Document:

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

  

 

2

 

	
  10.06.

  	
   

  	
  Administration

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  10.07.

  	
   

  	
  Construction

  	
  29

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI. 

  	
  CLAIMS PROCEDURE

  	
  30

  

 

3

 

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.

 

2

 

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.

 

3

 

“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 

 

4

 

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).

 

5

 

“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.

 

6

 

“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.

 

8

 

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”

 

9

 

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.

 

10

 

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 

 

11

 

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,

 

12

 

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.

 

13

 

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.

 

14

 

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

 

15

 

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

 

16

 

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.

 

17

 

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.

 

18

 

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.

 

19

 

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.

 

20

 

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

 

21

 

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:

 

22

 

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.

 

23

 

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

 

24

 

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.

 

25

 

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

 

26

 

(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.

 

27

 

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.

 

28

 

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.

 

29

 

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.

 

30

 

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:

 

1

 

(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.

 

2

 

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

  
						

 

i

 

	
  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

  	
   

  

 

ii

 

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.

 

1

 

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.

 

2

 

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.

 

3

 

ARTICLE
2.   PARTICIPATION

 

2.01         Eligibility

 

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.

 

2.02         Participation

 

(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.

 

4

 

(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.

 

2.03         Application 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.

 

5

 

ARTICLE 3.  CONTRIBUTIONS

 

3.01         Amount 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.

 

6

 

3.02         Matching 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).

 

3.03         Additional 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.

 

3.04         Investment 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.

 

7

 

3.05         Vesting 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.

 

3.06         Individual 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.

 

3.07         Deferral 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.

 

3.08         Application 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

 

8

 

(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.

 

9

 

ARTICLE 4.  INVESTMENT
OF DEFERRALS AND DEFERRAL ACCOUNTS

 

4.01         Deemed 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.

 

4.02         Change 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.

 

4.03         Change 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

 

10

 

(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.

 

4.04         Application 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.

 

11

 

ARTICLE 5.  PAYMENT
OF ACCOUNTS

 

5.01         Commencement 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.

 

5.02         Method 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 

 

12

 

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.

 

5.03         Designation 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.

 

5.04         Distributions 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 

 

13

 

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.

 

5.05         Application of this Article After
2007

 

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

 

14

 

ARTICLE
6.   GENERAL PROVISIONS

 

6.01         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, 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.

 

6.02         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.

 

15

 

6.03         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 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.

 

6.04         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.

 

6.05         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.  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.

 

6.06         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.

 

16

 

6.07         Construction

 

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.

 

6.08         Application 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.

 

17

 

ARTICLE
7.   MANAGEMENT AND ADMINISTRATION

 

7.01         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.

 

7.02         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:

 

(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;

 

18

 

(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.

 

19

 

7.03         Application 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.

 

20

 

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.

 

21

 

ARTICLE
9.   PAYMENT OF NON-GRANDFATHERED
DEFERRED SHARES

ON OR AFTER JANUARY 1, 2008

 

9.01         Purpose

 

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”).

 

9.02         Definitions

 

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.

 

9.03         Payment 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

 

22

 

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.

 

9.04         Form 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.

 

9.05         Electing 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:

 

23

 

(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.

 

24

 

9.06         Payment 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.

 

9.07         Special 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

 

25

 

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.

 

9.08         Valuation 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.

 

9.09         Effect 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.

 

9.10         Payment 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

 

26

 

as soon as practicable after, but no later than
30 days following, the date dividends are paid to IBM shareholders.

 

27

 

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.

 

2EXHIBIT 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 591⁄2

  	
  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 701⁄2

  	
  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 701⁄2

  	
  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

  

 

ii

 

	
  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

  

 

iv

 

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.

 

3

 

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 

 

4

 

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 21⁄2 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.

 

9

 

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

 

10

 

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.

 

11

 

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.

 

12

 

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.

 

13

 

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.

 

14

 

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.

 

15

 

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

 

16

 

(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.

 

17

 

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

 

18

 

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.

 

19

 

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.

 

20

 

(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 

 

21

 

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 

 

22

 

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.

 

23

 

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.

 

24

 

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.

 

25

 

	
  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).

  

 

26

 

	
  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

  

 

27

 

	
   

  	
   

  	
  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

  

 

28

 

	
   

  	
   

  	
  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.

  

 

29

 

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.

