser of (X) such difference or (Y) the excess of (I) 100% of the dollar limitation determined in accordance with Section 4.01(c) over (II) the amount of Matching Contributions allocated in accordance with paragraph (ii) and this paragraph (viii).

(C)For purposes of this paragraph (viii), a Participant’s Compensation (i) shall only include Compensation that is earned on and after a Participant has attained his Program Eligibility Date; (ii) shall not include any amount earned during a period in which Deferred Cash Contributions were not permitted to be made on his behalf in accordance with Sections 8.02(c) and, (iii) shall not include Compensation earned during any period in which the Participant was not a Regular Employee.  Any special Matching Contribution made pursuant to this paragraph shall be paid to the Trustees as soon as practicable following the close of the payroll period

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to which it relates and the determination of the amount thereof by the Plan Administrator or its designee.

(b)Matching Contributions are made expressly conditional on the Plan satisfying the provisions of Sections 4.01(c), (d), and (e), 4.06, 4.07, and 4.08.  If any portion of the Deferred Cash Contribution to which a Matching Contribution relates is returned to the Participant pursuant to Section 4.01(d) or (e), 4.06(c), or 4.08, the corresponding Matching Contribution shall be forfeited, and if any amount of the Matching Contribution is deemed an Excess Aggregate Contribution under Section 4.07 such amount shall be forfeited in accordance with the provisions of that Section.

(c)Effective only for the period beginning on January 1, 2002 and ending on December 31, 2004, and solely for purposes of subsection (a), a Participant’s Deferred Cash Contributions shall be deemed to include his Catch-Up Contributions.

(d)Effective January 1, 2004, and solely for purposes of subsection (a), a Participant’s Compensation shall not include any amount earned while employed by the Employer or an Affiliate as a Long-Term Supplemental Employee.

4.02ANon-Matching Employer Contributions

(a)Automatic Contributions:

(i)401(k) Pension Program Participants:

Effective January 1, 2008, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who is a 401(k) Pension Program Participant and who has, on or before the last day of the payroll period, attained his

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Program Eligibility Date, an amount equal to 1% of the Participant’s Compensation during each payroll period, as an Automatic Contribution.

(ii)PPA Participants:

Effective January 1, 2008, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who is a PPA Participant an amount equal to 2% of the Participant’s Compensation during each payroll period, as an Automatic Contribution.

(iii)PCF Participants:

Effective January 1, 2008, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who is a PCF Participant an amount equal to 4% of the Participant’s Compensation during each payroll period, as an Automatic Contribution.

(iv)Automatic Contributions made in accordance with paragraph (i) paragraph (ii), or paragraph (iii) shall be paid to the Trustee as soon as practicable after the payroll period to which they relate and shall be allocated to the Participant’s Employer Account.

(b)Transition Credit Contributions for PPA Participants:

(i)Effective January 1, 2008, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who is a PPA Participant and who, as of June 30, 1999 had satisfied the age and service requirements for transition credits under the terms of the IBM Personal Pension Plan as in effect on July 1, 1999,

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an amount equal to the applicable percentage of the Participant’s Compensation, as a Transition Credit Contribution.  For each PPA Participant who is eligible to receive Transition Credit Contributions, the applicable percentage shall be no less than 1% and no more than 4% and shall be same percentage that would have been credited to the Participant benefit under the Personal Pension Account Formula of the IBM Personal Pension Plan for the latest monthly pay credit period that began prior to January 1, 2008, but based on the PPA Participant’s age and service as of June 30, 1999.  A PPA Participant shall cease to be eligible to receive Transition Credit Contributions at the earlier of June 30, 2009 or the date on which the PPA Participant has completed 30 years of Service as determined in accordance with the provisions of the IBM Personal Pension Plan.

(ii)Transition Credit Contributions made in accordance with paragraph (i) shall be paid to the Trustee as soon as practicable after the payroll period to which they relate and shall be allocated to the Participant’s Employer Account.

(c)Special Savings Award Contributions for PCF Participants who are Non-Exempt Employees:

(i)Effective January 1, 2008, each Employer shall contribute, out of its Profits, on behalf of each of its Participants who is a PCF Participant and who is a Non-Exempt Employee as of the last business day of the calendar year, ,an amount equal to 5% of the Participant’s Compensation during the Calendar Year, as a Special Savings Award Contribution.

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(ii)Special Savings Award Contributions made in accordance with paragraph (i) shall be paid to the Trustee as soon as practicable after the close of the calendar year to which they relate and shall be allocated to the Participant’s Employer Account.

(d)Any Non-Matching Employer Contribution that is allocated to the IBM Stock Fund in accordance with the provisions of Section 5.02 shall be deemed to be a contribution to the ESOP.

4.03Rollover Contributions, Roth Rollover Contributions, and After-Tax Rollover Contributions

(a)Without regard to any limitations on contributions set forth in this Article 4, the Plan may receive from or on behalf of a Participant who is then a Regular Employee, in cash, as a Rollover Contribution or, effective January 1, 2008, as a Roth Rollover Contribution, an amount previously distributed or deemed to be distributed to him

(i)from a plan that satisfies the requirements of Section 401(a) of the Code, or

(ii)from an individual retirement account described in Section 408(a) of the Code which contains only amounts that were originally distributed from a qualified plan described in Section 401(a) or 403(a) of the Code, or

(iii)from an eligible deferred compensation plan described in Section 457(b) of the Code that is maintained by an employer that is described in Section 457(e)(1)(A) of the Code,

(iv)from an annuity contract described in Section 403(b) of the Code, or

(v)from the Federal Thrift Savings Plan, in a distribution described in Section 8433(c) of Title 5 of the United States Code,

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provided, however, clauses (ii), (iii), and (iv) of this sentence shall be effective only with respect to Rollover Contributions made subsequent to March 31, 2002 and clause (v) of this sentence shall be effective only with respect to Rollover Contributions made subsequent to December 31, 2001.  The Plan may receive such amount either directly from the Participant, or from an individual retirement account that satisfies the requirements of Section 408(d)(3)(A)(ii) of the Code, or from a qualified plan in the form of a direct rollover that satisfies the requirements of Section 401(a)(31) of the Code.   For purposes of this subsection, a distribution made or deemed to be made to a Participant who is then a Regular Employee to which the Participant is entitled on account of his status as an alternate payee or surviving spouse under the terms of the plan from which such distribution is made shall be treated in the same manner as if he were entitled to such a distribution on account of his status as a participant in such plan.

(b)Without regard to any limitations on contributions set forth in this Article 4, the Plan may receive from or on behalf of a Participant who has terminated employment with the Employer in cash, as a Rollover Contribution, any amount previously distributed or deemed to be distributed to him from a retirement plan sponsored by IBM that is qualified under Section 401(a) of the Code.  The Plan may receive such amount either directly from the Participant, or from such qualified plan in the form of a direct rollover that satisfies the requirements of Section 401(a)(31) of the Code.  For purposes of this subsection, a distribution made or deemed to be made to a Participant who has terminated employment with the Employer to which such Participant is entitled on account of his status as an alternate payee or surviving spouse under the terms of the retirement plan sponsored by IBM from which such distribution is made shall be treated in the same manner as if he were entitled to such a distribution on account of his status

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as a participant in such plan and the Plan shall be treated in the same manner as any other retirement plan sponsored by IBM.

(c)Notwithstanding the provisions of subsections (a) or (b), the Plan shall not accept any amount as a Rollover Contribution, unless such amount is eligible to be rolled over to a qualified trust in accordance with applicable law and the Participant provides evidence satisfactory to the Plan Administrator that such amount qualifies as an eligible rollover distribution, within the meaning of Section 402(c)(4) of the Code.  Unless received by the Plan in the form of a direct rollover, the Rollover Contribution must be paid to the Trustee on or before the 60th day after the day it was received by the Employee.  For purposes of this Section, the terms “eligible rollover distribution” and “direct rollover” shall have the meaning specified in Section 10.14.

(d)Except as provided in subsection (f), any Rollover Contribution shall be allocated to a Participant’s Rollover Account.

(e)Any Rollover Contribution that is allocated to the IBM Stock Fund in accordance with the provisions of Section 5.02 shall be deemed to be a contribution to the ESOP.

(f)Any Rollover Contribution made prior to January 1, 2008 shall not include any Roth contributions made in accordance with Section 402A(c)(1)(B) of the Code.  Effective January 1, 2008, any Roth contributions made in accordance with Section 402A(c)(1)(B) of the Code may be directly rolled over from an eligible employer plan qualified under Section 401(a) of the Code to the Plan, which amount shall be deemed to be a Roth Rollover Contribution and shall be credited to the Participant’s Roth Rollover Account.

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(g)Any Rollover Contribution that is made prior to January 1, 2008 shall not include any  after-tax contributions.  Effective January 1, 2008, an amount that had been treated as after-tax contributions by the plan to which such contributions were made may be directly rolled over from an eligible employer plan qualified under Section 401(a) of the Code to the Plan, which amount shall be deemed to be an After-Tax Rollover Contribution and shall be credited to the Participant’s After-Tax Rollover Account.

4.04Changes in Contribution Rates

(a)The percentage of Compensation designated by a Participant under Section 4.01(a) shall automatically apply to increases and decreases in his Compensation.  A Participant may change his election under Section 4.01(a) at any time during the Plan Year by giving such advance Notice as the Plan Administrator shall prescribe.  The changed percentage shall become effective as of the first day of the first payroll period beginning after the provision of the Notice, or as soon thereafter as may be administratively practicable.

(b)Effective as of January 1, 2004, and solely for purposes of subsection (a), a Participant’s deemed election to make Catch-Up Contributions, in accordance with Section 4.01(g)(ii), shall be treated as a designation under Section 4.01(a) for the period beginning on the date that the Participant first satisfies the condition set forth in Section 4.01(g)(i)(B) for a Plan Year and ending on the last day of such Plan Year.

(c)If an eligible Employee has become a Participant in accordance with Section 3.02(b), then he shall be permitted to make an initial designation under Section 4.01(a) at any time thereafter, in accordance with the procedure specified in subsection (a).

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(d)The percentage of Compensation designated by a Participant under Section 4.01(h) shall automatically apply to increases and decreases in his Compensation.  A Participant may change his election under Section 4.01(h) at any time during the Plan Year by giving such advance Notice as the Plan Administrator shall prescribe.  The changed percentage shall become effective as of the first day of the first payroll period beginning after the provision of the Notice, or as soon thereafter as may be administratively practicable.

(e)If an eligible Employee has become a Participant in accordance with Section 3.02(a), then he shall be permitted to make an initial election under Section 4.01(h) at any time thereafter, in accordance with the procedure specified in subsection (a).

(f)An eligible Employee who is deemed, in accordance with Section 3.02A(c),  to have made an election under Section 4.01(a) to commence Deferred Cash Contributions, shall be permitted to change such election, either before the first payroll period for which it is effective, or at any time thereafter, in accordance with the procedure specified in subsection (a).  An election in accordance with this subsection to reduce the percentage of his Deferred Cash Contributions to 0% shall be deemed a revocation of such election for purposes of Section 4.05.

(g)If an eligible Employee has become a Participant in accordance with Section 3.02A(c), then he shall be permitted to make an initial election  under Section 4.01(h) at any time thereafter, in accordance with the procedure specified in subsection (a).

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(h)Effective January 1, 2008 and in accordance with procedures established by the Plan Administrator, a Participant who has not made an election pursuant to Section 4.01(a)(xi) with respect to a Plan Year may elect automatic annual increases in the percentage of his Compensation that shall be contributed as Deferred Cash Contributions pursuant to Section 4.01(a).  Such automatic increases shall be in integral multiples of 1% and shall not exceed 3% each year and shall become effective in each Plan Year on the date specified by the Participant; provided, however, that no such automatic increase shall become effective during any period in which Deferred Cash Contributions were not permitted to be made on his behalf in accordance with Section 8.02(c).

4.05Suspension and Resumption of Contributions

(a)A Participant may suspend and/or revoke his election under Section 4.01(a) or Section 4.01(h) by giving such advance Notice as the Plan Administrator shall prescribe.  The suspension or revocation shall become effective as of the first day of the first payroll period beginning after the provision of the Notice, or as soon thereafter as may be administratively practicable.

(b)A Participant who has suspended and/or revoked his election under Section 4.01(a) or Section 4.01(h) may elect to reinstate such election by giving such advance Notice as the Plan Administrator shall prescribe.  Such reinstatement shall be effective as of the first day of the first payroll period beginning after the provision of the Notice, or as soon thereafter as may be administratively practicable.

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4.06Actual Deferral Percentage Test

(a)With respect to each Plan Year commencing on or after January 1, 1997, the Actual Deferral Percentage for that Plan Year for Highly Compensated Employees of each Employer who are Participants or eligible to become Participants for that Plan Year shall not exceed the greater of:

(i)the product of:

(A)Actual Deferral Percentage for the preceding Plan Year for all Non-Highly Compensated Employees of such Employer for the preceding Plan Year who were Participants or eligible to become Participants during such preceding Plan Year, and

(B)1.25, or

(ii)the lesser of:

(A)the sum of:

(I)the Actual Deferral Percentage for the preceding Plan Year for all Non-Highly Compensated Employees of such Employer for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year, and

(II)2.00%, or

(B)the product of:

(I)the Actual Deferral Percentage for the preceding Plan Year for all Non-Highly Compensated Employees of such Employer for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year, and

(II)2.00.

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(b)For purposes of subsection (a), an Employer, with the consent of the Plan Administrator, may elect to use the Actual Deferral Percentage for Non-Highly Compensated Employees for the Plan Year being tested rather than the preceding Plan Year, provided that any such election, except an election applicable to a Plan Year ending before January 1, 2000, may not be changed for any subsequent Plan Year, except as provided by the Secretary of the Treasury, and that any such election is incorporated in an amendment to the Plan adopted by the Plan Administrator, pursuant to Section 13.01(c).

(c)If the Plan Administrator determines that the limitation under subsection (a) has been exceeded in any Plan Year, with respect to the Highly Compensated Employees of any Employer, the following provisions shall apply with respect to such group of Highly Compensated Employees:

(i)The Actual Deferral Ratio of the Highly Compensated Employee with the highest Actual Deferral Ratio shall be reduced to the extent necessary to satisfy the limitation set forth in subsection (a) or to cause such ratio to equal the Actual Deferral Ratio of the Highly Compensated Employee with the next highest ratio.  This process shall be repeated until the limitation set forth in subsection (a) is satisfied.  The sum of the amounts of Deferred Cash Contributions made by each Highly Compensated Employee in excess of the amount permitted under his revised deferral ratio shall be deemed to be Excess Contributions.  This total dollar amount of Excess Contributions shall then be allocated to some or all Highly Compensated Employees in accordance with the provisions of paragraph (ii).

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(ii)The Deferred Cash Contributions of the Highly Compensated Employee with the highest dollar amount of Deferred Cash Contributions shall be reduced by the lesser of (A) the amount required to cause that Participant’s Deferred Cash Contributions to equal the dollar amount of the Deferred Cash Contributions of the Highly Compensated Employee with the next highest dollar amount of Deferred Cash Contributions, or (B) an amount equal to the total Excess Contributions.  This procedure shall be repeated until all Excess Contributions are allocated.  The amount of Excess Contributions allocated to each Highly Compensated Employee, together with Attributed Earnings, shall be distributed to him in accordance with the provisions of paragraph (iii).

(iii)The Excess Contributions allocated to a Participant shall be paid to the Participant before the close of the Plan Year following the Plan Year in which the Excess Contributions were made, and to the extent practicable, within 2½ months of the close of the Plan Year in which the Excess Contributions were made.  Any Excess Contributions for any Plan Year shall be reduced by any Deferred Cash Contributions previously returned to the Participant under Section 4.01 for that Plan Year.  In the event any Deferred Cash Contributions returned under this Section were matched by Matching Contributions under Section 4.02, such corresponding Matching Contributions, with Attributed Earnings, shall be forfeited and used to reduce Employer contributions.

(d)For Plan Years commencing after December 31, 2001, and before January 1, 2006, the Actual Deferral Percentage Test described in this Section shall be applied separately with respect to Deferred Cash Contributions that are deemed, pursuant to

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Section 4.01(a) to be contributions to the ESOP and with respect to Deferred Cash Contributions that are not deemed to be contributions to the ESOP.

4.07Actual Contribution Percentage Test

(a)With respect to each Plan Year commencing on or after January 1, 1997, the Actual Contribution Percentage for that Plan Year for Highly Compensated Employees of each Employer who are Participants or eligible to become Participants for that Plan Year shall not exceed the greater of:

(i)the product of:

(A)the Actual Contribution Percentage for the preceding Plan Year for all Non-Highly Compensated Employees of such Employer for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year, and

(B)1.25, or

(ii)the lesser of:

(A)the sum of

(I)the Actual Contribution Percentage for the preceding Plan Year for all Non-Highly Compensated Employees of such Employer for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year and

(II)2.00%, or

(B)the product of:

(I)the Actual Contribution Percentage for the preceding Plan Year for all Non-Highly Compensated Employees of such Employer for

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the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year, and

(II)2.00.

(b)For purposes of subsection (a), an Employer, with the consent of the Plan Administrator, may elect to use the Actual Contribution Percentage for Non-Highly Compensated Employees for the Plan Year being tested rather than the preceding Plan Year, provided that any such election, except an election applicable to a Plan Year ending before January 1, 2000, once made may not be changed for any subsequent Plan Year, except as provided by the Secretary of the Treasury and that any such election is incorporated in an amendment to the Plan adopted by the Plan Administrator, pursuant to Section 13.01(c).

(c)If the Plan Administrator determines that the limitation under subsection (a) has been exceeded in any Plan Year with respect to the Highly Compensated Employees of any Employer, the following provisions shall apply with respect to such group of Highly Compensated Employees:

(i)The Actual Contribution Ratio of the Highly Compensated Employee with the highest Actual Contribution Ratio shall be reduced to the extent necessary to satisfy the limitation set forth in subsection (a) or to cause such ratio to equal the Actual Contribution Ratio of the Highly Compensated Employee with the next highest Actual Contribution Ratio.  This process shall be repeated until the limitation set forth in subsection (a) is satisfied.  The sum of the amounts of Matching Contributions on behalf of plus After-Tax Contributions made by each Highly Compensated Employee in excess of the amount permitted under his

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revised contribution ratio shall be deemed Excess Aggregate Contributions.  This total dollar amount of Excess Aggregate Contributions shall then be allocated to some or all Highly Compensated Employees in accordance with the provisions of paragraph (ii).

(ii)The sum of the Matching Contributions and After-Tax Contributions of the Highly Compensated Employee with the highest dollar amount of such contributions shall be reduced by the lesser of (A) the amount required to cause the sum of that Participant’s Matching Contributions and After-Tax Contributions to equal the dollar amount of such contributions of the Highly Compensated Employee with the next highest dollar amount of such contributions, or (B) an amount equal to the total Excess Aggregate Contributions.  This procedure shall be repeated until all Excess Aggregate Contributions are allocated.   Effective for Plan Years beginning after December 31, 2003 the amount of Excess Aggregate Contributions allocated to each Highly Compensated Employee, together with Attributed Earnings, shall be distributed or forfeited in accordance with the provisions of paragraph (iii).

(iii)Excess Aggregate Contributions allocated to a Highly Compensated Employee under paragraph (ii) shall be distributed or forfeited as follows:

(A)After-Tax Contributions, to the extent of the Excess Aggregate Contributions, together with Attributed Earnings, shall be paid to the Participant and then, if necessary,

(B)so much of the Matching Contributions together with Attributed Earnings, as shall be necessary, as shall be necessary to equal the balance of the Excess Aggregate Contributions shall be forfeited and applied to reduce Employer contributions.

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(iv)Any repayment or forfeiture of Excess Aggregate Contributions shall be made before the close of the Plan Year following the Plan Year for which the Excess Aggregate Contributions were made, and to the extent practicable, any repayment or forfeiture shall be made within 2½ months of the close of the Plan Year in which the Excess Aggregate Contributions were made.

(d)For Plan Years commencing after December 31, 2001 and prior to January 1, 2004, the Actual Contribution Percentage Test described in this Section shall be applied separately with respect to Employer Matching Contributions that are deemed, pursuant to Section 4.02(a) to be contributions to the ESOP and with respect to Employer Matching Contributions that are not deemed to be contributions to the ESOP.   For Plan Years commencing after December 31, 2003, and before January 1, 2006, the Actual Contribution Percentage Test described in this Section shall be applied separately (i) with respect to the sum of Employer Matching Contributions that are deemed, pursuant to Section 4.02(a), to be contributions to the ESOP and After-Tax Contributions that are deemed, pursuant to Section 4.01(h)(iii), to be contributions to the ESOP, and (ii) with respect to the sum of Employer Matching Contributions and After-Tax Contributions that are not deemed to be contributions to the ESOP.

4.08Aggregate Contribution Limitation

Notwithstanding the provisions of Sections 4.06 and 4.07, for Plan Years commencing prior to January 1, 2002, in no event shall the sum of the Actual Deferral Percentage of the group of eligible Highly Compensated Employees of any Employer and the Actual Contribution Percentage of such group, after applying the provisions of Sections 4.06 and 4.07, exceed the “aggregate limit” as provided in Section 401(m)(9) of the Code and

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the Regulations issued thereunder.  In the event the aggregate limit is exceeded for any Plan Year, the Contribution Percentages of the Highly Compensated Employees of such Employer shall be reduced to the extent necessary to satisfy the aggregate limit in accordance with the procedure set forth in Section 4.07.

4.09Additional Discrimination Testing Provisions

(a)If any Highly Compensated Employee is a member of another qualified plan of the Employer or an Affiliate, other than an employee stock ownership plan described in Section 4975(e)(7) of the Code or any other qualified plan which must be mandatorily disaggregated from this Plan under Section 410(b) of the Code, which includes a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code or matching contributions within the meaning of Section 401(m) of the Code, or under which the Highly Compensated Employee may make employee contributions other than by elective deferral, within the meaning of Section 402(g)(3) of the Code, the Plan Administrator shall implement rules, which shall be uniformly applicable to all employees similarly situated, to take into account all such contributions by or on behalf of the Highly Compensated Employee under all such plans in applying the limitations of Sections 4.06, 4.07, and 4.08.  If any other such qualified plan has a plan year other than the Plan Year, the contributions to be taken into account in applying the limitations of Sections 4.06, 4.07, and 4.08 will be those made in the plan years ending with or within the same calendar year.

(b)In the event that this Plan is aggregated with one or more other plans to satisfy the requirements of Sections 401(a)(4) or 410(b) of the Code, other than for purposes of the average benefit percentage test under Section 410(b)(2)(A)(ii) of the Code, or if one or

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more other plans is aggregated with this Plan to satisfy the requirements of such sections of the Code, then the provisions of Sections 4.06, 4.07, and 4.08 shall be applied by determining the Actual Deferral Percentage and Actual Contribution Percentage of employees as if all such plans were a single plan.  If this Plan is permissively aggregated with any other plan or plans for purposes of satisfying the provisions of Section 401(k)(3) of the Code, the aggregated plans must also satisfy the requirements of Sections 401(a)(4) and 410(b) of the Code as though they were a single plan. Plans may be aggregated under this subsection (b) only if they have the same plan year.

(c)Notwithstanding any provision of the Plan to the contrary, if employees included in a unit of employees covered by a collective bargaining agreement are participating in the Plan and not more than 2% of such employees are Highly Compensated Employees or professionals, within the meaning of Section 1.410(b)-9 of the Regulations, then such employees shall be disregarded in applying the provisions of Section 4.06, 4.07, and 4.08.  However, Section 4.06 shall be applied separately for each group of collectively bargained employees.

4.10Maximum Annual Additions

(a)The annual addition to a Participant’s Account for any Plan Year, when added to the Participant’s annual addition for that Plan Year under any other qualified defined contribution plan of the Employer or an Affiliate, shall not exceed an amount which is equal to the lesser of:

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(i)for Plan Years commencing prior to January 1, 2002, 25% of his aggregate remuneration for that Plan Year and for Plan Years commencing subsequent to December 31, 2001, 100% of his remuneration for that Plan Year; or

(ii)for Plan Years commencing prior to January 1, 2002, $30,000, and for Plan Years commencing subsequent to December 31, 2001, $40,000, each as adjusted pursuant to Section 415(d) of the Code.

The Plan Year shall be the “limitation year” for purposes of Section 415 of the Code.

(b)For purposes of this Section, the “annual addition” to a Participant’s Account under this Plan or any other qualified defined contribution plan maintained by the Employer or an Affiliate, including any provision of a qualified defined benefit plan that is required to be treated as a defined contribution plan in accordance with Section 414(k)(2) of the Code shall be the sum of:

(i)the total contributions, including Deferred Cash Contributions and Employer Contributions, made on the Participant’s behalf by the Employer and all Affiliates,

(ii)all Participant contributions, exclusive of any Rollover Contributions, Roth Rollover Contributions, or After-Tax Rollover Contributions, and

(iii)forfeitures, if applicable, that have been allocated to the Participant’s Accounts under this Plan or his accounts under any other such qualified defined contribution plan, and

(iv)amounts described in Sections 415(l)(1) and 419A(d)(2) allocated to the Participant solely for purposes of clause (ii) of subsection (a).

For purposes of this subsection, any Deferred Cash Contributions distributed under the provisions of Section 4.01 or 4.06, any After-Tax Contributions distributed under the provisions of Section 4.07, and any Matching Contributions distributed or forfeited under

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the provisions of Section 4.07 or 4.08 shall be included in the annual addition for the year allocated.

(c)For purposes of this Section, the term “remuneration” with respect to any Participant shall mean the wages, salaries and other amounts paid in respect of such Participant by the Employer or an Affiliate for personal services actually rendered, and shall include elective deferrals within the meaning of Section 402(g)(3) of the Code and amounts contributed or deferred by the Employer at the election of the Participant which are not includible in the gross income of the Participant under Sections 125, 132(f)(4) (with respect to Plan Years beginning after December 31, 2000), or 457 of the Code, but shall exclude deferred compensation, stock options and other distributions which receive special tax benefits under the Code.  Notwithstanding the foregoing, for limitation years commencing prior to January 1, 1998, remuneration shall exclude amounts contributed by the Employer pursuant to a salary reduction agreement which are not includible in the gross income of the employee under Sections 125, 402(e)(3) or 457 of the Code.

(d)If the annual addition to a Participant’s Account for any Plan Year, prior to the application of the limitation set forth in subsection (a) above, exceeds that limitation due to a reasonable error in estimating a Participant’s annual compensation or in determining the amount of Deferred Cash Contributions that may be made with respect to a Participant under Section 415 of the Code, or as the result of the allocation of forfeitures, then the amount of contributions credited to the Participant’s Account in that Plan Year shall be adjusted to the extent necessary to satisfy that limitation in accordance with the following order of priority:

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(i)Effective for Plan Years beginning after December 31, 2003, the Participant’s After-Tax Contributions under Section 4.01(h) shall be reduced to the extent necessary.  The amount of the reduction shall be returned to the Participant, together with any Attributed Earnings.

(ii)The Participant’s unmatched Deferred Cash Contributions under Section 4.01 shall be reduced to the extent necessary.  The amount of the reduction shall be returned to the Participant together with any Attributed Earnings.

(iii)The Participant’s matched Deferred Cash Contributions and corresponding Matching Contributions shall be reduced to the extent necessary.  The amount of the reduction attributable to the Participant’s matched Deferred Cash Contributions shall be returned to the Participant together with any Attributed Earnings, and the amount attributable to the Matching Contributions together with any Attributed Earnings shall be forfeited and used to reduce subsequent contributions payable by the Employer.

(iv)The Participant’s Non-Matching Employer Contributions under Section 4.02A shall be reduced to the extent necessary.  The amount of the reduction attributable to the Participant’s Non-Matching Employer Contributions together with any Attributed Earnings shall be forfeited and used to reduce subsequent contributions payable by the Employer.

Any Deferred Cash Contributions returned to a Participant under this subsection shall be disregarded in applying the dollar limitation on Deferred Cash Contributions under Section 4.01(c), and in performing the Actual Deferral Percentage Test under Section 4.06.  Effective January 1, 2008, the provisions of this subsection (d) shall be given effect if the Plan Administrator determines that compliance with the provisions of this subsection is not inconsistent with the requirements of any applicable corrective

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procedures established by the Internal Revenue Service pursuant to Section 601.202 of the Regulations.

(e)For Plan Years beginning prior to January 1, 2000, if a Participant is a participant in any qualified defined benefit plan maintained by the Employer or an Affiliate that is required to be taken into account for purposes of applying the combined plan limitations contained in Section 415(e) of the Code, then for any year the sum of the defined benefit plan fraction and the defined contribution plan fraction, as such terms are defined in said Section 415(e), shall not exceed 1.0.  If for any year the foregoing combined plan limitation would be exceeded, the benefits provided under any defined benefit plan maintained by an Employer or Affiliate and the contributions allocated under any other defined contribution plan maintained by the Employer or an Affiliate shall be discontinued, suspended or reduced, as applicable, before any adjustments to a Participant’s Account are made in accordance with subsection (d).

(f)Effective January 1, 2008, the limitations imposed by Section 415 of the Code shall be applied to the annual additions in accordance with the provisions of the final regulations promulgated on April 5, 2007, (26 C.F.R. Parts 1 and 11), which regulations are hereby incorporated by reference in accordance with Section 1.415(a)-1(d)(3).  The dollar limitation on annual additions shall be adjusted in accordance with Section 415(d) of the Code and Section 1.415(d)-1 of the Regulations, which is hereby incorporated by reference, pursuant to Section 1.415(a)-1(d)(3)(v) of the Regulations.  If the annual additions to a Participant’s Account exceeds the limitation imposed in accordance with this subsection, the provisions of subsection (d) shall apply.

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4.11Contributions for Periods of Military Leave

Except as otherwise specified, the provisions of this Section 4.11 are effective as of December 12, 1994.

(a)Participant Make-Up Contributions

Without regard to any limitations on contributions set forth in this Article 4, a Participant who is absent from employment because of a period of service in the uniformed services of the United States beginning on or after August 1, 1990 and whose right to reemployment is protected under the Uniformed Services Employment and Reemployment Rights Act of 1994, may, subsequent to his return to employment as a Regular Employee, elect to contribute to the Plan, as a make-up contribution, the Deferred Cash Contributions that could have been contributed to the Plan in accordance with the provisions of the Plan, had he remained continuously employed by the Employer throughout such period of absence.  The amount of make-up contributions shall be determined on the basis of the Participant’s Compensation in effect immediately prior to the period of absence, and the terms of the Plan at such time.  Any Deferred Cash Contributions so determined shall be subject to the limitations provided in Sections 4.01(c), 4.06, 4.07, and 4.08 with respect to the Plan Year or Plan Years to which such contributions relate, rather than the Plan Year in which payment is made.  Any payment to the Plan described in this subsection must be made during the applicable repayment period.  The applicable repayment period shall begin on the latest of:  (i) the Participant’s date of reemployment, (ii) October 13, 1996, or (iii) date on which the Employer notifies the Employee of his rights under this Section.  The applicable repayment period shall continue for a period of whole months equal to the lesser of (i) the number of whole months of the Participant’s period of absence multiplied by 3, or (ii) 60 months.

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(b)Employer Make-Up Contributions

(i)With respect to a Participant who makes the election described in subsection (a), the Employer shall make Matching Contributions on such make-up contributions in an amount determined in accordance with the provisions of Section 4.02, as in effect for the Plan Year to which such make-up contributions relate. Any Matching Contributions so determined shall be subject to the limitations provided in Sections 4.02, 4.06, 4.07, and 4.08 with respect to the Plan Year or Plan Years to which such contributions relate, rather than the Plan Year or Plan Years in which payment is made.  Employer Matching Contributions under this paragraph shall be made during the applicable repayment period described in subsection (a).

(ii)If a Participant who is absent from employment because of a period of service in the uniformed services of the United States beginning on or after August 1, 1990 and whose right to reemployment is protected under the Uniformed Services Employment and Reemployment Rights Act of 1994, returns to employment as a Regular Employee, his Employer shall contribute to the Plan, as a make-up contribution, an amount equal to the excess of the Non-Matching Employer Contributions that would have been made to the Participant’s Employer Account if the Participant had remained continuously employed by the Employer throughout such period of absence over the amount, if any, of Non-Matching Employer Contributions made to the Participant’s Employer Account during such period of absence.  The amount of make-up contributions shall be determined on the basis of the Participant’s Compensation in effect immediately prior to the

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period of absence, and the terms of the Plan at such time. Non-Matching Employer Contributions under this paragraph shall be made within 90 days of the Participant’s return to employment or, if later the date on which such contributions would have been made if the Participant had remained continuously employed during such period of absence.

(c)All contributions under this Section shall be considered “annual additions,” as defined in Section 415(c)(2) of the Code, and shall be limited in accordance with the provisions of Section 4.10 with respect to the Plan Year or Plan Years to which such contributions relate rather than the Plan Year in which payment is made.

(d)Earnings (or losses) on make-up contributions made pursuant to subsection (a) and Matching Contributions made pursuant to subsection (b) shall be credited in accordance with Article 6, commencing with the date such contributions are made.

4.12Return of Contributions

(a)If all or part of an Employer’s deductions for contributions to the Plan are disallowed by the Internal Revenue Service, the portion of the contributions to which that disallowance applies shall be returned to the Employer, upon written request to the Trustee, without interest, but reduced by any investment loss attributable to those contributions, provided that such contributions are returned within one year after the disallowance of deduction.  For this purpose, all contributions made by each Employer are expressly declared to be conditioned upon their deductibility under Section 404 of the Code.

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(b)Upon written request to the Trustee, the Employer may recover without interest the amount of its contributions to the Plan made on account of a mistake of fact, reduced by any investment loss attributable to those contributions, if recovery is made within one year after the date of those contributions.

(c)In the event that Deferred Cash Contributions made under Section 4.01 are returned to the Employer in accordance with the provisions of subsection (a) or (b), the elections to reduce Compensation which were made by Participants on whose behalf those contributions were made shall be deemed void retroactively to the beginning of the period for which those contributions were made.  The Deferred Cash Contributions so returned shall be distributed in cash to those Participants for whom those contributions were made, provided, however, that the amount of Deferred Cash Contributions to be distributed to Participants shall be adjusted to reflect any investment gains or losses attributable to those contributions.

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ARTICLE 5.  INVESTMENT OF CONTRIBUTIONS AND ELECTIVE DISTRIBUTION
OF DIVIDENDS PAYABLE ON STOCK HELD IN IBM STOCK FUND

5.01Investment Funds

(a)The assets of the Plan shall be invested in one or more Investment Funds, except to the extent such assets are invested in accordance with the Mutual Fund Window Program.

(b)The IBM Stock Fund shall be one of the Investment Funds and shall constitute the ESOP.

(i)The IBM Stock Fund shall not be a managed Investment Fund and shall be invested, to the maximum extent practicable, entirely in the common stock of IBM at all times, except to the extent that cash may be required to make distributions under the Plan, to pay expenses, or to meet other short-term needs.

(ii)IBM, the settlor of the ESOP, intends the ESOP to offer eligible employees opportunities to invest indirectly in the common stock of IBM and to participate in the performance of the common stock of IBM on terms similar to those that apply to IBM shareholders.  IBM intends the ESOP to offer such opportunities over an indefinite period of time during which the performance of the common stock of IBM could vary widely.  IBM intends the ESOP to continue to offer such opportunities under all market conditions and regardless of the current, recent, or historical performance of

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IBM or the common stock of IBM (for example, regardless of whether, over any period of time (of whatever duration), IBM pays dividends to its shareholders and regardless of whether, over any period of time (of whatever duration), the market price of the common stock of IBM (A) rises or falls, (B) is volatile or stable, or (C) is high or low in relation to any reference point).  IBM recognizes that an investment in an undiversified fund, such as the ESOP, is subject to greater risk than is an investment in a diversified fund, and IBM expects eligible employees to take that greater risk into account when deciding whether to participate (or to continue participating) in the ESOP.

(iii)Because the purpose of the ESOP is to offer eligible employees opportunities to invest indirectly in the common stock of IBM and to participate in the performance of such stock on terms similar to those that apply to IBM’s shareholders, the Plan’s fiduciaries and administrators shall not (A) disclose material non-public information regarding IBM or the common stock of IBM to the Plan, to the Trustee or other Plan fiduciaries, or to Plan participants, beneficiaries, or alternate payees before such information is publicly disclosed or (B) based on such non-public information (and before such information is publicly disclosed), cause the Plan, the Trustee or other Plan fiduciaries, or Plan participants, beneficiaries, or alternate payees to take any action with respect to the common stock of IBM (such as buying or

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selling IBM stock or directing funds into or out of the IBM Stock Fund).

(c)The Committee shall designate other Investment Funds as primary funds from time to time.  The Investment Funds authorized by the Committee may include such equity funds, international equity funds, fixed income funds, money market funds, and other funds as the Committee, in its discretion, elects.  Each Investment Fund authorized by the Committee under this Section 5.01(c) shall be managed by the Trustee or one or more Investment Managers appointed by the Committee in accordance with Section 11.03(a)(i).

(d)The Trustee or Investment Manager responsible for managing an Investment Fund authorized by the Committee under Section 5.01(c) may allocate such portion of such Investment Fund as it deems necessary or desirable in its sole discretion to cash or cash equivalents, subject to any applicable limitations specified in the applicable trust agreement or investment management agreement.

(e)Dividends, interest, and other distributions received on the assets held by the Trustee in respect to each of the above Investment Funds shall be reinvested in the respective Fund, except to the extent otherwise provided in Section 5.09.

5.01AMutual Fund Window Program

(a)Effective as of January 1, 2005, the Committee shall establish an inventory of Designated Mutual Funds that shall be available for the investment of a portion of a Participant’s Account under the Mutual Fund Window Program, in accordance with the provisions of this Section.

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(b)A Participant may elect, in accordance with Section 5.04(a) and subject to the limitations prescribed in subsection (c), that a portion of his Account shall be reallocated from one or more of the Investment Funds to be invested under the Mutual Fund Window Program and, effective January 1, 2008, may elect, in accordance with Section 5.02 and subject to the limitations prescribed in subsection (c), that all or a portion of the contributions to his Account shall be invested under the Mutual Fund Window Program.

(c)The Plan Administrator or its designee shall establish rules for the investment of, or the reallocation of Participant Accounts from the Investment Funds to investment under the Mutual Fund Window Program, and may change such rules from time to time in its sole discretion.  Such rules may include, without limitation:

(i)A limit on the portion of a Participant’s Account that is available for investment under the Mutual Fund Window Program, which limit may take the form of a minimum dollar amount or minimum percentage, or both a minimum dollar amount and a minimum percentage, of a Participant’s Account that must be invested in the primary Investment Funds.

(ii)A minimum amount that a Participant who elects to invest a portion of his Account under the Mutual Fund Window Program is required to reallocate from investment in the Investment Funds to investment under the Mutual Fund Window Program, in order to commence investment under the Mutual Fund Window Program, and a minimum amount that a Participant who elects to increase the portion of his Account that is invested under the Mutual Fund

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Window Program is required to reallocate from investment in the Investment Funds to investment under the Mutual Fund Window Program.

A Participant shall not be permitted to elect an investment reallocation in accordance with Section 5.04(a) that would cause the portion of his Account that is invested in the Investment Funds, as determined as of the date of such reallocation, to be less than the minimum dollar amount or minimum percentage established by the Plan Administrator or its designee in accordance with paragraph (i), or that fails to comply with the minimum reallocation requirements established by the Plan Administrator or its designee in accordance with paragraph (ii), as in effect as of the date of such reallocation.

(d)A Participant who elects, in accordance with subsection (b), to allocate a portion of his Account or a portion of contributions to his Account to be invested under the Mutual Fund Window Program shall specify the Designated Mutual Fund or Designated Mutual Funds in which such portion of his Account or contributions shall be invested, by giving such Notice of such specification as the Plan Administrator or its designee shall prescribe and, if he specifies more than one Designated Mutual Fund, shall further specify, in multiples of 1%, the percentage of the amount so reallocated that shall be invested in each such fund.

(e)A Participant may elect to reallocate the portion of his Account that is invested under the Mutual Fund Window Program, among the Designated Mutual Funds, in multiples of 1%, by giving such advance Notice as the Plan Administrator or its designee shall prescribe.  Such reallocation shall be effective as soon as administratively practicable following provision of such Notice.