  

 

30

 

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:

  

 

31

 

(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.

 

3.02A      Participation 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,

 

32

 

(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 30th 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 30th 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 

 

33

 

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 30th 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 

 

34

 

	
   

  	
   

  	
  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

  

 

35

 

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.

 

3.04         Effect 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.

 

36

 

(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.

 

3.05         Termination 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.

 

37

 

ARTICLE 4.  CONTRIBUTIONS

 

4.01                           Deferred 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.

 

38

 

(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 

 

39

 

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 

 

40

 

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 

 

41

 

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

  	
   

  

 

43

 

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
50th 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

 

46

 

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.

 

47

 

(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).

 

48

 

(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]

 

49

 

(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.

 

4.02                           Employer 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

 

50

 

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.

 

53

 

(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 

 

54

 

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).

 

55

 

(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

 

56

 

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.

 

4.02A                 Non-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

 

57

 

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,

 

58

 

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.

 

59

 

(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.

 

4.03         Rollover 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,

 

60

 

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 

 

61

 

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.

 

62

 

(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.

 

4.04         Changes 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).

 

63

 

(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).

 

64

 

(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).

 

4.05         Suspension 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.

 

65

 

4.06         Actual 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.

 

66

 

(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).

 

67

 

(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 21⁄2
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 

 

68

 

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.

 

4.07         Actual 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

 

69

 

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

 

70

 

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.

 

71

 

(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 21⁄2 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.

 

4.08         Aggregate 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

 

72

 

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.

 

4.09         Additional 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

 

73

 

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.

 

4.10         Maximum 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:

 

74

 

(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

 

75

 

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:

 

76

 

(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

 

77

 

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.

 

78

 

4.11         Contributions 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.

 

79

 

(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

 

80

 

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.

 

4.12         Return 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.

 

81

 

(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.

 

82

 

ARTICLE
5.  INVESTMENT OF CONTRIBUTIONS AND
ELECTIVE DISTRIBUTION 

OF DIVIDENDS PAYABLE ON STOCK HELD IN IBM STOCK FUND

 

5.01         Investment 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 

 

83

 

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 

 

84

 

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.

 

5.01A      Mutual 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.

 

85

 

(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 

 

86

 

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.

 

87

 

(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).

 

88

 

(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

 

89

 

(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 

 

90

 

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.

 

5.02         Investment 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 

 

91

 

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 

 

92

 

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).

 

5.03         Change 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.

 

93

 

5.04         Reallocation 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.

 

94

 

(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).

 

95

 

(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.

 

5.05                           Limitations 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

 

96

 

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.

 

5.06                           Responsibility 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.

 

97

 

5.07                           Voting 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.

 

5.08                           ERISA Section 404(c) Compliance

 

This Plan, including its constituent ESOP, is intended to constitute a
plan described in Section 404(c) of ERISA.

 

5.09                           Elective 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

 

98

 

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:

 

99

 

(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).

 

100

 

Article 5A.  Disability Protection Program

 

5A.01                 Eligibility

 

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.02                 Levels 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 5                                                  Coverage 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.

 

101

 

5A.03                 Enrollment 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.

 

102

 

5A.04                 Requirements 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.05                 Investment 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 

 

103

 

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.

 

104

 

(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 

 

105

 

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.06                 Benefits 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.

 

106

 

5A.07                 Termination 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.08                 Claims 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

 

107

 

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.

 

108

 

ARTICLE
6.  VALUATION OF UNITS AND CREDITS TO
ACCOUNTS

 

6.01                           Units 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.

 

6.02                           Valuation 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.

 

109

 

(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.

 

6.03                           Crediting 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.

 

110

 

(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.

 

111

 

(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.

 

6.04                           Statements 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.

 

112

 

ARTICLE
7.  VESTED STATUS OF ACCOUNTS

 

7.01                           Nonforfeitability Accounts

 

A Participant shall at all times be 100% vested in,
and have a nonforfeitable right to, his entire Account.

 

113

 

ARTICLE
8.  IN-SERVICE WITHDRAWALS

 

8.01                           Withdrawal After Age 591⁄2

 

(a)                                  A Participant who is in the employ of an
Employer or Affiliate and who shall have attained age 591⁄2 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.

 

8.01A                 Withdrawal 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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8.02         Hardship 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;

 

115

 

(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 

 

116

 

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, 

 

117

 

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) 

 

118

 

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.