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(f)A Participant who elects, pursuant to Section 5.04(a), to reallocate any portion of his Account that is invested under the Mutual Fund Window Program to be invested in one of more of the primary Investment Funds shall specify the Designated Mutual Fund or Designated Mutual Funds from which the amount to be so reallocated shall be taken, by giving such Notice of such specification as the Plan Administrator or its designee shall prescribe.

(g)If any portion of a Participant’s Account is invested under the Mutual Fund Window Program as of the date selected by the Plan Administrator as the date of reference for the assessment of administrative fees for a calendar quarter, an administrative fee shall be charged against his Account, in an amount determined by the Plan Administrator, which prior to January 1, 2007, such fee shall be debited proportionally from the Investment Funds in which his Account is invested as of such date or, effective January 1, 2008, from the Designated Mutual Funds in which his Account is invested as of such date, in a manner as the Plan Administrator shall direct.

(h)Upon the occurrence of an event described in paragraph (i), the Plan Administrator or its designee may, without the consent of the Participant, cause the mandatory reallocation of the Participant’s Account from investment under the Mutual Fund Window Program to investment under the Investment Funds.  The amount so reallocated shall be determined in accordance with paragraph (ii); such amount shall be debited from the amounts invested in Designated Mutual Funds in accordance with paragraph (iii); and, to the extent available for investment, shall be invested in accordance with paragraph (iv).

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(i)A Participant’s Account shall be subject to mandatory reallocation in any of the following circumstances:

(A)as of the date an administrative fee is assessed in accordance with subsection (g) that is required to be debited from the Investment Funds in which his Account is invested, the portion of the Participant’s Account that is invested in any of the Investment Funds is less than the amount of such fee;

(B)the balance of the Participant’s Account is required to be paid to the Participant’s Beneficiary in accordance with Section 10.01(b);

(C)the amount of an installment distribution that is required to be made to a Participant pursuant to his election in accordance with Section 10.02(b)(i) exceeds the portion of the Participant’s Account that is invested in the Investment Funds;

(D)the Participant’s Account is subject to mandatory distribution in accordance with Section 10.03;

(E)the amount required to be distributed to the Participant in accordance with Section 10.06 exceeds the portion of the Participant’s Account that is invested in the Investment Funds, determined as of the date such distribution is required to be made;

(F)the portion of a Participant’s Account that is required to be distributed to an alternate payee, or allocated to an account established for an alternate payee, in accordance with Section 14.02(c) exceeds the portion of the Participant’s Account that is invested in the Investment Funds; or

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(G)an adjustment is required to be made to the Participant’s Account in accordance with rules established by the Plan Administrator or its designee.

(ii)In any of the circumstances described in paragraph (i), the amount that the Plan Administrator or its designee shall cause to be reallocated from investment under the Mutual Fund Window Program shall be the lesser of:

(A)the sum of (X) the product of (I) 1.05 and (II) the excess of the amount of the amount of the required distribution, reallocation or administrative fee, as applicable, over the amount then invested in any of the Investment Funds, plus (Y) the minimum dollar amount, if any, then in effect in accordance with subsection (c)(ii); or

(B)the portion of the Participant’s Account that is invested under the Mutual Fund Window Program.

(iii)In the event that the portion of the Participant’s Account that is invested under the Mutual Fund Window Program as of the date of a reallocation described in paragraph (i) is invested in more than one Designated Mutual Fund, then the amount of such reallocation, as determined in accordance with paragraph (ii), shall be taken ratably from the amount invested in each such fund.

(iv)To the extent that a portion of an amount that is the subject of a mandatory reallocation in accordance with paragraph (i) is available for investment, it shall be invested in the Investment Fund specified in Section 5.02(b).

(i)The Plan Administrator or its designee is authorized to establish procedures for the maintenance of the Mutual Fund Window Program and the investment of Participant Accounts thereunder which rules may include provisions for the establishment of

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transition accounts to which amounts reallocated pursuant to subsection (b) shall be credited, pending investment in the Designated Mutual Fund specified by the Participant, or to which amounts reallocated pursuant to subsection (f) shall be credited, pending reallocation to one or more of the Investment Funds.

5.02Investment of Contributions to Participants’ Accounts

(a)A Participant shall make an investment election which shall specify the manner in which the Deferred Cash Contributions, Catch-Up Contributions, Employer Matching Contributions, After-Tax Contributions, and Rollover Contributions allocated to his Account shall be invested.  Such election shall provide for the investment of such contributions in one or more than one of the primary Investment Funds, as designated by the Participant, or, effective January 1, 2008, in one or more than one of the Designated Mutual Funds, as designated by the Participant, apportioned in multiples of 1%.  A Participant may make (i) a single election that shall be applicable to all contributions allocated to his Account, or (ii) separate elections with respect to (A) his Deferred Cash Contributions, Catch-Up Contributions, Employer Matching Contributions, and, effective January 1, 2008, Non-Matching Employer Contributions, (B) his After-Tax Contributions, (C) his Rollover Contributions, and, effective January 1, 2007, (D) his Roth Contributions, to (E) his Roth Rollover Contributions, and (F) his After-Tax Rollover Contributions.

(b)Effective as of January 1, 2005, (i) if a Participant has an election pursuant to subsection (a)(ii)(A) in effect, but not does not have an election in effect with respect to After-Tax Contributions pursuant to subsection (a)(ii)(B), then any After-Tax

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Contributions allocated to the Participant’s Account shall be invested in accordance with his election pursuant to subsection (a)(ii)(A);  (ii) if a Participant has an election pursuant to subsection (a)(ii)(B) in effect, but not does not have an election in effect with respect to Deferred Cash Contributions, Catch-Up Contributions, and Employer Matching Contributions and, effective January 1, 2008, Non-Matching Employer Contributions, pursuant to subsection (a)(ii)(A), then any Deferred Cash Contributions, Catch-Up Contributions or Employer Matching Contributions, or, effective January 1, 2008, Employer Non-Matching Contributions allocated to the Participant’s Account shall be invested in accordance with his election pursuant to subsection (a)(ii)(B); (iii) if a Participant fails to make an election with respect to a Rollover Contribution pursuant to subsection (a)(ii)(C), then such Rollover Contribution, when allocated to his Account, shall be invested in accordance with the Participant’s election pursuant to subsection (a)(i) or (a)(ii)(A) which is then in effect or deemed to be in effect; (iv) if a Participant fails to make an investment election in accordance with subsection (a), any contributions made by or on behalf of the Participant shall be invested in the Investment Fund designated by the Committee from time to time, which designation shall be deemed to be an amendment to the Plan in accordance with Section 13.01(b), provided, however, that any such designation, as in effect from time to time, shall apply to all contributions by or on behalf of all Participants who have failed to make an investment election.  Effective January 1, 2008, (v) if a Participant has an election pursuant to subsection (a)(ii)(A) in effect or deemed to be in effect, but not does not have an election in effect with respect to Roth Contributions pursuant to subsection (a)(ii)(D), then any Roth Contributions allocated to the Participant’s Account shall be invested in accordance with his election pursuant to subsection (a)(ii)(A); (vi) notwithstanding clause (iii) of the foregoing sentence, if a Participant fails to make an election with respect to a Rollover

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Contribution pursuant to subsection (a)(ii)(C), with respect to a Roth Rollover Contribution pursuant to subsection (a)(ii)(E), or with respect to an After-Tax Rollover Contribution pursuant to subsection (a)(ii)(F) then such Rollover Contribution, Roth Rollover Contribution, or After-Tax Rollover Contribution, when allocated to his Account, shall be invested in accordance with clause (iv) of the foregoing sentence.

(c)An election by a Participant pursuant to subsection (a) that specifies that all or any portion of his Deferred Cash Contributions, Catch-Up Contributions, Employer Matching Contributions, After-Tax Contributions, Non-Matching Employer Contributions, Rollover Contribution, or Roth Rollover Contribution shall be invested in the IBM Stock Fund shall be deemed to be an election that such amount shall be contributed to the ESOP.

(d)An election pursuant to subsection (a) shall be subject to the provisions of Section 5.05 and 13.02(f).

5.03Change of Investment Election

A Participant may change his investment election under Section 5.02 at any time by giving such advance Notice as the Plan Administrator shall prescribe. Such changed investment election shall become effective as of the first day of the first payroll period beginning after the provision of the Notice, or soon thereafter as administratively practicable, and shall be effective only with respect to contributions allocated subsequent thereto.

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5.04Reallocation of Accounts Among the Funds

(a)Subject to the provisions of subsection (b) and Section 5.05, a Participant may elect to reallocate his Account among the Investment Funds, or, effective as of January 1, 2005, among the Investment Funds and the Mutual Fund Window Program, at any time, in multiples of 1%, or in specified whole dollar amounts, by giving such advance Notice as the Plan Administrator shall prescribe, provided, however, that any election that reallocates any portion of his Account to be invested under the Mutual Fund Window Program shall be subject to the limitations of Section 5.01A(c).   A Participant may make (i) a single election that shall be applicable to all amounts allocated to his Account, or (ii) separate elections with respect to (A) his Before-Tax Deferral Account, Catch-Up Account, Employer Account, and Rollover Account, (B) his After-Tax Account and, effective January 1, 2008, his After-Tax Rollover Account, and, effective January 1, 2008, (C) his Roth Contributions Account and Roth Rollover Account. Such reallocation shall be effective as soon as administratively practicable following provision of such Notice, provided, however, that no such reallocation shall be effective as of a Valuation Date for which the Plan Administrator has made a direction pursuant to Section 6.02(b).

(b)The Plan Administrator may assess an administrative fee for investment reallocations under subsection (a), the amount of which fee may be changed from time to time, and may further provide that such fee shall be assessed only if the number of investment reallocations made by a Participant in a Plan Year exceeds a specified limit, which limit may be changed from time to time.  Any such fee shall be deducted from the amount so reallocated and charged to the Participant’s Deferred Account, Employer Account, and Rollover Account on a proportional basis.

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(c)An election by a Participant pursuant to subsection (a) that causes any portion of his Account to be reallocated to the IBM Stock Fund shall be deemed to be an election to transfer such portion of his Account to the ESOP.  An election by a Participant that reallocates any portion of his Account from the IBM Stock Fund to any other Fund shall be deemed to be an election to transfer such portion of his Account from the ESOP.

(d)Effective as of January 1, 2004, the Plan Administrator may, in its discretion, impose restrictions on excessive trading by Participants. Such restrictions may, in the discretion of the Plan Administrator, be applied (i) to Participants on an individual basis or to all Participants or (ii) to an Investment Fund or to all Investment Funds. In addition, the Designated Mutual Funds may have their own trading restrictions, on Participants or on the mutual fund or both, which shall be governed by the terms of the applicable Designated Mutual Fund prospectus.

(e)A Participant who makes an election pursuant to subsection (a) (an “initial election”) to reallocate any portion of his Account from an Investment Fund (“a transferor Investment Fund”) to any other Investment Fund shall not be permitted to make another election pursuant to subsection (a) under which any portion of his Account would be allocated to such transferor Investment Fund, for a period of 30 days after such initial transfer election.  For purposes of this subsection, (i) any Investment Fund that is invested primarily in money market instruments and any Investment Fund that is a Stable Value Fund shall not be deemed a transferor Investment Fund and (ii) an election pursuant to subsection (a) shall not be deemed an initial transfer election, to the extent that such election reallocates a portion of a Participant’s Account from a Fund described in clause (i).

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(f)Elections pursuant to subsection (a) shall be subject to the provisions of Sections 5.05 and 13.02(f).

(g)Effective January 1, 2008 and in accordance with procedures established by the Plan Administrator, a Participant shall be permitted to elect the automatic reallocation of his Account among the primary Investment Funds and the designated mutual funds made available under the Mutual Fund Window Program.  The automatic reallocation shall occur annually on the anniversary of an allocation election made by the Participant in accordance with subsection (a) and shall cause the allocation of his Account to be restored to the allocation that he had elected in his original allocation election.  Effective January 1, 2009, a Participant may elect to have automatic allocation occur either (i) on the anniversary of the original allocation election; (ii) 90 days from the original allocation election and 90 days from each reallocation thereafter; or (iii) 180 days from the original allocation election and 180 days from each reallocation thereafter.

5.05Limitations on Investment Elections and Investment Reallocations Imposed by Contract or by Plan Administrator

(a)Notwithstanding anything in this Article to the contrary, an investment of any portion of an Account in a Stable Value Fund shall be subject to any and all terms of the guaranteed investment contracts and benefit responsive contracts held in such Stable Value Fund, including any limitations therein placed on the right of a Participant to reallocate such amounts pursuant to Section 5.04(a) or on the exercise of any rights

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otherwise granted to a Participant under any other provisions of this Plan with respect to such amounts.

(b)Notwithstanding anything in this Article to the contrary, the Plan Administrator may impose temporary restrictions on investment elections pursuant to Section 5.02 and reallocations pursuant to Section 5.04, in order to prevent or limit the investment of additional amounts in any Investment Fund, by all Participants or by any class of Participants, as determined on a nondiscriminatory basis, when the Plan Administrator determines, in its sole discretion, but after consultation with the Investment Manager of the Investment Fund, that such restrictions are necessary to preserve the equitable treatment of those Participants who have theretofore invested a portion of their Accounts in such Investment Fund.

5.06Responsibility for Investments

Each Participant is solely responsible for the selection of his or her investment options.  The Trustee, the Investment Managers, the Committee, the Plan Administrator, the Employer, and the officers, supervisors and other employees of the Employer are not empowered to advise a Participant as to the manner in which his Account shall be invested.  The fact that an Investment Fund is available to Participants for investment under the Plan shall not be construed as a recommendation for investment in the Investment Fund by any Participant.  The fact that the Mutual Fund Window Program is available to Participants under the Plan shall not be construed as a recommendation for investment under the Mutual Fund Window Program by any Participant; and the fact that any mutual fund is determined to be a Designated Mutual Fund shall not be construed as a recommendation for investment in such mutual fund by any Participant.

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5.07Voting of IBM Shares

Shares of IBM held in the IBM Stock Fund shall be voted by the Trustee in accordance with instructions received from each Participant who has allocated any portion of his Account to such Fund.  The instructions given by a Participant shall apply to that portion of the shares of IBM held in the Fund equal to the ratio of the units of the Fund allocated to his Account under Article 6 to the total number of units in the Fund.  The Trustee shall vote the shares of IBM for which it does not receive such instructions in the same proportion as it votes the shares of IBM for which it does receive such instructions.

5.08ERISA Section 404(c) Compliance

This Plan, including its constituent ESOP, is intended to constitute a plan described in Section 404(c) of ERISA.

5.09Elective Distribution of Dividends Payable on Stock Held in IBM Stock Fund

(a)Effective January 1, 2002, a Participant whose Account includes an amount invested in the IBM Stock Fund shall be permitted to elect:

(i)to receive a cash distribution of his allocable share of the dividends payable on common stock of IBM held in the IBM Stock Fund, or

(ii)to direct that his allocable share of the dividends payable on common stock of IBM held in the IBM Stock Fund be reinvested in common stock of IBM.

For purposes of this Section, a Participant’s allocable share of the dividends payable on the common stock of IBM shall be that portion of each dividend payment made to such Fund that bears the same ratio to the total dividend payment that the number of units of

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such Fund credited to his Account bears to the total number of units of such Fund that are outstanding on the date of such dividend payment.

(b)A Participant shall provide Notice of his election pursuant to subsection (a) in the manner specified in rules established by the Plan Administrator pursuant to Section 14.05, provided, however, that an election to receive a distribution of dividends payable on any dividend payment date declared by IBM shall not be effective unless Notice thereof is filed on or before the ex-dividend date with respect to such dividends,  or such earlier date or time as may be specified by the Plan Administrator.  A Participant who has not provided timely Notice of his election pursuant subsection (a) with respect to the dividends payable on any dividend payment date declared by IBM shall be deemed to have directed that his allocable share of such dividends be reinvested in common stock of IBM, pursuant to subsection (a)(ii).

(c)An election made by a Participant in accordance with subsection (b) shall remain in effect until changed by the Participant.  A Participant shall be permitted to change an election made in accordance with subsection (b) at any time, by providing Notice of a new election in accordance with subsection (b), which new election shall become effective as provided in subsection (b).

(d)In the event that a Participant elects to receive a distribution of his allocable share of any dividends, in accordance with the provisions of subsection (a)(i), the dividends that are subject to such election in each Plan Year shall be paid to him in accordance with paragraph (i) or paragraph (ii) as applicable:

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(i)Dividends declared in 2002 shall be segregated and credited to the Participant in a separate sub-account of the ESOP, which sub-account shall be invested in short-term securities or money market instruments, in the discretion of the Investment Manager designated in accordance with Section 11.03. The total amount of dividends that are subject to the Participant’s distribution election for such Plan Year shall then be paid to him in cash subsequent to the latest dividend payment date declared by IBM in such Plan Year, but in no event, later than 90 days after the close of the Plan Year in which such dividends were paid to the Plan.  The interest income or other investment earnings credited to the Participant’s separate sub-account in each month shall be reallocated to the IBM Stock Fund at the end of the month.

(ii)Dividends declared after 2002 that are subject to the Participant’s distribution election shall be distributed to the Participant as soon as practicable following the payment of such dividends, provided, however, that such distribution shall in any event be made no later than 90 days after the close of the Plan Year in which such dividends were paid to the Plan.

(e)In the event that a Participant has directed, or is deemed to have directed, that his allocable share of any dividends be reinvested in common stock of IBM, in accordance with the provisions of subsection (a)(ii), such dividends shall be reinvested in accordance with Section 5.01(e).

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Article 5A.  Disability Protection Program

5A.01Eligibility

A Participant who is a Regular Employee of an Employer and who made Before-Tax Contributions during a calendar year commencing on or after January 1, 2004 shall be eligible to enroll in the Disability Protection Program for the next succeeding calendar year, in accordance with the provisions of Section 5A.03.

5A.02Levels of Coverage under Disability Protection Program

(a)An eligible Participant who enrolls in the Disability Protection Program shall specify the scope of coverage for which he is enrolling, from among the following options:

Option 1:Coverage for Before-Tax Contributions only;

Option 2:Coverage for Employer Matching Contributions only;

Option 3:Coverage for Automatic Contributions only

Option 4:Coverage for Special Savings Awards only

Option 5Coverage for any combination of Options 1 through 4.

The scope of coverage specified by the Participant shall be taken into account in accordance with Section 5A.05 in the determination of the amount of premium required to be paid during the term of such coverage and in accordance with Section 5A.06 in the determination of the amount of benefits payable in the event that the Participant incurs a Total and Permanent Disability during the term of such coverage.

(b)For purposes of this Article, a Participant’s Before-Tax Contributions for any year shall be deemed to include any Catch-Up Contributions made in accordance with Section 4.02(g) for such year.

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5A.03Enrollment Procedures

(a)An eligible Participant may enroll in the Disability Protection Program for a calendar year commencing after December 31, 2004, by providing such Notice as the Plan Administrator may prescribe, including the specification of the scope of his coverage in accordance with Section 5A.02, during the period prior to the first day of such calendar year specified by the Plan Administrator as the open enrollment period.  The Notice provided by the Participant shall include his election to invest a portion of his Account, as determined in accordance with Section 5A.05, in the payment of premiums under the Disability Insurance Policy.

(b)A Participant who was enrolled in the Disability Protection Program for a calendar year shall automatically continue to be enrolled in the Disability Protection Program, with  the same scope of coverage, for the next succeeding calendar year, provided that he satisfies the eligibility requirements prescribed in Section 5A.01 as of the first day of such next succeeding year, unless he either elects to terminate his coverage by providing such Notice as the Plan Administrator may prescribe, or elects to enroll for a different scope of coverage, in accordance with the provisions of subsection (a).

(c)A Participant’s enrollment in the Disability Protection Program shall become effective on the first day of the calendar year to which such enrollment relates, provided that the Participant satisfies the requirements of Section 5A.04 as of such date.  In the event that a Participant fails to satisfy the requirements of Section 5A.04 as of the first day of a calendar year to which his enrollment relates, his enrollment in the Disability Protection Program for such year shall be void and without effect.

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5A.04Requirements for Commencement of Coverage under Disability Protection Program

A Participant who has enrolled in the Disability Protection Program for a calendar year, in accordance with Section 5A.03(a), or who is automatically enrolled in the Disability Protection Program for a calendar year, in accordance with Section 5A.03(b), shall commence coverage under the Program only if he satisfies the requirements of the Disability Insurance Policy as of the first day of such calendar year.

5A.05Investment in Premiums under Disability Insurance Policy and Assessment of Administrative Fee

(a)For each month that a Participant is enrolled in the Disability Protection Program, the amount determined in accordance with subsection (b) shall be invested in premiums under the Disability Insurance Policy.  The amount so invested shall be paid by the Plan to the Disability Insurer in accordance with the terms of the Disability Insurance Policy.

(b)The amount of the premium charged against a Participant’s Account for coverage under the Disability Protection Program for a calendar year shall be determined in accordance with the terms of the Disability Insurance Policy on the basis of:

(i)the Participant’s attained age on the last day of the calendar year prior to the calendar year for which the premium is being determined;

(ii)for a Participant who has elected the scope of coverage described as Option 1 or Before-Tax Contributions in Option 5  in Section 5A.02,  the amount of the

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Before-Tax Contributions allocated to the Participant’s Account for the preceding calendar year;

(iii)for a Participant who has elected the scope of coverage described as Option 2 or Employer Matching Contributions in Option 5 in Section 5A.02, for the 2008 Plan Year an estimate of the amount of the Employer Matching Contributions, which estimate is determined by multiplying the Employer Matching Contributions allocated to the Participant’s Account for the 2007 Plan Year, times two, and for the 2009 Plan Year and thereafter the amount of the Employer Matching Contributions allocated to the Participant’s Account for the preceding calendar year;

(iv)for a Participant who has elected the scope of coverage described as Option 3 or Automatic Contributions in Option 5 in Section 5A.02, for the 2008 Plan Year an estimate of the amount of the Automatic Contributions, which estimate is determined by multiplying the Participant’s Compensation for 2007 times the Participant’s Automatic Contribution percentage (determined in accordance with Section 402A (a)), and for the 2009 Plan Year and thereafter, the amount of the Automatic Contributions allocated to a Participant’s Account for the preceding calendar year; and

(v)for a Participant who has elected the scope of coverage described as Option 4 or Special Savings Awards in Option 5 in Section 5A.02 for the 2008 Plan Year, an estimate of the amount of the Special Savings Award, which estimate is determined by multiplying the Participant’s Compensation for 2007 times 5%, and for the 2009 Plan Year and thereafter, the amount of the Special Savings Award allocated to a participant’s Account for the preceding calendar year.

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(c)The premium amount for each month, as determined in accordance with subsection (b), required to be paid by the Plan to the Disability Insurer in accordance with subsection (a) shall be debited from the Participant’s Deferred Account.

(d)For each month that a Participant is enrolled in the Disability Protection Program, an amount determined by the Plan Administrator or its designee shall be debited from his Deferred Account, as an administrative fee for the maintenance of such coverage, which administrative fee shall be in addition to the premium amount determined in accordance with subsection (b).

(e)The amounts debited from a Participant’s Deferred Account in accordance with subsections (c) and (d) shall be apportioned among the Investment Funds and among and Designated Mutual Funds invested under the Mutual Fund Window Program on basis of the value of the Participant’s Account in each Investment Fund or Designated Mutual Fund, as of the date such amounts are debited from his Account.

(f)In the event that the amounts required to be debited from the Participant’s Deferred Account in accordance with subsections (c) and (d) as of any date exceeds the value of the Participant’s Deferred Account invested in the Investment Funds and the Designated Mutual Funds, as of such date, then any excess shall be debited from the Participant’s Employer Account and shall be apportioned among the Investment Funds and the Designated Mutual Funds in accordance with subsection (e).  In the event that amounts required to be debited from the Participant’s Deferred Account in accordance with subsections (c) and (d) as of any date exceeds the sum of the value of the Participant’s Deferred Account invested in the Investment Funds and the Designated Mutual Funds

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and the value of the Participant’s Employer Account invested in the Investment Funds Designated Mutual Funds as of such date , then no premium shall be paid and the Participant’s coverage under the Disability Protection Program shall terminate in accordance with Section 5A.07(b).

5A.06Benefits Payable under Disability Protection Program

(a)In the event that a Participant who is covered under the Disability Protection Program becomes Totally and Permanently Disabled and remains Totally and Permanently Disabled at the conclusion of any elimination period provided for under the Disability Insurance Policy, then monthly benefits shall commence to be paid in accordance with the terms of the Disability Insurance Policy and shall continue to be paid until terminated in accordance with the terms of the Disability Insurance Policy.

(b)The amount of each monthly benefit shall be determined on the basis of the scope of coverage elected by the Participant in accordance with Section 5A.02(a) and shall be determined in accordance with the terms of the Disability Insurance Policy and the Certificate of Disability Insurance.

(c)All monthly benefits payable in accordance with subsection (a) on account of a Participant’s Total and Permanent Disability shall be treated as investment earnings on and shall be allocated to the Participant’s Deferred Account.

(d)All monthly benefits payable in accordance with subsection (a) shall be invested in accordance with the Participant’s election under Section 5.02(a) as in effect on the date such benefits are paid.

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5A.07Termination of Coverage under Disability Protection Program

A Participant’s coverage under the Disability Protection Program shall terminate on the earliest of the following events:

(a)the last day of the month in which the Participant terminates employment with an Employer;

(b)the last day of the month preceding the first month for which no premium is paid pursuant to the provisions of Section 5A.05(f);

(c)the last day of a calendar year preceding a calendar year for which the Participant has not enrolled in the Disability Protection Program in accordance with Section 5A.03(a) and is not automatically enrolled in the Disability Protection Program in accordance with Section 5A.03(b); or

(d)any event specified in the Disability Insurance Policy or the Certificate of Disability Insurance as an event that shall cause the termination of coverage.

5A.08Claims Procedure and Incorporation of Disability Insurance Policy

(a)Claims for benefits under the Disability Protection Program shall be made in accordance with the provisions of the Disability Insurance Policy and the Certificate of Disability Insurance.   Claims for benefits shall be adjudicated by the Disability Insurer and the denial of any such claim shall be subject to appeal.  The adjudication of a claim and the appeal of the denial of a claim shall comply with the requirements of ERISA and regulations thereunder, in accordance with the provisions of the Disability Insurance Policy and Certificate of Disability Insurance.

(b)The terms of the Disability Protection Program shall be subject to the provisions of the Disability Insurance Policy and the Certificate of Disability Insurance, which are

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incorporated by reference.  A Participant’s eligibility for coverage under the Disability Protection Program and entitlement to benefits under the Disability Protection Program shall be subject to the conditions, restrictions and limitations contained in the Disability Insurance Policy and the Certificate of Disability Insurance, regardless of whether such conditions, restrictions, or limitations are specifically set forth in this Article 5A.  In the event of a conflict between (i) the provisions of this Article 5A and (ii) the Disability Insurance Policy or the Certificate of Disability Insurance, the latter shall be given effect.

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ARTICLE 6.  VALUATION OF UNITS AND CREDITS TO ACCOUNTS

6.01Units of Participation

A Participant’s interest in each Investment Fund shall be represented by units of participation.  Prior to the first Valuation Date for any Investment Fund in accordance with Section 6.02, each unit in such Investment Fund shall be valued at $1.00 for each dollar allocated to that Fund prior to such first Valuation Date, unless a different initial value is established by the Plan Administrator.

6.02Valuation of Units

(a)The value of a unit in each Fund shall be determined on each Valuation Date by dividing the investment value of the assets in that Fund on that date by the total number of units in that Fund.  For purposes of this subsection, the investment value of the assets of a Fund shall be the current market value, determined after taking into account any brokerage fees and transfer taxes applicable to purchases and sales for that Fund made since the previous Valuation Date and any other expenses either paid from or accrued to such Fund since the previous Valuation Date and by excluding, on each Valuation Date after the first, the contributions that are to be credited to Accounts in such Fund as of such Valuation Date, provided, however, that the investment value of a Stable Value Fund shall be the contract value of its assets, determined by taking into account contributions made to investment contracts, investment earnings, participant withdrawals and administrative expenses.  The valuation of units in each Fund shall be performed by the party so directed by the Plan Administrator and shall be conclusive.

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(b)In the event that the value of the units in one or more Funds cannot be determined on any Valuation Date, for reasons beyond the control of the Trustee or Plan Administrator, then the Plan Administrator may direct that such valuation be deferred until the next regularly scheduled Valuation Date.

6.03Crediting the Accounts

(a)The Deferred Account, and effective January 1, 2008, the Before-Tax Deferral Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the Deferred Cash Contributions, if any, made by the Employer to the Deferred Account in that Fund on behalf of the Participant since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

(b)The Employer Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the Employer’s contributions, if any, made on the Participant’s behalf to the Employer Account in that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

(c)The Rollover Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the Rollover Contributions, if any, made by the Participant to his Rollover Account that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

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(d)The Catch-Up Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the Catch-Up Contributions, if any, made by the Participant to his Catch-Up Account in that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

(e)The After-Tax Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the After-Tax Contributions, if any, made by the Participant to his After-Tax Account in that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

(f)Effective January 1, 2008, the Roth Contributions Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the Roth Contributions, if any, made by the Participant to his Roth Contributions Account in that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

(g)Effective January 1, 2008, the Roth Catch-Up Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the Roth Catch-Up Contributions, if any, made by the Participant to his After-Tax Account in that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

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(h)Effective January 1, 2008, the Roth Rollover Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the Roth Rollover Contributions, if any, made by the Participant to his Roth Rollover Account in that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

(i)Effective January 1, 2008, the After-Tax Rollover Account of a Participant in each Investment Fund shall be credited on each Valuation Date with the number of units determined by dividing the After-Tax Rollover Contributions, if any, made by the Participant to his After-Tax Account in that Fund since the previous Valuation Date by the unit value for that Fund as determined on that Valuation Date.

6.04Statements of Participant Accounts

At least once per calendar year, and effective January 1, 2007, at least once per quarter, each Participant shall be furnished with a statement setting forth the value of his Accounts.

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ARTICLE 7.  VESTED STATUS OF ACCOUNTS

7.01Nonforfeitability Accounts

A Participant shall at all times be 100% vested in, and have a nonforfeitable right to, his entire Account.

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ARTICLE 8.  IN-SERVICE WITHDRAWALS

8.01Withdrawal After Age 59½

(a)A Participant who is in the employ of an Employer or Affiliate and who shall have attained age 59½ may, subject to the provisions of subsections (b) and (c) and the provisions of Section 8.03, elect to withdraw all or any portion of his Account.

(b)A Participant shall not be permitted to make more than a total of four withdrawals pursuant to subsection (a), Section 8.01A(a), and Section 8.02 in any Plan Year.

(c)The minimum withdrawal under subsection (a) shall be the lesser of (i) $500 or (ii) the total value of the Participant’s Account.

8.01AWithdrawal from After-Tax Account

(a)Effective as of July 1, 2004, a Participant who is in the employ of an Employer may, subject to the provisions of subsections (b) and (c), elect to withdraw all or any portion of his After-Tax Account.

(b)Withdrawals pursuant to this Section shall be subject to the provisions of Section 8.01(b).

(c)The minimum withdrawal under subsection (a) shall be the lesser of (i) $500 or (ii) the total value of the Participant’s After-Tax Account.

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8.02Hardship Withdrawal

(a)A Participant may, subject to the provisions Section 8.03, elect to withdraw (i) all or part of the excess of his Deferred Cash Contributions (but not including any investment gains or losses therein) over any amount previously distributed to him on account of Hardship, but not any amount greater than the balance of his Deferred Account, (ii) all or part of his After-Tax Account (but not including any invest gains or losses therein), and (iii) all or part of his Rollover Account (but not including any invest gains or losses therein), provided that he furnishes proof of Hardship satisfactory to the Plan Administrator in accordance with the provisions of subsections (b) and (c).

(b)As a condition for Hardship there must exist with respect to the Participant an immediate and heavy financial need to draw upon his Account. The Plan Administrator shall presume the existence of such immediate and heavy financial need, if the requested withdrawal is on account of any of the following:

(i)expenses for medical care described in Section 213(d) of the Code previously incurred by the Participant, his spouse or any of his dependents, as defined in Section 152 of the Code, or necessary for those persons to obtain such medical care;

(ii)costs directly related to the purchase of a principal residence of the Participant, excluding mortgage payments;

(iii)payment of tuition and related educational fees, and room and board expenses, for the next 12 months of post-secondary education of the Participant, his spouse, children or dependents, as defined in Section 152 of the Code;

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(iv)payment of amounts necessary to prevent eviction of the Participant from his principal residence or to avoid foreclosure on the mortgage of his principal residence;

(v)payment for burial or funeral expenses for the Participant’s deceased parent, spouse, children or dependents, as defined in Section 152 of the Code;

(vi)expenses for the repair of damage to the Participant’s principal residence that would qualify for treatment as a casualty loss within the meaning of Section 165(c)(3) of the Code; or

(vii)any circumstance that is permitted to be treated as a deemed immediate and heavy financial need in accordance with guidance prescribed by the Internal Revenue Service, pursuant to Section 1.401(k)-1(d)(3)(v) of the Regulations.

For purposes of clauses (i), (iii) and (v) of the foregoing sentence, references to Section 152 of the Code shall not include subsections (b)(1), (b)(2), or (d)(1) thereof and, effective January 1, 2008, the Participant’s Beneficiary shall be deemed to be a dependent of the Participant.

In the event that the requested withdrawal is on account of expenses, debts, or obligations other than those with respect to which the Plan Administrator shall presume the existence of an immediate and heavy financial need, then the Plan Administrator shall make a determination regarding the existence of an immediate and heavy financial need on the basis of all of the facts and circumstances of which proof is provided by the Participant.

(c)As a condition for a Hardship withdrawal, the Participant must demonstrate and the Plan Administrator must determine that the requested withdrawal is necessary to satisfy the

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financial need described in subsection (b).  The Participant shall request, on such form as the Plan Administrator shall prescribe, that the Plan Administrator make its determination of the necessity for the withdrawal solely on the basis of his application.  The Plan Administrator shall make a determination that the withdrawal is necessary, if and only if all of the following requirements are met:

(i)The amount of the withdrawal does not exceed the amount described in subsection (d).

(ii)The Participant has obtained all distributions, other than distributions available only on account of hardship, and all nontaxable loans currently available under all plans of the Employer and Affiliates.

(iii)The Participant is prohibited from making Deferred Cash Contributions to the Plan and from making elective deferrals, within the meaning of Section 402(g)(3) of the Code, or otherwise making employee contributions to or under all other plans of the Employer and Affiliates, under the terms of such plans or by means of an otherwise legally enforceable agreement for the required suspension period.  For Hardship withdrawals made prior to January 1, 2002, the required suspension period shall be a period of 12 months from the date of the distribution; for Hardship withdrawals made subsequent to December 31, 2001, the required suspension period shall be a period of 6 months from the date of the distribution; for Hardship withdrawals made subsequent to December 31, 2005, the required suspension period shall be a period of 6 months or, if longer, such other period that is specified under the terms of the other plan, from the date of the distribution.  For purposes this paragraph, the phrase “all other plans of the Employer and Affiliates” shall include  stock purchase plans, including any “employee stock purchase plan” described in Section 423(b) of the Code,

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qualified and non-qualified deferred compensation plans, and such other plans as may be designated under Regulations issued under Section 401(k) of the Code, but shall not include health and welfare benefit plans, any mandatory employee contribution portion of a defined benefit plan, or, for Hardship withdrawals made subsequent to September 29, 2005 and prior to January 1, 2008, incentive compensation that is eligible for deferral under the IBM Executive Deferred Compensation Plan.  Notwithstanding the foregoing, no suspension of employee contributions to the IBM Executive Deferred Compensation Plan will occur during 2005.

(iv)For Hardship withdrawals made prior to January 1, 2001, the limitation described in Section 4.01(c) under all plans of the Employer and Affiliates for the calendar year following the year in which the withdrawal is made must be reduced by the Participant’s elective deferrals, within the meaning of Section 402(g)(3) of the Code, made in the calendar year of the distribution for hardship.

(v)The Participant certifies, and the Plan Administrator has no knowledge to the contrary, that the financial need described in subsection (b) cannot reasonably be relieved (A) through reimbursement or compensation by insurance or otherwise; (B) by liquidation of the Participant’s assets; (C) by cessation of elective contributions or employee contributions under the Plan; (D) by other currently available distributions (including distribution of ESOP dividends under Section 404(k) of the Code) and nontaxable (at the time of the loan) loans, under plans maintained by the Employer and Affiliates or by any other employer; or (E) 

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by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need.

(d)The amount of a Hardship withdrawal may not be in excess of the amount of the financial need of the Participant, including any amounts necessary to pay any federal, state or local taxes and any amounts necessary to pay any tax penalties reasonably anticipated to result from the Hardship distribution.

(e)A Participant may not receive more than one Hardship withdrawal in any period of 6 calendar months.

 (f)In evaluating the relevant facts and circumstances, the Plan Administrator shall act in a nondiscriminatory fashion and shall treat uniformly those Participants who are similarly situated.  The Participant shall furnish to the Plan Administrator such supporting documents as the Plan Administrator may request in accordance with uniform and nondiscriminatory rules prescribed by the Plan Administrator.

8.03Procedures and Restrictions

(a)To make a withdrawal pursuant to Section 8.01, 8.01A or 8.02, a Participant shall give such advance Notice as the Plan Administrator shall prescribe. In no event shall the amount of the withdrawal exceed the portion of the Participant’s Account that is invested in one or more of the Investment Funds and Designated Mutual Funds, as applicable.

(b)Each withdrawal shall be debited from the Participant’s Account as of the Valuation Date coincident with the payment of the amount so withdrawn to the Participant, or such other

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Valuation Date as may be determined in accordance with the procedures established by the Plan Administrator, provided, however, that no such payment shall be made as of a Valuation Date with respect to which the Plan Administrator has made a direction pursuant to Section 6.02(b).

(c)The amount of any withdrawal shall be allocated among the Investment Funds and Designated Mutual Funds, as applicable, in proportion to the value of the Participant’s Account in each Investment Fund or Designated Mutual Fund, as applicable, as of the date determined in accordance with subsection (b).

(d)All payments to Participants under this Article shall be made in cash as soon as practicable, after the Participant’s delivery of the Notice required under subsection (a), but shall nonetheless be subject to the provisions of Section 10.15 and a withdrawal pursuant to Section 8.01 shall be subject to the provisions of Section 10.12(c).

8.04Distributions at Age 70½

(a)Notwithstanding any provision of the Plan to the contrary, if a Participant is a Five Percent Owner, distribution of the Participant’s Account shall begin, in accordance with procedures established by the Plan Administrator, no later than the April 1 following the calendar year in which he attains age 70½.  No minimum distributions pursuant to Section 401(a)(9) of the Code will be made on or after January 1, 1997 to a Participant who remains in the employ of an Employer or Affiliate, if he is not a Five Percent Owner.  Such a Participant may elect to receive withdrawals from his Account in accordance with Section 8.01, to the extent that he is eligible therefor.

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(b)In the event that a distribution is required to be made to a Five Percent Owner pursuant to subsection (a), the schedule for and amount of such distribution shall be determined in accordance with Section 10.06(b).

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ARTICLE 9.  LOANS TO PARTICIPANTS

9.01Loan Amounts Available and Interest Rate

(a)A Participant who is a Regular Employee or, effective as of January 1, 2004, a Long-Term Supplemental Employee, of the Employer or an Affiliate may borrow, on application to the Plan Administrator and on approval by the Plan Administrator under such uniform rules as it shall adopt, an amount which, when added to the outstanding balance of any other loans to the Participant from this Plan or any other qualified plan of any Employer or Affiliate, does not exceed the lesser of:

(i)50% of the present value of the Participant’s nonforfeitable accrued benefit under such plans, or

(ii)$50,000 reduced by the excess, if any, of (A) the highest outstanding balance of loans to the Participant from such plans during the one year period ending on the day before the day the loan is made, over (B) the outstanding balance of loans to the Participant from such plans on the date on which the loan is made;

provided, however, that in no event shall a Participant be permitted to borrow an amount, which when added to the outstanding balance of any other loan to the Participant from this Plan, will exceed 50% of his Account.

(b)The Plan Administrator may establish a minimum loan amount, which amount may be changed from time to time.