 

8.03         Procedures 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 

 

119

 

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).

 

8.04         Distributions at Age 701⁄2

 

(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 701⁄2.  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.

 

120

 

(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).

 

121

 

ARTICLE 9.  LOANS TO PARTICIPANTS

 

9.01         Loan 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 

 

122

 

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.

 

123

 

9.02         Terms

 

(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.

 

124

 

(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.

 

125

 

(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 

 

126

 

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.

 

127

 

ARTICLE 10.  DISTRIBUTION OF ACCOUNTS UPON TERMINATION OF

EMPLOYMENT, DISABILITY, OR DEATH

 

10.01                     Applicability

 

(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.

 

10.02                     Forms 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:

 

128

 

(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.

 

10.03                     Mandatory 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 

 

129

 

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.

 

10.04                     Withdrawals 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.

 

130

 

(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).

 

10.05                     Commencement 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.

 

10.06                     Required Distributions at Age 701⁄2

 

(a)                                  Notwithstanding
any provision hereof to the contrary, a Participant who has terminated
employment and has attained age 701⁄2 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
701⁄2 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 701⁄2 

 

131

 

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 701⁄2, or in the first quarter of the
following year, and shall be attributable to the year in which the Participant
attained age 701⁄2, 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 701⁄2. 
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.

 

132

 

10.07                     Effect 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.

 

133

 

10.08                     Distribution 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 1⁄2.  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 1⁄2 , then the entire balance of the
Account shall be paid to the Beneficiary on such date according to Section 10.06.

 

134

 

(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.

 

10.09       Designation 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 

 

135

 

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.

 

136

 

(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.

 

10.10       Proof 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, 

 

137

 

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).

 

10.11                     Status 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).

 

10.12                     Procedures 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 

 

138

 

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.

 

10.13       Distribution 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.

 

139

 

10.14       Direct 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:

 

140

 

(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.

 

141

 

(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.

 

10.15                     Waiver 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

 

142

 

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.

 

10.16                     Distribution 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.

 

143

 

ARTICLE
11.  ADMINISTRATION OF PLAN

 

11.01                     Named
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.

 

144

 

11.02                     Authority
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.

 

11.03                     Responsibilities
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.

 

145

 

(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).

 

11.04                     Appointment
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.

 

11.05                     Responsibilities 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,

 

146

 

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.

 

11.06                     Retention 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 

 

147

 

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]

 

11.08                     Service 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.

 

11.09                     Compensation 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.

 

148

 

11.10                     Limitation 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.

 

11.11                     Individual 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.

 

149

 

ARTICLE
12.  MANAGEMENT OF FUNDS

 

12.01                     Trust
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.

 

12.02                     Exclusive 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.

 

12.03                     Expenses

 

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 

 

150

 

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.

 

151

 

ARTICLE
13.  AMENDMENT, MERGER, TRANSFERS, AND
TERMINATION

 

13.01                     Amendment
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:

 

152

 

(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 

 

153

 

Plan as in effect on the date on which the amendment is adopted, or if
later, the date on which the amendment becomes effective.

 

13.02                     Merger, 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 

 

154

 

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 701⁄2
shall be made in accordance with Section 10.06.  A 

 

155

 

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) 

 

156

 

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.

 

157

 

13.03                     Termination 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.

 

13.04                     Termination 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.

 

158

 

(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.

 

159

 

ARTICLE 14.  GENERAL PROVISIONS

 

14.01       Nonalienation 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 

 

160

 

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.

 

14.02       Facility 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 

 

161

 

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.

 

14.03       Tax 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.

 

14.04       Prevention 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 

 

162

 

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.

 

14.05       Elections 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 

 

163

 

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.

 

14.06       Information

 

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.

 

14.07       Conditions 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.

 

164

 

14.08       Construction

 

(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.

 

14.09       Limitation 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:

 

165

 

(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.

 

166

 

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.

 

14.10     Class 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

 

167

 

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.

 

168

 

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.

 

1.04         Actual 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

 

169

 

	
   

  	
  (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.

  

 

170

 

	
  (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.

  

 

171

 

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.

  

 

172

 

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.

  

 

173

 

	
  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.

 

3.01         Eligibility

 

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.

 

4.01         Deferred 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

 

4.02         Employer 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.

 

3.01         Eligibility

 

(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.

 

3.02A      Participation 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

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