(c)The interest rate to be charged on loans shall be determined by the Plan Administrator from time to time and shall be commensurate with interest rates charged by persons in the business of lending money in similar circumstances.  The interest rate so

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determined for purposes of the Plan shall be fixed for the duration of each loan, except to the extent that an adjustment to the interest rate on a loan to a Participant who has entered the uniformed services of the United States is required in accordance with the Soldiers and Sailors Civil Relief Act or any similar legislation.

(d)The amount of the loan shall be deducted from the Investment Funds and Designated Mutual Funds, as applicable, in which the Participant’s Accounts are invested, as of the Valuation Date coincident with the payment of the proceeds of the loan to the Participant, or such other Valuation Date as may be determined in accordance with the procedure established by the Plan Administrator, provided, however, that no such payment shall be made as of a Valuation Date with respect to which the Plan Administrator has made a direction pursuant to Section 6.02(b).  Such deduction shall be either in specific amounts from one or more of such Funds or on a proportional basis from all such Funds, as elected by the Participant under rules established by the Plan Administrator, and shall be recorded as a special “Loan Fund” for the Participant under the Plan.  If, pursuant to the Participant’s election, all or any portion of the amount of a loan shall be deducted from the portion of his Account that is allocated to the IBM Stock Fund, then such election shall be deemed to be an election to transfer such amount from the ESOP.  The Loan Fund shall comprise only the amount recorded thereunder and shall be deemed to be invested solely in the loan made to the Participant.  The amount of the Loan Fund shall be pledged as security for the loan.  Payments of principal on the loan will reduce the amount recorded in the Participant’s Loan Fund.  Those payments, together with the attendant interest payment, will be reinvested in the Investment Funds or Designated Mutual Funds in accordance with the Participant’s investment election as then in effect in accordance with Section 5.02.

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9.02Terms

(a)In addition to such rules and regulations as the Plan Administrator may adopt, all loans from the Plan shall comply with the following terms and conditions:

(i)An application for a loan by a Participant shall be by Notice to the Plan Administrator, whose action in approving or disapproving the application shall be final.

(ii)Each loan shall be evidenced by a promissory note payable to the Plan or by written instruments that collectively have equivalent effect.

(iii)The Plan Administrator may assess an administrative fee for the issuance of a loan, the amount of which fee may be changed from time to time.  Any such fee shall be deducted from the proceeds of the loan.

(iv)The period of repayment for any loan shall be arrived at by mutual agreement between the Plan Administrator and the Participant, but shall not exceed 5 years, except where the loan is made to purchase a principal residence, and in such case the period of repayment of the loan shall not exceed 10 years.  In the event a Participant enters the uniformed services of the United States and retains reemployment rights under law, repayments shall be suspended during the period of such service and the period of repayment shall be extended by the number of months of the period of service in the uniformed services.

(v)Payments of principal and interest shall be made by payroll deductions, or in a manner agreed to by the Participant and the Plan Administrator, in substantially level amounts, but in no event less frequently than quarterly, in an amount sufficient to amortize the loan over the repayment period.

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(vi)A loan may be prepaid in full without penalty as of any date after the Participant has made payments for a period of at least 3 months.

(vii)A Participant may not have more than 2 loans outstanding at any given time.

(viii)Effective January 1, 2008, a Participant who has an outstanding loan from the Plan and who is absent from employment on account of a leave of absence, or who has terminated employment shall be permitted to make installment repayments during such leave or subsequent to such termination of employment through an automated repayment facility, in accordance with procedures established by the Plan Administrator.

(ix)Effective January 1, 2008, if a Participant who has an outstanding loan from the Plan is absent from employment on a leave of absence for 12 months or less, other than a military leave of absence, the participant’s loan shall not be considered delinquent during such leave, even if no repayments are made during such leave. Upon his return to employment, the amount of the installment repayments of such loan shall be redetermined to take account of any payments that were scheduled to be made during the leave of absence but were not made, so that the loan shall be fully repaid as of the date originally established in accordance with paragraph (iv).

(b)The Plan Administrator shall establish procedures for the determination of whether a loan has become delinquent or whether there has been a default on a loan, provided, however, that such procedures shall provide that a default has occurred no later than the last day of a calendar quarter following a calendar quarter during which a Participant has failed to make any required repayments, unless all payments required under the terms of the loan to have been made on or before such date have been made.

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(c)In the event that a Participant’s loan is determined to be in default pursuant to subsection (b), then:

(i)the Participant shall be prohibited from making Deferred Cash Contributions for a period of 12 months from the date of such default, if such default occurs prior to January 1, 2002 or for a period of 6 months from the date of such default, if such default occurs subsequent to December 31, 2001, provided, however, that, in any event, such prohibition shall cease to apply if the Participant repays the defaulted loan and provided further, however, that this paragraph shall cease to be effective as of January 1, 2008; and

(ii)the Participant shall be prohibited from initiating a new loan until the later of (A) the first anniversary of the date of default or (B) the date that the Participant fully repays the defaulted loan, including accrued interest.

A Participant may repay a defaulted loan at any time prior to the Plan’s execution upon its security interest in accordance with subsection (d).

(d)If a loan is not repaid in accordance with the terms specified in the instrument thereof and a default occurs, the Plan may execute upon its security interest in the Participant’s Accounts under the Plan to satisfy the debt, provided, however, that the Plan shall not levy against any portion of the Loan Fund attributable to amounts held in the Participant’s Deferred Account or Employer Account until such time as a distribution of the Deferred Account or Employer Account could otherwise be made under the Plan.

(e)The Plan Administrator shall promulgate such additional rules or restrictions as may be necessary to implement and administer the loan program.  Such additional rules are

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hereby incorporated into the Plan by reference, and the Plan Administrator is hereby authorized to make such revisions to these rules as it deems necessary or appropriate.

(f)To the extent required by law and under such rules as the Plan Administrator shall adopt, loans shall also be made available on a reasonably equivalent basis to any Beneficiary or former Employee (i) who maintains an Account under the Plan and (ii) who is with respect to the Plan, a party-in-interest within the meaning of Section 3(14) of ERISA.

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ARTICLE 10.  DISTRIBUTION OF ACCOUNTS UPON TERMINATION OF
EMPLOYMENT, DISABILITY, OR DEATH

10.01Applicability

(a)Upon a Participant’s termination of employment, or incurrence of disability, he shall be eligible to receive a distribution of his Account in accordance with the provisions of this Article.

(b)Upon a Participant’s death, his Account shall be distributed to his Beneficiary in accordance with the provisions of this Article.

10.02Forms of Distribution

(a)A Participant who has terminated employment may elect to receive a distribution of his Account in a single lump sum payment. The provisions of this subsection shall be subject to the provisions of Sections 10.07, 10.12, and 10.15.

(b)In addition to the election provided in accordance with subsection (a), a Participant who either (A) is retirement eligible under the IBM Personal Pension Plan in accordance with the terms thereof as in effect on June 30, 1999, when the Participant terminates employment, (B) is eligible to receive disability payments under the IBM Medical Disability Income Plan or the IBM Long Term Disability Plan, or (C) has attained age 55 at the time or after the Participant terminates employment with an Employer; may elect to receive a distribution of his Account in either of the following forms:

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(i)payment in annual installments over a period not less than 2 nor more than 10 years and effective January 1, 2008, payment in annual installments over a period not less than 2, nor more than 20 years; or

(ii)payment in annual installments over his life expectancy, determined in accordance with Section 10.13 and with applicable regulations, and recalculated annually, provided, however, that a Participant shall not be permitted to commence payment in this form after December 31, 2007.

The provisions of this subsection shall be subject to the provisions of Sections 10.07, 10.12, and 10.15.

(c)In the event that a Participant elects to receive a distribution of his Account in the form of installment payments, in accordance with subsection (b), the amount of each payment shall be determined by dividing the balance of the Participant’s Account on the Valuation Date as of which such payment is to be determined, in accordance with Section 10.12(a), by the number of years remaining in the installment payment period, taking into account the year for which such amount is being determined.

(d)A Participant who is eligible to make an election to receive a distribution of his Account in accordance with subsections (a) or (b), but who has not made such an election, shall be permitted to elect withdrawals from his Account, in accordance with Section 10.04.

10.03Mandatory Distribution of Small Accounts

For Plan Years beginning prior to January 1, 2000, and notwithstanding any provision hereof to the contrary, if the balance of the Account of a Participant described in Section 10.02(b) has not exceeded $3,500, then the balance of his Account shall be

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distributed to him in a lump sum as soon as practicable after his termination of employment and the provisions of Sections 10.02(b) and 10.02(d) shall not be applicable, provided, however, that, effective with respect to terminations of employment occurring after December 31, 1997, $5,000 shall be substituted for $3,500.  For Plan Years beginning after December 31, 1999, if the balance of the Account of a Participant does not exceed $5,000, then the balance of his Account shall be distributed to him in a lump sum as soon as practicable after his termination of employment and the provisions of Sections 10.02(b) and 10.02(d) shall not be applicable, provided, however, that effective with respect to distributions made on or after March 28, 2005, $1,000 shall be substituted for $5,000.

10.04Withdrawals From Account After Termination of Employment

(a)A Participant who is eligible to elect to receive a distribution of his Account in accordance with Section 10.02(a) or (b) and who has not made such an election may elect to take withdrawals from his Account at any time, provided, however, that:

(i)no Participant may take more than 4 withdrawals from his Account in any Plan Year; and

(ii)the minimum amount of a withdrawal shall be the lesser of $500 or the balance of the Participant’s Account.

In no event shall the amount of the withdrawal elected by the Participant exceed the portion of his Account that is invested in the Investment Funds or in Designated Mutual Funds.  The provisions of this subsection shall be subject to the provisions of Sections 10.07, 10.12, and 10.15.

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(b)A Participant who has made an election to receive a distribution of his Account in the form of installment payments, in accordance with Section 10.02(b) may elect to take additional withdrawals from his Account at any time.  Such additional withdrawals shall be subject to the provisions of subsection (a).

10.05Commencement of Payments

(a)Distribution of a Participant’s Account shall not be made prior to a Participant’s provision of Notice of his election to receive such Distribution to the Plan Administrator, except for distributions in accordance with Section 10.03 or 10.06.

(b)In the case of the death of a Participant before distribution of his Account has been made or commenced, unless an election under Section 10.08 (c) or (d) is made, his Account shall be distributed to his Beneficiary in accordance with Section 10.08 as soon as administratively practicable following the Participant’s date of death.

10.06Required Distributions at Age 70½

(a)Notwithstanding any provision hereof to the contrary, a Participant who has terminated employment and has attained age 70½ but has not received, or commenced to receive, a distribution of his Account in accordance with Section 10.02(a)(ii), shall commence to receive a distribution of his Account in annual installments, in accordance with the provisions of subsection (b).

(b)The Account of a Participant described in subsection (a) who attains age 70½ prior to January 1, 2001 shall be distributed in 10 annual installment payments, except as provided in subsection (d).  The Account of a Participant who attains age 70½

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subsequent to December 31, 2000 shall be distributed in annual installments over the Participant’s life expectancy, determined in accordance with Section 10.13 and applicable regulations, and recalculated annually.  At the discretion of the Plan Administrator, the first such installment payment shall be made in the year in which the Participant attains age 70½, or in the first quarter of the following year, and shall be attributable to the year in which the Participant attained age 70½, provided, however, that in no event shall payments commence later than April 1 of the calendar year following the year in which the Participant attained age 70½.  The installment payments attributable to each subsequent year shall be made in such subsequent year.  The amount of each installment shall be determined in the manner specified in Section 10.02(c).

(c)A Participant who has commenced to receive a distribution of his Account pursuant to subsection (a) may nonetheless make an election described in Section 10.04(b).

(d)Effective January 1, 2002, a Participant who has commenced receipt of installment payments in accordance with the first sentence of subsection (b) shall be afforded the opportunity to elect to receive installment payments in accordance with the second sentence of subsection (b).  Such election shall be made by providing Notice to the Plan Administrator at the time and in the manner specified in rules established by the Plan Administrator in accordance with Section 14.05 and shall become effective as of the date specified by the Plan Administrator.

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10.07Effect of Reemployment

(a)A Participant who terminates employment with an Employer, but remains in employment with any other Employer or any Affiliate of any Employer, shall not be deemed to have terminated employment for purposes of Section 10.01.

(b)A Participant who has terminated employment and has not elected to receive a distribution of his Account in installments under Section 10.02(a)(ii) and is thereafter reemployed by any Employer or any Affiliate of any Employer shall thereupon cease to be eligible to elect to receive a distribution in accordance with Section 10.02 or to take a withdrawal from his Account in accordance with Section 10.04.

(c)In the event that a Participant who has terminated employment and elected to receive a distribution of his Account in installments, under Section 10.02(a)(ii), is thereafter reemployed by any Employer or any Affiliate of any Employer, payment of such installments shall thereupon cease.

(d)The provisions of this Section shall have no effect on the right of a Participant to elect to receive a withdrawal in accordance with Section 8.01, provided that he is eligible therefor.

(e)The provisions of this Section shall not be applicable to a Participant during any period in which he is a Supplemental Employee, but, effective as of January 1, 2004, not a Long-Term Supplemental Employee, of an Employer or any Affiliate of any Employer.

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10.08Distribution of Account Upon Death

(a)Except as provided in subsection (b), subsection (c), or subsection (d) in the event of the death of a Participant who has not received a complete distribution of his Account, the entire balance of his Account shall be paid in a lump sum to the Participant’s Beneficiary.

(b)In the event that the Beneficiary of a deceased Participant, with respect to any portion of the Participant’s Account is a minor child, then any distribution of such portion of the deceased Participant’s Account shall be made only to the guardian of such minor child, upon presentation of proof of guardianship satisfactory to the Plan Administrator.

(c)Effective January 1, 2008, if the Participant’s Beneficiary is his spouse, then his Beneficiary shall be permitted to elect to defer receipt of the Participant’s Account until no later than the date that the Participant would have attained age 70 ½.  If a Participant’s Beneficiary elects to defer receipt of the Participant’s Account in accordance with this subsection, then during the period in which the Account continues to be maintained, the Beneficiary shall be permitted to make investment reallocations in accordance with Section 5.04.  If a Participant’s Beneficiary elects to defer receipt of the Participant’s Account in accordance with this subsection, the Beneficiary may elect to receive a distribution of the balance of the Account in a lump sum at any time, and if the Beneficiary has not received a distribution prior to the date that the Participant would have attained age 70 ½ , then the entire balance of the Account shall be paid to the Beneficiary on such date according to Section 10.06.

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(d)Effective January 1, 2008, if the Participant’s Beneficiary is his Domestic Partner, then his Beneficiary shall be permitted to elect to defer receipt of the Participant’s Account until no later than five years from the date of the Participant’s death.  If a Participant’s Beneficiary elects to defer receipt of the Participant’s Account in accordance with this subsection, then during the period in which the Account continues to be maintained, the Beneficiary shall be permitted to make investment reallocations in accordance with Section 5.04.  If a Participant’s Beneficiary elects to defer receipt of the Participant’s Account in accordance with this subsection, the Beneficiary may elect to receive a distribution of the balance of the Account in a lump sum at any time, and if the Beneficiary has not received a distribution prior to five years from the date of the Participant’s death, then the entire balance of the Account shall be paid to the Beneficiary in a lump sum on such date, unless the Beneficiary makes an election pursuant to Section 10.06(d), in which case the Account shall be paid in accordance with Section 10.06.

10.09Designation of Beneficiary

(a)A Participant shall designate his Beneficiary by filing such Notice as may be required by the Plan Administrator, but subject to the provisions of subsection (b).  The Participant’s designation shall become effective upon receipt by the Plan Administrator prior to the death of the Participant.

(b)If a Participant is married, a designation of a person other than his spouse as his Beneficiary shall be effective if and only if his spouse has consented to such designation.  The consent of the Participant’s spouse shall be in writing, on a form provided by the Plan Administrator, shall be witnessed by a representative of the Plan or

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by a Notary Public, and shall acknowledge the effect on the spouse of the Participant’s designation.  A spousal consent form witnessed by a person acting with apparent authority as a Notary Public shall be conclusively deemed to have been witnessed by a Notary Public for all purposes under the Plan.  The requirement of spousal consent may be waived by the Plan Administrator, if it is established to the satisfaction of the Plan Administrator that there is no spouse or that the spouse cannot be located, or under such other circumstances as may permit such waiver under applicable law.

(c)A Participant may revoke his designation of a Beneficiary and make a new designation at any time.  However, if the Participant is married, any such new designation shall be subject to the provisions of subsection (b).

(d)In the event that a Participant dies without having an effective designation of his Beneficiary then in effect, or if the Participant’s Beneficiary does not survive him, then the person deemed to be the Participant’s Beneficiary shall be determined in the following order:

(i)the Participant’s spouse;

(ii)if the Participant is not survived by a spouse, the Participant’s surviving children, in equal shares;

(iii)if the Participant is not survived by a spouse or a child, then the Participant’s surviving parents, in equal shares;

(iv)if the Participant is not survived by a spouse, a child, or a parent, then the Participant’s estate.

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(e)The Plan Administrator shall provide to each Participant a written explanation of (i) the terms, conditions, and effect of a Beneficiary designation under the Plan; (ii) the Participant’s right to change such designation, and the effect thereof; (iii) the rights of the Participant’s spouse; and (iv) the Participant’s right to revoke such a designation, and the effect thereof.

(f)For purposes of subsection (b), if a Participant has married a person of the same gender as the Participant, in accordance with and as recognized under the laws of the state in which such marriage was performed, and who resides in a state which recognizes such marriage, then the person to whom such Participant is married shall be deemed his spouse.

10.10Proof of Death and Right of Beneficiary or Other Person

(a)The Plan Administrator may require and rely upon such proof of death and such evidence of the right of any Beneficiary or other person to receive the value of the Account of a deceased Participant as the Plan Administrator may deem proper and its determination of the right of that Beneficiary or other person to receive payment shall be conclusive.

(b)Notwithstanding the provisions of Section 10.11, the Plan Administrator may direct that the balance of a deceased Participant’s Account shall be invested in the Investment Fund that is designated by the Committee for purposes of Section 5.02(b), at any time during the period in which the distribution of the Participant’s Account is pending, including, without limitation, the period required to make a determination in accordance with subsection (a), or to comply with the provisions of Section 10.08(b), provided,

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however, that this subsection shall not be applicable to Accounts pursuant to which the Participant’s Beneficiary has made, or is deemed to have made, an election in accordance with Section 10.08(c) or 10.08(d).

10.11Status of Accounts Pending Distribution

Until completely distributed, the Account of a Participant who is entitled to a distribution shall continue to be invested as part of the funds of the Plan, and the Participant shall retain the right to reallocate his Account among Investment Funds and under the Mutual Fund Window Program, in accordance with Section 5.04 during any period in which a balance remains in his Account.  However, loans to Participants who are eligible to receive a distribution in accordance with Section 10.02 shall not be permitted, except to the extent required by Section 9.02(d).

10.12Procedures and Form of Payment

(a)All amounts distributed or withdrawn in accordance with this Article shall be debited from the Participant’s or Beneficiary’s Account as of the Valuation Date coincident with the payment of the amount so distributed or withdrawn, or such other date as may be determined in accordance with the procedures established by the Plan Administrator, provided, however, that no such payment shall be made as of a Valuation Date with respect to which the Plan Administrator has made a direction pursuant to Section 6.02(b).

(b)In the event that the payment of a distribution or a withdrawal to a Participant does not reduce his Account to zero, then the amount so distributed or withdrawn shall be allocated among the Investment Funds in proportion to the value of the Participant’s

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Account in each Investment Fund as of the date determined in accordance with subsection (a).

(c)All distributions and withdrawals under the Plan shall be paid to the Participant or Beneficiary in cash, except that if any portion of a Participant’s Account is allocated to the IBM Stock Fund, the Participant or Beneficiary may elect to receive shares of IBM stock having a fair market value as of the date of such distribution or withdrawal equal to the value of the units of the IBM Stock Fund allocated to such Participant’s Account, provided, however, that the value of any fractional share shall be distributed in cash.

10.13Distribution Limitation

Notwithstanding any other provision of this Article 10, all distributions from this Plan shall conform to the Regulations issued under Section 401(a)(9) of the Code, including the incidental death benefit provisions of Section 401(a)(9)(G) of the Code.  Such Regulations shall override any Plan provision that is inconsistent with Section 401(a)(9) of the Code. With respect to distributions under the Plan made for calendar year 2002, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the Regulations under Section 401(a)(9) of the Code that were proposed on January 17, 2001, notwithstanding any provisions of the Plan to the contrary.  With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2003, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the Final and Temporary Regulations under Section 401(a)(9) of the Code that were issued on April 17, 2002, by Treasury Decision 8987, notwithstanding any provisions of the Plan to the contrary.

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10.14Direct Rollover of Certain Distributions

Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.  For purposes of this Section:

(a)The term “eligible rollover distribution” means any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include:

(i)any distribution that is one of a series of substantially equal periodic payments, not less frequently than annually, made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated beneficiary, or for a specified period of ten years or more,

(ii)any distribution to the extent such distribution is required under Section 401(a)(9) of the Code,

(iii)any distribution made subsequent to December 31, 1998 on account of the Hardship of the Participant, and

(iv)the portion of any distribution that is not includible in the gross income of the distributee, determined without regard to the exclusion for net unrealized appreciation with respect to employer securities.

(b)The term “eligible retirement plan” means:

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(i)an individual retirement account described in Section 408(a) of the Code,

(ii)an individual retirement annuity described in Section 408(b) of the Code,

(iii)an annuity plan described in Section 403(a) of the Code,

(iv)a qualified trust described in Section 401(a) of the Code, that is a defined contribution plan and that accepts the distributee’s eligible rollover distribution,

(v)with respect to eligible rollover distributions made after December 31, 2001, an annuity contract described in Section 403(b) of the Code, or

(vi)with respect to eligible rollover distributions made after December 31, 2001, an eligible deferred compensation plan described in Section 457(b) of the Code, which is maintained by an eligible employer as described in Section 457(e)(1)(A) of the Code,

provided, however, in the case of an eligible rollover distribution to a distributee who is the surviving spouse of a Participant surviving spouse, prior to January 1, 2001, an eligible retirement plan is only an individual retirement account or individual retirement annuity;

(c)The term “distributee” means an employee or former employee.  In addition, the employee’s or former employee’s surviving spouse and the employee’s or former employee’s spouse or former spouse who is an alternate payee under a qualified domestic relations order as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse.

(d)The term “direct rollover” means a payment by the Plan to the eligible retirement plan specified by the distributee.

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(e)Effective January 1, 2007, in accordance with Section 402(c)(11) of the Code, a Participant’s Beneficiary who is not his surviving spouse shall be deemed a distributee, with respect to whom a distribution to which he is entitled pursuant to Section 10.08 shall be an eligible rollover distribution only if he elects to receive such distribution in the form of a direct rollover to an eligible retirement plan and with respect to whom an individual retirement account established in accordance with Section 402(c)(8)(B) of the Code shall be the only eligible retirement plan.

10.15Waiver of Notice Period

(a)Except as provided in subsection (b) or subsection (c), an election by the Participant to receive a distribution shall not be valid unless the written election is made (i) after the Participant has received the notice required under Section 1.411(a)-11(c) of the Regulations and (ii) within a reasonable time before the effective date of the commencement of the distribution, as prescribed by said Regulations.

(b)Notwithstanding the requirements of subsection (a), a distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Regulations is given, provided that: (i) the Plan Administrator clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution and, if applicable, a particular distribution option, and  (ii)the Participant, after receiving the notice under Sections 411 and 417 of the Code, affirmatively elects a distribution.

(c)For Plan Years beginning prior to January 1, 2000, if the balance of the Account of a Participant described in Section 10.02(b) has not exceeded $3,500, then subsection (a) shall not apply and Section 10.03 shall apply, provided, however, that, effective with

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respect to terminations of employment occurring after December 31, 1997, $5,000 shall be substituted for $3,500.  For Plan Years beginning after December 31, 1999, if the balance of the Account of a Participant does not exceed $5,000, then subsection (a) shall not apply and Section 10.03 shall apply.

10.16Distribution of Accounts Upon a Sale of Assets or a Sale of a Subsidiary prior to December 31, 2001

(a)Upon the disposition by an Employer of at least 85% of the assets, within the meaning of Section 409(d)(2) of the Code, used by the Employer in a trade or business, or upon the disposition by an Employer of its interest in a subsidiary, within the meaning of Section 409(d)(3) of the Code, prior to December 31, 2001, those Participants who continue in employment with the employer acquiring such assets or with the sold subsidiary shall be deemed to have terminated employment for purposes of Sections 10.01 and 10.03, provided that (i) the Employer continues to maintain the Plan after the disposition and (ii) the buyer is not an Employer or an Affiliate of any Employer, does not adopt the Plan or otherwise become a participating employer in the Plan, and does not accept any transfer of assets or liabilities from the Plan to a plan it maintains in a transaction subject to Section 414(l)(1) of the Code.

(b)A Participant who is deemed to have terminated employment pursuant to subsection (a) shall be permitted to receive a distribution pursuant to Section 10.02 only in a form that constitutes a lump sum distribution within the meaning of Section 401(k)(10)(B)(ii) of the Code.  At the end of the second calendar year following the calendar year in which the sale or disposition described in subsection (a) occurred, such Participant’s entitlement to receive a distribution in accordance with Section 10.02 shall be suspended until he terminates employment with the buyer.

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ARTICLE 11.  ADMINISTRATION OF PLAN

11.01Named Fiduciaries

(a)The following persons and groups of persons shall severally have the authority to control and manage the administration of the Plan and shall each be a named fiduciary with respect to the Plan, within the meaning of Section 402(a) and 403(a)(1) of ERISA:

(i)the Committee; and

(ii)the Plan Administrator and, if the Plan Administrator is constituted as a committee, pursuant to Section 11.04(a), each member of such committee.

(b)Each named fiduciary shall be responsible for discharging only those duties assigned to it by the Plan or by the Trust Agreement.

(c)The named fiduciaries with respect to the Plan may, in their discretion, (i) designate persons other than named fiduciaries to carry out fiduciary responsibilities under the Plan, other than trustee responsibilities, within the meaning of Section 405(c)(3) of ERISA; (ii) allocate fiduciary responsibilities, other than such trustee responsibilities, among named fiduciaries; and (iii) employ one or more persons to render advice or to provide services with respect to the Plan, provided, however, that fiduciary responsibilities may be delegated only pursuant to a written instrument adopted by the named fiduciary making the delegation and accepted in writing by the person assuming such fiduciary responsibilities.

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11.02Authority of the Board of Directors

The Board of Directors, or a committee thereof that the Board may designate from time to time, expressly reserves the following settlor (i.e., non-fiduciary) powers, functions, and authority:

(i)the power to terminate the Plan pursuant to Section 13.04; and

(ii)the power to amend the Plan in any manner pursuant to Section 13.01.

11.03Responsibilities of Committee

(a)The Committee shall be responsible for:

(i)the appointment, retention, and removal of:

(A)the Trustee that holds the assets of the Fund, and

(B)the Trustee or Investment Managers that direct or manage the investment, acquisition, and disposition of the assets of the Fund or of any Investment Fund;

(ii)the establishment and amendment of investment policies and guidelines for the Plan, provided, however, that the Committee, in its sole discretion, may delegate all or part of such responsibility to the Trustee or Investment Managers, or to employees of IBM, or to Participants;

(iii)the review of the performance of the Plan Administrator, the Trustee, the Investment Managers, and any others appointed by it at such times as the Committee determines; and

(iv)the establishment of such rules as it may deem appropriate for the conduct of its business with respect to the Plan.

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(b)The Committee may, by duly adopted resolution, delegate to the Plan Administrator, or any officer or employee of IBM, the authority to carry out any decision, resolution, directive, or delegation of the Committee.  The Committee may, by duly adopted resolution, delegate to the Treasurer of IBM the authority granted to the Committee under subsection (a)(i)(B) or Section 5.01(c).

11.04Appointment of Plan Administrator

(a)The Committee shall appoint one or more persons employed by IBM in the capacity of Assistant Controller, Vice President in Human Resources, Managing Director of U.S. Retirement Funds, or such other person or persons holding comparable positions as it deems appropriate in its discretion, to serve as the Plan Administrator, or to comprise a committee that shall serve as the Plan Administrator, the members of which committee may be authorized to act jointly or severally.

(b)The Committee shall appoint and designate other employees of IBM as may be needed to provide adequate staff support and services to the Committee and the Plan Administrator.

11.05Responsibilities of Plan Administrator and Effect of Decisions of Plan Administrator

(a)The Plan Administrator shall have the full authority and discretion to promulgate and enforce such rules and regulations as it shall deem necessary or appropriate for the administration of the Plan, which rules and regulations shall include a claims procedure in accordance with Section 503 of ERISA and regulations thereunder, provided,

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however, such claims procedure shall not be applicable to claims arising under the Disability Protection Program, which claims shall be subject only to the provisions of Section 5A.08(b).

(b)The Plan Administrator shall have the full authority and discretion to construe and interpret the Plan, and correct any defect, supply any omission, reconcile any inconsistency, or resolve any ambiguities, consistent with the intent hereof, to determine the amount, timing, and recipients of benefits payable under the Plan, and to determine the date as of which any individual became or ceased to be a Participant.

(c)The Plan Administrator shall report to the Committee on its activities at such times as the Committee determines.

(d)All determinations of the Plan Administrator as to the interpretation of the Plan or as to any disputed question shall be in accordance with the terms of the Plan and the requirements of ERISA and the Code, and shall be conclusive and binding on all persons, to the extent permitted by applicable law.

(e)The Plan Administrator, in its discretion, may delegate to others responsibility and authority for discharging any or all of the functions assigned to it by the Plan, except for the functions enumerated in Sections 13.01(c) and 14.09.

11.06Retention of Professional Advisors

(a)The Committee or the Plan Administrator may engage the services of accountants, attorneys, actuarial and employee benefit consultants, recordkeepers, and such other

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professional or administrative personnel or organizations as they deem necessary or advisable to assist them in fulfilling their responsibilities under the Plan.

(b)The expenses for professional or administrative services engaged pursuant to subsection (a) shall be paid out of the assets of the Trust, in accordance with Section 12.03, except to the extent that such expenses are paid by the Employer.

(c)The Committee, the Plan Administrator, all other fiduciaries with respect to the Plan, and their delegates and assistants shall be entitled to act on the basis of any tables, valuations, certificates, opinions, or reports furnished by the professional or administrative personnel engaged in accordance with subsection (a).

11.07[Reserved]

11.08Service in More Than One Fiduciary Capacity

Any individual, entity or group of persons may serve in more than one fiduciary capacity with respect to the Plan and/or the funds of the Plan.

11.09Compensation and Bonding

The members of the Committee and the Plan Administrator shall not receive any compensation from the Plan for their services as such.  Except as may otherwise be required by law, no bond or other security shall be required of any person serving in any capacity with respect to the Plan in any jurisdiction.

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11.10Limitation of Liability

To the maximum extent permitted by IBM’s by-laws, as amended from time to time, IBM shall indemnify each member of the Committee, the Plan Administrator, and each director, officer, and employee or agent of the Employer against any expenses and liabilities that such person may incur as a result of any act or failure to act, in good faith, by such person in relation to the Plan or the funds of the Plan.

11.11Individual Accounts

The Plan Administrator shall maintain, or cause to be maintained, records showing the individual balances in each Participant’s Account.  However, maintenance of such records and Accounts shall not require any segregation of the funds of the Plan.

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ARTICLE 12.  MANAGEMENT OF FUNDS

12.01Trust Agreement

All the funds of the Plan shall be held by Trustee appointed from time to time by the Committee under a trust agreement adopted, or as amended, by the Committee for use in providing the benefits of the Plan and paying Plan expenses as described in Section 12.03.  The Employer shall have no liability for the payment of benefits under the Plan nor for the administration of the funds paid over to the Trustee.

12.02Exclusive Benefit Rule

Except as otherwise provided in the Plan, no part of the corpus or income of the funds of the Plan shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants and other persons entitled to benefits under the Plan and paying the expenses of the Plan not paid directly by the Employer.  No person shall have any interest in, or right to, any part of the earnings of the funds of the Plan, or any right in, or to, any part of the assets held under the Plan, except as and to the extent expressly provided in the Plan.

12.03Expenses

The reasonable expenses incurred in the administration of the Plan, including fees for professional services and the costs of such other technical or clerical assistance as may be required, shall be paid out of the Trust Fund except to the extent that the Employer pays such expenses.  If such expenses are paid by the Employer, the Employer shall be entitled to reimbursement from the Trust Fund if the Employer so requests.  Reimbursement from the Trust  Fund shall be available even where, at the time of the

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Employer’s initial payment of the expense it is not clear that the Employer may lawfully seek reimbursement from the Trust Fund, but the Employer’s legal right to reimbursement from the Trust Fund is later clarified.  The Employer may choose to pay expenses initially and to obtain reimbursement from the Trust Fund many years after the Employer pays the expenses. Such delayed reimbursements are permissible.

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ARTICLE 13.  AMENDMENT, MERGER, TRANSFERS, AND TERMINATION

13.01Amendment of Plan

(a)The Board of Directors reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend in whole or in part any or all of the provisions of the Plan.

(b)The Committee shall have the authority to amend in whole or in part any or all provisions of the Plan at any time and from time to time, and retroactively if deemed necessary or appropriate, provided, that the Board of Directors may, in its discretion, limit the authority of the Committee and in no event may the Committee:

(i)approve any Plan amendment or take any other settlor action that disproportionately benefits IBM corporate officers (such as by approving that a new award or other form of compensation be included in Compensation only for IBM corporate officers);

(ii)approve any Plan amendment, or any series of amendments adopted within any 12 month period, that affects projected cash flow by more than $100,000,000 in a single year;

(iii)take any settlor actions materially inconsistent with prior actions of the Board of Directors or any committee thereof; or

(iv)revise the procedures for amending the Plan.

(c)The Plan Administrator shall have the authority to adopt amendments to the Plan that:

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(i)may be required to maintain the qualified status of the Plan under Section 401(a) of the Code and the tax-exempt status of the Trust under Section 501(a) of the Code, or

(ii)relate to the compliance of the Plan with the requirements of the Code and constitute an election permitted by any section of the Code, or Regulations or rulings thereunder, or

(iii)have the effect of modifying the optional forms of distribution provided under any special rules adopted pursuant to Section 13.02(d),

and shall have such additional authority to amend the Plan as may be delegated to it by the Committee.  Any such amendment shall be effective as specified by the Plan Administrator and may be given retroactive effect to the extent required or permitted by Section 401(b) of the Code and Regulations and rulings thereunder, provided, however, that any amendment described in paragraph (iii) shall not be effective with respect to a Participant who receives or commences to receive a distribution from the Plan within 90 days after the date on which he is notified of the adoption of such amendment and provided further, that the Plan Administrator may not adopt an amendment to the Plan that, pursuant to subsection (b), could not be adopted by the Committee.

(d)No amendment shall make it possible for any part of the funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of persons entitled to benefits under the Plan or the payment of reasonable Plan administration expenses.

(e)No amendment shall be made which has the effect of decreasing the balance of the Account of any Participant or of reducing the nonforfeitable percentage of the balance of the Account of a Participant below the nonforfeitable percentage computed under the

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Plan as in effect on the date on which the amendment is adopted, or if later, the date on which the amendment becomes effective.

13.02Merger, Consolidation or Transfer of Assets and Liabilities

(a)The Plan may not be merged or consolidated with, and its assets or liabilities may not be transferred to, any other plan unless each person entitled to benefits under the Plan would, if the resulting plan were then terminated, receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated.

(b)Subject to the provisions of subsection (a), the Committee shall have the authority (i) to direct the merger of the Plan into or with any other plan that is qualified under Section 401(a) of the Code, (ii) to cause the Plan to be divided into 2 or more separate plans, each of which shall be qualified under Section 401(a) of the Code, (iii) to instruct the Trustee to transfer any portion of the assets and liabilities of the Plan from the Trust to any other plan that is qualified under Section 401(a) of the Code, or (iv) to instruct the Trustee to accept a transfer to the Trust of any portion of the assets and liabilities of any other plan that is qualified under Section 401(a) of the Code.

(c)Subject to the provisions of subsection (a), the Plan Administrator shall have the authority (i) to instruct the Trustee to accept a transfer to the Trust, by another plan that is qualified under Section 401(a) of the Code, of all or any portion of the assets and liabilities of such other plan that are allocated thereunder to the accounts of individuals that have or will become Employees and have or will become eligible to be Participants

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in the Plan or (ii) to instruct the Trustee to transfer from the Trust to another Plan that is qualified under Section 401(a) of the Code all or any portion of the assets and liabilities of the Trust that are allocated hereunder to the Accounts of Participants who have terminated or will terminate from employment with an Employer as the result of a transaction undertaken by such Employer.  In exercising its authority under clause (ii) of the foregoing sentence, the Plan Administrator may, in its discretion, but shall not be required to, permit each Participant affected by such termination to elect whether or not the assets and liabilities allocated to his Account hereunder shall be included in such transfer and may establish conditions for the inclusion in such transfer of the assets and liabilities allocated to any Account hereunder.

(d)In each transaction in which another plan is merged into and with the Plan in accordance with subsection (b)(i) and in each case in which the Plan receives a transfer of assets and liabilities in accordance with subsection (b)(iv) or (c)(i), the Plan Administrator shall establish rules for the treatment of the Accounts established or increased as a result thereof, which rules may include the establishment of additional sub-accounts.  Such rules, which are hereby incorporated by reference, shall comply with the requirement of Section 411(d)(6) of the Code and Regulations thereunder.

(e)Rescission of Special Rules adopted prior to September 30, 2002.

(i)Notwithstanding any rule adopted pursuant to Section 13.02(d) prior to September 30, 2002, distributions to a Participant who has terminated employment shall be not be made in any form other than the forms described in Sections 10.02, 10.03, or 10.04, except that distributions to a Participant who has attained age 70½ shall be made in accordance with Section 10.06.  A

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Participant’s election of any form of distribution described in Sections 10.02, 10.04, or 10.06 shall not be subject to the consent of his or her spouse.

(ii)Notwithstanding any rule adopted pursuant to Section 13.02(d) prior to September 30, 2002, distributions to a Participant’s Beneficiary upon the death of a Participant shall be made only in the form described in Section 10.08.

(iii)Notwithstanding any rule adopted pursuant to Section 13.02(d) prior to September 30, 2002, in no event shall a Participant’s application for a loan in accordance with Section 9.01(a) and 9.02(a) be subject to the consent of his or her spouse.

(iv)Notwithstanding any special rule adopted pursuant to Section 13.02(d) prior to September 30, 2002, in no event shall a Participant’s application pursuant to Section 8.03 for a withdrawal in accordance with Section 8.01 or 8.02 be subject to the consent of his or her spouse.

(v)This subsection shall be effective as of September 30, 2002, provided, however, that the provisions of this subsection shall not be effective with respect to distributions to a Participant or Beneficiary occurring before the earlier of (i) 90 days after a Summary of Material Modifications describing the provisions of this subsection has been furnished to Participants in accordance with Sec. 2520-104b-3(a) of the regulations of the Department of Labor, or (ii) the date that the Proposed Regulation amending Section 1.411(d)-4, Q&A 2(e) of the Regulations, published on July 8, 2003, becomes final.

(f)(i)In advance of, and in preparation for the implementation of, any transaction pursuant to subsection (b) or subsection (c) in which assets and liabilities of the Plan shall be transferred to any other plan that is qualified under Section 401(a) 

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of the Code, the Plan Administrator may direct that the portion of any Investment Fund that is attributable to the Accounts that will be included in such transfer shall be segregated in a sub-fund that shall be accounted for separately from and after the date of such segregation.

(ii)The amount allocated to a sub-fund established pursuant to paragraph (i) shall be determined on the basis of the market value of the assets of the Investment Fund as of the date of such segregation, provided, however, that if the Investment Fund is a Stable Value Fund, then the rights under the guaranteed investment contracts and benefit-responsive contracts held in such Stable Value Fund shall be allocated to the sub-fund on the basis of the contract value of such Stable Value Fund prior to such segregation.

(iii)Any election pursuant to Section 5.02 or 5.04 to invest any portion of his contributions in, or to reallocate any portion of his Account to, an Investment Fund in which a sub-fund has been segregated pursuant to paragraph (i), by a Participant whose Account has been allocated to the sub-fund, shall be deemed to be an election to invest contributions in, or to reallocate his Account to, such sub-fund.

(iv)No Participant whose Account will not be included in the transfer in preparation for which a sub-fund has been segregated pursuant to paragraph (i) shall be permitted to invest any portion of his Account in such sub-fund.

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13.03Termination by Participating Employers

Any Domestic Subsidiary may terminate its participation in the Plan upon appropriate action by it, including such notice to the Committee as the Committee shall require. In that event, the funds of the Plan held on account of Participants in the employ of that Domestic Subsidiary, and any unpaid balances of the Accounts of all Participants who have separated from the employ of that Domestic Subsidiary and who are not then employed by an Employer other than that Domestic Subsidiary, shall be determined by the recordkeeper appointed by the Plan Administrator.  The Plan Administrator shall direct the Trustee to segregate the amount so determined as a separate trust and such segregation shall be deemed a division of the Plan into 2 plans, in accordance with Section 13.02(b)(ii).  With respect to the separate trust and plan so established, the board of directors of the Domestic Subsidiary that has terminated its participation in the Plan shall succeed to the powers and duties of the Board of Directors and the Committee, including without limitation, the appointment of the Plan Administrator and the authority to terminate such separate plan in accordance with Section 13.04.

13.04Termination of Plan

(a)The Board of Directors may terminate the Plan at any time.  Subject to Section 11.02, the Committee may completely discontinue contributions under the Plan for any reason at any time.  In case of termination or partial termination of the Plan, or complete discontinuance of Employer contributions to the Plan, the rights of affected Participants to their Accounts under the Plan as of the date of the termination or discontinuance shall be nonforfeitable.  The total amount in each Participant’s Accounts shall be distributed to him or for his benefit, as the Plan Administrator shall direct, subject to the provisions of subsection (b), or continued in trust for his benefit.

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(b)Upon termination of the Plan, Deferred Cash Contributions and Employer Matching Contributions, with earnings thereon, shall be distributed to Participants only if (i) neither the Employer nor any Affiliate establishes or maintains a successor defined contribution plan, and (ii) payment is made to the Participants in the form of a lump sum distribution, as defined in Section 401(k)(10)(B)(ii) of the Code.  For purposes of this paragraph, a “successor defined contribution plan” is a defined contribution plan within the meaning of Section 414(i) of the Code, other than an employee stock ownership plan as defined in Sections 4975(e)(7) or 409(a) of the Code (“ESOP”) or a simplified employee pension as defined in Section 408(k) of the Code (“SEP”), which exists at the time the Plan is terminated or within the 12 month period beginning on the date all assets are distributed.  However, in no event shall a defined contribution plan be deemed a successor plan if fewer than 2% of the employees who are eligible to participate in the Plan at the time of its termination are or were eligible to participate under such other defined contribution plan of the Employer or an Affiliate, other than an ESOP or a SEP, at any time during the period beginning 12 months before and ending 12 months after the date of the Plan’s termination.

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ARTICLE 14.  GENERAL PROVISIONS

14.01Nonalienation and Payment Pursuant to Qualified Domestic Relations Orders

(a)Except as required by any applicable law, no benefit under the Plan shall in any manner be anticipated, assigned or alienated, and any attempt to do so shall be void.

(b)Notwithstanding subsection (a), payment shall be made in accordance with the provisions of any judgment, decree, or order which:

(i)creates for, or assigns to, a spouse, former spouse, child or other dependent of a Participant the right to receive all or a portion of the Participant’s benefits under the Plan for the purpose of providing child support, alimony payments or marital property rights to that spouse, child or dependent,

(ii)is made pursuant to a State domestic relations law,

(iii)does not require the Plan to provide any type of benefit, or any option, not otherwise provided under the Plan, and

(iv)otherwise meets the requirements of Section 206(d) of ERISA, as amended, as a Qualified Domestic Relations Order, as determined by the Plan Administrator in accordance with its established procedures.

(c)Notwithstanding anything herein to the contrary, if the amount payable to the alternate payee under a Qualified Domestic Relations Order is less than $3,500, such amount shall be paid in one lump sum as soon as practicable following the qualification of the order.  If such amount exceeds $3,500, it shall be paid in one lump sum as soon as

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practicable following the qualification of the order, unless the Qualified Domestic Relations Order provides that such payment may not be made without the consent of the alternate payee.  If a Qualified Domestic Relations Order requires the consent of the alternate payee prior to the payment of the amount awarded thereunder and if such amount exceeds $3,500, then such amount shall be paid in one lump sum as soon as practicable following receipt of the consent of the alternate payee, but in no event later than the date on which the Participant named in such order attains Normal Retirement Age.  Effective January 1, 1998, $5,000 shall be substituted for $3,500 for purposes of this subsection.

(d)For the sole purpose of applying the provisions of Sections 5.04 and 10.11 with respect to the portion of an Account that has been made payable to an alternate payee pursuant to a Qualified Domestic Relations Order, such alternate payee shall be deemed to be a Participant.

(e)The Plan Administrator shall establish rules for determining whether an order, judgment or decree meets the requirements of a Qualified Domestic Relations Order set forth in subsection (b) and procedures for implementing such order, judgment or decree in the event that it is determined to be a Qualified Domestic Relations Order.  The Plan Administrator may impose a charge to defray the cost of such determination and implementation, which charge shall be deducted from the Participant’s Account.

14.02Facility of Payment

(a)In the event that the Plan Administrator determines that any Participant or Beneficiary receiving or entitled to receive benefits under the Plan is incompetent or unable to care

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for his affairs, and in the absence of the appointment of a legal guardian of the property of the incompetent, payments due under the Plan, unless prior claim thereto has been made by a duly qualified guardian, committee, or other legal representative, may be made to the spouse, parent, sibling, adult child, or other person, including a hospital or other institution, deemed by the Plan Administrator to have incurred or to be liable for expenses on behalf of such incompetent.

(b)In the absence of the appointment of a legal guardian of the property of a minor, any payment due under the Plan may be paid to such adult or adults as in the opinion of the Plan Administrator have assumed the custody and principal support of such minor.

(c)Notwithstanding the provisions of subsection (a) or (b), the Plan Administrator, in its sole discretion, may require that a legal guardian for the property of an incompetent or a minor be appointed, before authorizing any payment hereunder to or for the benefit of such minor or incompetent.

(d)Payments made pursuant to this Section shall be a complete discharge of any obligation arising under the Plan with respect to such payments.

14.03Tax Withholding

The Trustee, the Plan Administrator, and the Employer shall withhold applicable taxes from payments made under the Plan, shall pay over the amounts so withheld to the Internal Revenue Service, or state or local tax authority, in accordance with applicable law, and shall report information to government agencies when required to do so by law.

14.04Prevention of Escheat

If the Plan Administrator cannot ascertain the whereabouts of any person to whom a payment is due under the Plan, the Plan Administrator may, prior to January 1, 2004, no

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earlier than 3 years and, after December 31, 2003, no earlier than 1 year, from the date such payment is due, mail a notice of such due and owing payment to the last known address of such person, as shown on the records of the Plan Administrator or the Employer.  If such person has not made written claim therefor within 3 months of the date of the mailing, the Plan Administrator may, if it so elects and upon receiving advice from counsel to the Plan, direct that such payment and all remaining payments otherwise due such person be canceled on the records of the Plan and the amount thereof applied to reduce the contributions of the Employer.  Upon such cancellation, the Plan and the Trust shall have no further liability therefor except that, in the event such person or his beneficiary later notifies the Plan Administrator of his whereabouts and requests the payment or payments due to  him under the Plan, the amount so applied shall be paid to him, without interest, in accordance with the provisions of the Plan.

14.05Elections and Notifications

(a)Any elections, notifications or designations made by an Employee, Participant, Beneficiary, or spouse  pursuant to the provisions of the Plan shall be made and filed with the Plan Administrator in a time and manner determined by the Plan Administrator under rules uniformly applicable to all persons similarly situated.  In establishing such rules, the Plan Administrator shall have the authority in its discretion to provide that telephonic or electronic communication may be accepted in lieu of a written instrument, except to the extent otherwise required by law.

(b)The Plan Administrator reserves the right to change from time to time the time and manner for making notifications, elections or designations under the Plan, if it determines that such action improves the administration of the Plan.  In the event of a conflict between the provisions for making an election, notification or designation set

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forth in the Plan and such new administrative procedures, those new administrative procedures shall prevail.

(c)The Plan Administrator shall have the authority to suspend the rights of Participants to make elections under the Plan if the Plan Administrator, in its discretion, deems such suspension to be necessary to preserve the interests of the Plan and its Participants.

(d)Any Notice that is not received by the Plan Administrator or its delegate shall be without force or effect and shall not be binding on the Plan, regardless of the circumstances or cause of such nondelivery.  In no event shall the Plan, any Employer, the Committee, or the Plan Administrator by liable to any Employee, Participant, spouse of a Participant, Beneficiary, or any other person for the consequences of the nondelivery of any Notice required to be provided hereunder.

14.06Information

Each Participant, Beneficiary or other person entitled to a benefit, before any benefit shall be payable to him or on his account under the Plan, shall file with the Plan Administrator the information that it shall require to establish his rights and benefits under the Plan.

14.07Conditions of Employment Not Affected by Plan

The establishment of the Plan shall not confer any legal rights upon any Employee or other person for a continuation of employment, nor shall it interfere with the rights of the Employer to discharge any Employee and to treat him without regard to the effect which that treatment might have upon him as a Participant or potential Participant of the Plan.

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14.08Construction

(a)The Plan shall be construed, regulated and administered under ERISA and the laws of the State of New York, except where ERISA controls.

(b)For purposes of ERISA and other applicable laws of the United States or any state, the situs of the Plan and the Trust Fund shall be the State of New York.

(c)The masculine pronoun shall include the feminine wherever appropriate.

(d)The titles and headings of the Articles and Sections in this Plan are for convenience of reference only.  In the case of ambiguity or inconsistency, the text rather than the titles or headings shall control.

14.09Limitation of Time for Filing Claims in Court

Effective October 25, 2005, neither

(a)a claim or action to recover benefits allegedly due under the provisions of the Plan or by reason of any law, nor

(b)a claim or action to enforce rights under the Plan, nor

(c)a claim or action to clarify rights to future benefits under the Plan, nor

(d)any other claim or action that (I) relates to the Plan and (II) seeks a remedy, ruling, or judgment of any kind against the Plan, the Plan Administrator, a Plan fiduciary (within the meaning of Section 3(21) of ERISA), or a party in interest (within the meaning of Section 3(14) of ERISA) with respect to the Plan may be filed in any court—

(i)Until the claimant has exhausted the administrative review procedure set forth in Section 11.05(a) or Section 5A.08; and

(ii)Unless such claim or action is filed in a court with jurisdiction over such claim or action no later than two years after:

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(A)in the case of a claim or action to recover benefits, the date the first benefit payment was actually made or was allegedly due, whichever is earlier;

(B)in the case of a claim or action to enforce a right, the date the Plan Administrator or its delegate first denied the claimant’s request to exercise such right, regardless of whether such denial occurred during administrative review pursuant to Section 11.05(a) or 5A.08;

(C)in the case of a claim or action to clarify rights to future benefits, the date the Plan Administrator first repudiated its alleged obligation to provide such future benefits, regardless of whether such repudiation occurred during administrative review pursuant to Section 11.05(a) or 5A.08; or

(D)in the case of any other claim or action described in clause (d), above, the earliest date on which the claimant knew or should have known of the material facts on which such claim or action is based;

provided that if a request for administrative review pursuant to Section 11.05(a) or 5A.08 is pending before the claims administrator designated by the Plan Administrator to review such claims when the two-year period described in this paragraph (ii) expires, the deadline for filing such claim or action in a court with proper jurisdiction shall be extended to the date that is 60 calendar days after the final denial of the claim on administrative review.

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The period described by paragraph (ii), above, is hereafter referred to as the “Applicable Limitations Period.”  The Applicable Limitations Period replaces and supersedes any limitations period that might otherwise be deemed applicable under state or federal law in the absence of this Section 14.09.  Except as provided in the following two sentences, a claim or action filed after the expiration of the Applicable Limitations Period shall be deemed time-barred.  The Plan Administrator shall have discretion to extend the Applicable Limitations Period upon a showing of exceptional circumstances that, in the opinion of the Plan Administrator, provide good cause for an extension.  The exercise of this discretion is committed solely to the Plan Administrator, and is not subject to review.  Notwithstanding the foregoing, neither paragraph (ii), above, nor the Applicable Limitations Period shall apply to an action governed by Section 413 of ERISA.

14.10Class Action Forum

(a)To the fullest extent permitted by law, any putative class action lawsuit brought in whole or in part under Section 502 of ERISA (or any successor provision) and relating to the Plan, the lawfulness of any Plan provision, the administration of the Plan, the management, investment, or handling of Plan assets, or the performance or non-performance of Plan fiduciaries or administrators shall be filed in one of the following jurisdictions: (i) the jurisdiction in which the Plan is principally administered, which is currently New York State, or (ii) the jurisdiction in which the largest number of putative class members resides (or if that jurisdiction cannot be determined, the jurisdiction in which the largest number of class members is reasonably believed to reside).

(b)If any putative class action within the scope of subsection (a) above is filed in a jurisdiction other than one of those described in subsection (a), or if any non-class

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action filed in such a jurisdiction is subsequently amended or altered to include class action allegations, then the Plan, all parties to such action that are related to the Plan (such as a Plan fiduciary, administrator, or party in interest), and all alleged Plan participants and beneficiaries shall take all necessary steps to have the action removed to, transferred to, or re-filed in a jurisdiction described in subsection (a). Such steps may include, but are not limited to, (i) a joint motion to transfer the action, or (ii) a joint motion to dismiss the action without prejudice to its re-filing in a jurisdiction described in subsection (a), with any applicable time limits or statutes of limitations applied as if the suit or class action allegation had originally been filed or asserted in a jurisdiction described in subsection (a) at the same time that it was filed or asserted in a jurisdiction not described therein.

(c)This forum selection provision is waived if no party invokes it within 120 days of the filing of a putative class action or the assertion of class action allegations.

(d)This provision does not relieve any putative class member from any obligation existing under the Plan or by law to exhaust administrative remedies before initiating litigation.

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APPENDIX A.  SPECIAL PROVISIONS FOR MiCRUS

MiCRUS has been a participating Employer in the Plan.  All provisions of the Plan, as set forth in Articles 1 through 14, inclusive, and in Appendix D, apply fully to MiCRUS and employees of MiCRUS, except to the extent that such provisions are modified in this Appendix.  This Appendix shall be applicable only during the period in which MiCRUS is a participating Employer in the Plan and shall cease to be effective as of October 1, 2000.

1.04Actual Deferral Percentage

For the purpose of determining the Actual Deferral Percentage of any group of Employees employed by MiCRUS, any Special Discretionary Contribution made pursuant to Section 4.13 of Appendix A shall be taken into account in the same manner as a Deferred Cash Contribution.

1.32‘Hour of Service’ means, with respect to any applicable computation period,

(a)each hour for which the employee is paid or entitled to payment for the performance of duties for the Employer or an Affiliated Employer;

(b)each hour for which the employee is paid or entitled to payment by the Employer or an Affiliated Employer on account of a period during which no duties are performed, whether or not the employment relationship has terminated, due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, uniformed service duty, or leave of absence, but not more than 501 hours for any single continuous period; and

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	(c)	each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or an Affiliated Employer, excluding any hour credited under (a) or (b), which shall be credited to the computation period or periods to which the award, agreement, or payment pertains rather than to the computation period in which the award, agreement, or payment is made.
	No hours shall be credited on account of any period during which the employee performs no duties and receives payment solely for the purpose of complying with unemployment compensation, workers’ compensation, or disability insurance laws. The Hours of Service credited shall be determined as required by Title 29 of the Code of Federal Regulations, Sections 2530.200b-2(b) and (c).
1.50X	“Special Discretionary Contributions” means amounts contributed pursuant to Section 4.13 of Appendix A. For purposes of Section 1.401(k)-1(b)(5) of the Regulations, Special Discretionary Contributions made under the Plan shall be deemed “Qualified Nonelective Contributions.”
3.01	Each Employee of MiCRUS shall be eligible to become a Participant at any time during service as a full time Regular Employee.
3.02	Participation
(c)	An Employee of MiCRUS who has not satisfied the requirements of subsection (a) but who is eligible to receive an allocation of a Special Discretionary Contribution in accordance with Section 4.13 of Appendix A shall become a Participant in the Plan on the date that such allocation is made.

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(d)	Notwithstanding any provision hereof, no Employee of MiCRUS shall be eligible to make an election described in Section 4.01 for any period during which he is not a full time Regular Employee.
4.13	Special Discretionary Contribution
(a)	MiCRUS, in its sole discretion, may make a Special Discretionary Contribution to the Plan, out of its Profits, not more than once per Plan Year.
(b)	If a Special Discretionary Contribution is made for a Plan Year, it shall be paid to the Trustee not later than the time prescribed by law for the filing of the Employer’s Federal income tax return, including extensions thereof, for the taxable year of the Employer that contains the last day of the Plan Year to which the contribution relates.
(c)	If a Special Discretionary Contribution is made for a Plan Year, it shall be allocated to the Employer Account of each Eligible Employee in the proportion that his Compensation for the Plan Year bears to the Compensation of all Eligible Employees for such Plan Year.
(d)	For purposes of subsection (c), an Employee of MiCRUS shall be deemed an Eligible Employee if, and only if, (i) he satisfies the requirements of Section 3.01 of Appendix A, (ii) the date on which he first completed an Hour of Service was no later than the first day of the Plan Year to which the Special Discretionary Contribution relates, (iii) he is an Employee in active employment, or is on an authorized leave of absence, on the last day of the Plan Year to which the Special Discretionary Contributions relates, and (iv) he is not eligible to participate in the MiCRUS Retirement Plan.

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APPENDIX B.  SPECIAL PROVISIONS FOR
TECHNOLOGY SERVICE SOLUTIONS (“TSS”)

Technology Service Solutions (“TSS”) has been a participating employer in the Plan.  All provisions of the Plan, as set forth in Articles 1 through 14, inclusive, and Appendix D apply fully to TSS and employees of TSS, except to the extent that such provisions are modified in this Appendix.  This Appendix shall be applicable only during the period in which TSS is a participating Employer in the Plan shall cease to be effective as of January 1, 1999.

4.02

Employer Matching Contributions

(a)

TSS shall contribute, out of its Profits, on behalf of each of its Participants who elects to make Deferred Cash Contributions, an amount equal to 100% of the Deferred Cash Contributions made by the Participant during each payroll period; provided, however, that for this purpose, Deferred Cash Contributions in excess of 7% of the Participant’s Compensation for a payroll period shall not be taken into account. In no event shall the Matching Contributions pursuant to this Section with respect to a Plan Year exceed 7% of the Participant’s Compensation while a Participant during such Plan Year.

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APPENDIX C.  SPECIAL RULES APPLICABLE
TO PUERTO RICO EMPLOYEES

The Plan includes as participating Employers entities that conduct business operations in Puerto Rico and covers Employees who perform services only in Puerto Rico.  All provisions of the Plan, as set forth in Articles 1 through 14, inclusive, apply fully to Employers conducting business in Puerto Rico and employees performing services in Puerto Rico, except to the extent that such provisions are modified in this Appendix.

1.04	Actual Deferral Percentage
	For the purpose of determining the Actual Deferral Percentage of a group of Puerto Rico Employees, and at the election of the Plan Administrator, which election may be made or changed each Plan Year, all or any portion of Matching Contributions made pursuant to Section 3.02 with respect to such Plan Year may be taken into account, in accordance with Section 1165(e)(3)(D)(ii)(I) of the Puerto Rico Code.
1.31	“Highly Compensated Employee” means, for purposes of all determinations required to be made in accordance with the Puerto Rico Code, an employee of an Employer who is a Participant or who is eligible to become a Participant and whose compensation for a Plan Year exceeds the compensation of two-thirds of the employees of the Employer who are Participants or eligible to become Participants.

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1.45W	“Puerto Rico Code” means the Puerto Rico Internal Revenue Code of 1994, as amended from time to time. References to specific sections of the Puerto Rico Code shall be deemed to refer to such sections as they may be amended or redesignated.
1.45X	“Puerto Rico Employee” means an Employee of an Employer in Puerto Rico who is subject to income taxation under the laws of Puerto Rico.
1.45Y	“Puerto Rico Participant” means a Puerto Rico Employee who has become Participant in accordance with Section 3.02 and who has not ceased to be a Participant in accordance with Section 3.05.
4.01	Deferred Cash Contributions
(a)	(i)	Notwithstanding the provisions of this subsection, the Compensation reduction elected by a Puerto Rico Participant
	may not exceed 10% of his Compensation.
	(x)	This paragraph shall not apply to Puerto Rico Participants
(f)	Notwithstanding any other provision of this Section, in no event shall the Deferred Cash Contributions of a Puerto Rico Participant in any calendar year exceed the lesser of (i) 10% of his Compensation or (ii) the excess, if any, of $7,500 over the amount contributed by the Puerto Rico Participant pursuant to Section 1169 of the Puerto Rico Code, determined without regard to contributions attributable to his spouse, if he resides with his spouse. Effective January 1, 1998, $8,000 shall be substituted for $7,500 in the foregoing sentence.
(g)	This subsection shall not apply to Puerto Rico Participants.

174

(h)	This subsection shall not apply to Puerto Rico Participants.
4.03	Rollover Contributions, Roth Rollover Contributions, and After-Tax Rollover Contributions
(f)	This subsection shall not apply to Puerto Rico Participants.
(g)	This subsection shall not apply to Puerto Rico Participants.
4.06	Actual Deferral Percentage Test
(d)	For each Plan Year, the Actual Deferral Percentage for Highly Compensated Employees who are Puerto Rico Participants shall be subject to the limitation described in subsection (a), provided, however, that for purposes of this subsection, the Employer shall be deemed to have made the election described in subsection (b). If the Plan Administrator determines that the limitation under this subsection has been exceeded, then the Plan Administrator shall apply the procedures described in subsection (c), provided, however, that clause (ii) of subsection (c) shall not be applicable and all Excess Contributions shall be distributed to the Highly Compensated Employee with respect to whom such Excess Contributions were determined in accordance with clause (i) of subsection (c).
4.07	Actual Contribution Percentage Test
	This Section shall not apply to Highly Compensated Employees who are Puerto Rico Participants.

175

4.08	Aggregate Contribution Limitation
	This Section shall not be applicable to Highly Compensated Employees who are Puerto Rico Participants.
4.09	Additional Discrimination Testing Provisions
(d)	The provisions of subsections (a), (b), and (c) shall not be applied to test any Contributions made on behalf of Highly Compensated Employees who are Puerto Rico Participants. In the event that any Highly Compensated Employee who is a Puerto Rico Participant participates in more than one plan of an Employer that includes a cash or deferred contribution arrangement under Section 1165(e) of the Puerto Rico Code, or if the plan and any other plan containing a cash or deferred contribution arrangement under Section 1165(e) of the Puerto Rico Code are treated as one plan for purposes of Section 1165(a)(3) or (a)(4) of the Puerto Rico Code, all such cash or deferred contribution arrangements shall be treated as a single arrangement for purposes of Section 4.06(d) of Appendix C.
4.12	Return of Contributions
(d)	If all or part of an Employer’s deductions for contributions on behalf of Puerto Rico Participants are disallowed by the Secretary of the Treasury of Puerto Rico or his delegate, the portion of contributions to which that disallowance applies shall be returned to the Employer, upon its written request to the Trustee, without interest, but reduced by any investment losses attributable to those contributions, provided one year of the disallowance of the deduction. For this purpose, all contributions made by each Employer on behalf of Puerto Rico Participants are expressly declared to be conditioned on their deductibility under Section 1023(n) of the Puerto Rico Code. In the event that

176

Deferred Cash Contributions are returned to an Employer in accordance with this subsection, then the provisions of subsection (c) shall apply to the amount so returned.

177

APPENDIX D.  TOP-HEAVY PROVISIONS

A.	The following definitions apply to the terms used in this Appendix:
	(i)	“applicable determination date” means, for any Plan Year, the last day of the preceding Plan Year;
	(ii)	“top-heavy ratio” means the ratio of (A) the value of the aggregate of the Accounts under the Plan for key employees to (B) the value of the aggregate of the Accounts under the Plan for all key employees and non-key employees;
	(iii)	“key employee” means an employee who is in a category of employees determined in accordance with the provisions of Sections 416(i)(1) and (5) of the Code and any Regulations thereunder and, where applicable, on the basis of the Employee’s Statutory Compensation from the Employer or an Affiliate;
	(iv)	“non-key employee” means any Employee who is not a key employee;
	(v)	“applicable Valuation Date” means the Valuation Date coincident with or immediately preceding the last day of the preceding Plan Year;
	(vi)	“required aggregation group” means any other qualified plan(s) of the Employer or an Affiliate in which there are members who are key employees or which enable(s) the Plan to meet the requirements of Section 401(a)(4) or 410(b) of the Code; and
	(vii)	“permissive aggregation group” means each plan in the required aggregation group and any other qualified plan(s) of the Employer or an Affiliate in which all members are non-key employees, if the resulting aggregation group continues to meet the requirements of Sections 401(a)(4) and 410(b) of the Code.

178

B.

For purposes of this Appendix, the Plan shall be “top-heavy” with respect to any Plan Year if as of the applicable determination date the top-heavy ratio exceeds 60%. The top-heavy ratio shall be determined as of the applicable Valuation Date in accordance with Sections 416(g)(3) and (4) of the Code and Article 6 of this Plan, and shall take into account any contributions made after the applicable Valuation Date but before the last day of the Plan Year in which the applicable Valuation Date occurs. For purposes of determining whether the Plan is top-heavy, the account balances under the Plan will be combined with the account balances or the present value of accrued benefits under each other plan in the required aggregation group, and in the Employer’s discretion, may be combined with the account balances or the present value of accrued benefits under any other qualified plan in the permissive aggregation group. Distributions made with respect to a Participant under the Plan during the 5-year period ending on the applicable determination date shall be taken into account for purposes of determining the top-heavy ratio; distributions under plans that terminated within such 5-year period shall also be taken into account, if any such plan contained key employees and therefore would have been part of the required aggregation group.

C.

The following provision shall be applicable to Participants for any Plan Year with respect to which the Plan is top-heavy. An additional Employer contribution shall be allocated on behalf of each Participant and each Employee eligible to become a Participant who is a non-key employee, and who has not separated from service as of the last day of the Plan Year, to the extent that the contributions made on his behalf under Sections 4.02 for the Plan Year, and not necessary to be taken into account to meet the contribution percentage test set forth in Section 4.07, would otherwise be less than 3% of his remuneration. However, if the greatest percentage of remuneration contributed on behalf of a key employee under Sections 4.01 and 4.02 for the Plan Year, disregarding

179

	any contributions made under Section 4.11 for the Plan Year, would be less than 3%, that lesser percentage shall be substituted for “3%” in the preceding sentence. Notwithstanding the foregoing provisions of this paragraph, no minimum contribution shall be made under this Plan with respect to a Participant, or an Employee eligible to become a Participant, if the required minimum benefit under Section 416(c)(1) of the Code is provided to him by any other qualified pension plan of the Employer or an Affiliate. For the purposes of this paragraph, remuneration has the same meaning as set forth in Section 4.10(c).
D.	If, during any Plan Year, the Plan is top heavy, the multiplier ‘1.25’ in Sections 415(e)(2)(B)(i) and (3)(B)(i) of the Code shall be reduced to ‘1.0’, and the dollar amount ‘$51,875’ in Section 415(e)(6)(B)(i)(I) of the Code shall be reduced to ‘$41,500’. This Section shall not apply if:
	(a)	The benefits or allocations provided for such Plan Year to each Participant who is a non-key employee would satisfy the requirements of Section C, if ‘4%” were substituted for ‘3%’ in each place that it appears in such subsection and ‘3%’ were substituted for ‘2%’ in Section 416(c)(1) of the Code; and
	(b)	The top heavy ratio does not exceed 90%.
	This Section shall not apply to any Plan Year beginning after December 31, 1999.

180

APPENDIX E.  SPECIAL PROVISIONS APPLICABLE TO PARTICIPANTS IN

UNISON, INC. 401(k) SAVINGS AND INVESTMENT PLAN

The provisions of this Appendix E shall be effective for the period commencing on December 10, 1997 and ending on August 15, 2001, and shall be applicable only as specified herein.

3.01Eligibility

Notwithstanding any provision hereof to the contrary, in no event shall an Employee who is then eligible to make elective deferrals, within the meaning of Section 402(g) of the Code, under the Unison Software, Inc. 401(k) Savings and Investment Plan, as amended from time to time, be eligible to become a Participant in the Plan.

181

APPENDIX F: SPECIAL PROVISIONS APPLICABLE TO FORMER EMPLOYEES OF

PRICEWATERHOUSE COOPERS, LLP

The provisions of this Appendix F shall be applicable only to Participants who became Employees as a result of the acquisition by the Employer of certain assets of Pricewaterhouse Coopers, LLP and shall be effective only for the period commencing on October 1,   2002 and ending on December 31, 2002.

1.45Z‘PwCC Participant’ shall mean a Participant who became an Employee as a result of the acquisition by the Employer of certain assets of Pricewaterhouse Coopers, LLP on October 1, 2002.

4.01Deferred Cash Contributions and Catch-Up Contributions

(z)Notwithstanding any other provision of this subsection, if a PwCC Participant made elective deferrals, within the meaning of Section 402(g)(3) of the Code, during 2002, under the Savings Plan for Employees and Partners of Pricewaterhouse Coopers, LLP, or the Savings Plan of BPO (each of which plans is a qualified plan maintained by Pricewaterhouse Coopers, LLP or an affiliate thereof), and also made Deferred Cash Contributions  under the Plan, and the sum of such elective deferrals and Deferred Cash Contributions exceeded the dollar limit specified in Section 4.01(c) for 2002, then the PwCC Participant shall be deemed to have elected to receive a refund of Excess Deferrals from the Plan, in the amount by which the sum of such elective deferrals and Deferred Cash Contributions exceeds such dollar limit.

182

4.02Employer Matching Contributions

(z)For the Plan Year ending on December 31, 2002, the Employer shall make a special adjustment to the Matching Contributions made on behalf of PwCC Participants, which adjustment shall be taken into account for all purposes as a Matching Contribution.  The amount of the special adjustment shall be equal to the excess, if any, of (i) the lesser of (A) 50% of the Participant’s Deferred Cash Contributions made during the period beginning on October 1, 2002 and ending on December 31, 2002, or (B) 3% of the Participant’s Compensation for such period, over (ii) the Matching Contributions made on behalf of the Participant for such period in accordance with subsection (a).  Any amount required to be contributed under this subsection shall be contributed by the Employer as soon as practicable following December 31, 2002.

183

APPENDIX G.  SPECIAL PROVISIONS APPLICABLE TO FORMER EMPLOYEES OF

VF CORPORATION

The provisions of this Appendix G shall be applicable only to individuals who had been employed by VF Corporation immediately prior to the effective date of a contract between the Employer and VF Corporation, pursuant to which the Employer agreed to provide certain services to VF Corporation, and who became Employees in accordance with the provisions  of such contract.

3.01Eligibility

(z)Notwithstanding any provision of this subsection, subsection (a) shall be applicable to any individual who was employed by VF Corporation immediately prior to the effective date of  a contract between the Employer and VF Corporation and who becomes an Employee as the result of, and in accordance with the terms of such contract.

3.02AParticipation by 401(k) Pension Program Participants after December 31, 2004

(z)The provisions of this Section shall not be applicable to any individual who was employed by VF Corporation immediately prior to the effective date of a contract between the Employer and VF Corporation and who becomes an Employee as the result of, and in accordance with the terms of, such contract.  No individual to whom this subsection applies shall be a 401(k) Pension Program Participant.

184

APPENDIX H.  SPECIAL RULES APPLICABLE TO PARTICIPANTS IN

NONQUALIFIED DEFERRED COMPENSATION PLANS

A.Notwithstanding the provisions of Section 4.04 and 4.05, for a Participant who is an Executive and who has made a salary deferral election under the Employer’s Executive Deferred Compensation Plan that is in effect on March 15, 2005, any change in his election pursuant to Section 4.01(a),  as in effect on March 15, 2005, that is made during the period commencing on March 16, 2005 and ending on December 31, 2005 will not be effective until January 1, 2006.

B.Notwithstanding the provisions of Section 4.04 and 4.05, for a Participant who is an Executive and who has made a salary deferral election under the Employer’s Executive Deferred Compensation Plan that is in effect on January 1 of any calendar year beginning after December 31, 2005, any change in his election pursuant to Section 4.01(a), as in effect on January 1 of such calendar year, that is made at any time during such calendar year will not be effective until January 1 of the following calendar year.

C.Notwithstanding the provisions of Section 4.04 and 4.05, for a Participant who is an Executive, who is not subject to the provisions of Paragraph B of this Appendix H and who makes an initial salary deferral election under the Employer’s Executive Deferred Compensation Plan, any change in his election pursuant to Section 4.01(a), as in effect on the date of such initial salary deferral election, that is made at any time during the remainder of the calendar year in which such initial salary deferral election was made will not be effective until January 1 of the following calendar year.

185

APPENDIX I. SPECIAL PROVISIONS FOR

QUALIFIED HURRICANE KATRINA DISTRIBUTIONS

The provisions of this Appendix I shall be effective as of August 28, 2005.

A.For purposes of this Appendix I, the term “Qualified Individual” means a Participant whose principal place of abode as of August 28, 2005 was located in the Hurricane Katrina disaster area, as defined in Section 2(1) of the Katrina Emergency Tax Relief Act of 2005 (“KETRA”)  and who sustained an economic loss by reason of Hurricane Katrina.

B.For purposes of this Appendix I, the term “Qualified Hurricane Katrina Distribution” shall mean a distribution made to a Participant who is a Qualified Individual during the period beginning on August 28, 2005 and ending on December 31, 2006, provided however, that a distribution shall not be a Qualified Hurricane Katrina Distribution to the extent that the sum of such distributions and all previous Qualified Hurricane Katrina Distributions made to such Participant from the Plan and any other qualified plan maintained by the Employer or an Affiliate exceeds $100,000.

C.A Qualified Individual shall be permitted to receive a Qualified Hurricane Katrina Distribution upon application to the Plan Administrator at such time, in such manner, and subject to such rules as the Plan Administrator shall prescribe, which rules shall be applied to all Participants who are Qualified Individuals on a uniform and nondiscriminatory basis.

186

EX-11

EXHIBIT 11

COMPUTATION OF BASIC AND DILUTED

EARNINGS PER SHARE

(UNAUDITED)

	For the Three Months Ended
	March 31, 2008				March 31, 2007
Number of shares on which basic earnings per share is calculated:
Weighted-average shares outstanding during period	1,383,008,552				1,499,526,809
Add - Incremental shares under stock compensation plans	19,810,889				20,036,183
Add - Incremental shares associated with convertible notes	—				2,084,409
Add - Incremental shares associated with contingently issuable shares	1,503,090				1,130,070
Number of shares on which diluted earnings per share is calculated	1,404,322,531				1,522,777,471
Income from continuing operations (millions)	$		2,319		$	1,844
Income from discontinued operations (millions)	—				000
Net income from total operations on which basic earnings per share is calculated (millions)	$		2,319		$	1,844
Income from continuing operations (millions)	$		2,319		$	1,844
Less - net income applicable to contingently issuable shares (millions)	—				—
Income from continuing operations on which diluted earnings per share is calculated (millions)	2,319				1,844
Income from discontinued operations on which basic and diluted earnings per share is calculated (millions)	—				000
Net income on which diluted earnings per share is calculated (millions)	$		2,319		$	1,844
Earnings per share of common stock:
Assuming dilution
Continuing operations		$		1.65	$	1.21
Discontinued operations		—			0.00
Total		$		1.65	$	1.21
Basic
Continuing operations		$		1.68	$	1.23
Discontinued operations		—			0.00
Total		$		1.68	$	1.23

Stock options to purchase 40,484,952 shares and 106,883,604 shares were outstanding as of March 31, 2008 and 2007, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise price during the respective periods was greater than the average market price of the common shares and, therefore, the effect would have been antidilutive.

46

EX-12

EXHIBIT 12

COMPUTATION OF RATIO OF INCOME FROM

CONTINUING OPERATIONS TO FIXED CHARGES

FOR THREE MONTHS ENDED MARCH 31,

(UNAUDITED)

(Dollars in millions)	2008		2007
Income from continuing operations before income taxes (1)	$	3,194	$	2,581
Add: Fixed charges, excluding capitalized interest	486		370
Income as adjusted before income taxes	$	3,860	$	2,951
Fixed charges:
Interest expense	$	384	$	261
Capitalized interest	3		8
Portion of rental expense representative of interest	102		109
Total fixed charges	$	489	$	378
Ratio of income from continuing operations to fixed charges	7.53		7.81

(1)Income from continuing operations before income taxes excludes (a) amortization of capitalized interest and (b) the company’s share in the income and losses of less-than-fifty percent-owned affiliates.

47

SEGMENT INFORMATION - ON CONTINUING OPERATIONS BASIS

(UNAUDITED)

	Global Services
	Global			Global
	Technology			Business			Systems and						Global			Total
(Dollars in millions)	Services			Services			Technology			Software			Financing			Segments
For the Three Months Ended March 31, 2008:
External revenue	$	9,677		$	4,911		$	4,219		$	4,847		$	633		$	24,286
Internal revenue	388			258			195			667			386			1,894
Total revenue	$	10,065		$	5,169		$	4,414		$	5,514		$	1,019		$	26,180
Pre-tax income	$	988		$	579		$	145		$	1,267		$	388		$	3,368
Revenue year-to-year change	15.9		%	15.3		%	(7.8		)%	14.0		%	5.8		%	10.2		%
Pre-tax income year-to-year change	45.1		%	23.4		%	50.7		%	22.3		%	3.9		%	26.8		%
Pre-tax income margin	9.8		%	11.2		%	3.3		%	23.0		%	38.1		%	12.9		%
For the Three Months Ended March 31, 2007:
External revenue	$	8,258		$	4,183		$	4,520		$	4,251		$	614		$	21,826
Internal revenue	425			301			267			585			349			1,927
Total revenue	$	8,683		$	4,485		$	4,787		$	4,836		$	963		$	23,753
Pre-tax income	$	681		$	470		$	96		$	1,036		$	374		$	2,657
Pre-tax income margin	7.8		%	10.5		%	2.0		%	21.4		%	38.8		%	11.2		%
Reconciliations to IBM as Reported:
													For the Three			For the Three
													Months Ended			Months Ended
(Dollars in millions)													March 31, 2008			March 31, 2007
Revenue:
Total reportable segments													$	26,180		$	23,753
Eliminations/other													(1,679		)	(1,724		)
Total IBM Consolidated													$	24,502		$	22,029
Pre-tax income:
Total reportable segments													$	3,368		$	2,657
Eliminations/other													(170		)	(78		)
Total IBM Consolidated													$	3,198		$	2,579

48

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13A-14(a) OR 15D-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Samuel J. Palmisano, certify that:

1.I have reviewed this quarterly report on Form 10-Q of International Business Machines Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2008
/s/	Samuel J. Palmisano
	Samuel J. Palmisano
	Chairman, President and Chief Executive Officer

49

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13A-14(a) OR 15D-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I,Mark Loughridge, certify that:

1.I have reviewed this quarterly report on Form 10-Q of International Business Machines Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2008
/s/	Mark Loughridge
	Mark Loughridge
	Senior Vice President, Chief Financial Officer

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EX-32.1

Exhibit 32.1

INTERNATIONAL BUSINESS MACHINES CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of International Business Machines Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Samuel J. Palmisano, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/	Samuel J. Palmisano
	Samuel J. Palmisano
	Chairman, President and Chief Executive Officer
	April 29, 2008

A signed original of this written statement required by Section 906 has been provided to IBM and will be retained by IBM and furnished to the Securities and Exchange Commission or its staff upon request.

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EX-32.2

Exhibit 32.2

INTERNATIONAL BUSINESS MACHINES CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of International Business Machines Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Loughridge, Senior Vice President, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/	Mark Loughridge
	Mark Loughridge
	Senior Vice President, Chief Financial Officer
	April 29, 2008

A signed original of this written statement required by Section 906 has been provided to IBM and will be retained by IBM and furnished to the Securities and Exchange Commission or its staff upon request.

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