INTERNATIONAL BUSINESS MACHINES CORP

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2023 Potential Payments Upon Termination Narrative

Introduction

IBM does not have any plans, programs, or agreements under which payments to any of the named executive officers are triggered by a change of control of IBM, a change in the named executive officer’s responsibilities or a constructive termination of the named executive officer.

The only payments or benefits that would be provided by IBM to a named executive officer following a termination of employment would be provided under the terms of IBM’s existing compensation and benefit programs (as described below).

The 2023 Potential Payments Upon Termination Table that follows this narrative reports such payments and benefits for each named executive officer assuming termination on the last business day of the fiscal year end.

As explained below, certain of these payments and benefits are enhanced by or dependent upon the named executive officer’s attainment of certain age and service criteria at termination. Additionally, certain payments or benefits are not available following a termination for cause and/or may be subject to forfeiture and clawback if the named executive officer engages in certain activity that is detrimental to IBM. In addition, performance pay paid to executive officers, including each named executive officer, are subject to repayment under IBM’s recovery policy.

This 2023 Potential Payments Upon Termination Narrative and the 2023 Potential Payments Upon Termination Table do not reflect payments that would be provided to each named executive officer under (i) the Qualified Plan; (ii) the Nonqualified Plan; (iii) the IBM 401(k) Plus Plan; (iv) the IBM Individual Separation Allowance Plan; or (v) with respect to retiree medical or life insurance benefits, following termination of employment on the last business day of the fiscal year end because these plans are generally available to all U.S. regular employees similarly situated in age, years of service and date of hire and do not discriminate in favor of executive officers.

The 2023 Potential Payments Upon Termination Table does not contain a total column because the Retention Plan payment is paid as an annuity, not a lump sum. Therefore, a total column would not provide any meaningful disclosure.

Annual Incentive Program (AIP)

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The AIP may provide a lump sum, cash payment in April of the year following resignation, retirement or involuntary termination without cause. An AIP payment may not be paid if an executive engages in activity that is detrimental to IBM.

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This payment is not triggered by termination; the existence and amount of any AIP payment is determined under the terms of the AIP applicable to all eligible executives, who are employed through December 31 of the previous year.

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AIP payments to executive officers are subject to clawback.

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For purposes of the 2023 Potential Payments Upon Termination Table below, it is assumed that the AIP payment made to each named executive officer following termination

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of employment on the last business day of the fiscal year end would have been the same as the actual payment made in April 2024.

IBM Long-Term Performance Plans (LTPP)

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The named executive officers have certain outstanding equity grants under the LTPP including:

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Stock Options;

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Restricted Stock Units (RSUs);

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Retention Restricted Stock Units (RRSUs); and/or

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Performance Share Units (PSUs) or retention Performance Share Units (RPSUs).

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The LTPP and/or the named executive officers’ equity award agreements contain the following terms:

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Generally, unvested Stock Options, RSUs, RRSUs, PSUs and RPSUs are cancelled upon termination; and

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Vested Stock Options may be exercised only for 90 days following termination.

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Payment of these awards is not triggered by termination of employment (because the awards would become payable under the terms of the LTPP if the named executive officer continued employment), but if he or she resigns, retires or is involuntarily terminated without cause after attaining age 55 with at least 15 years of service, the following terms apply:

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Vested Stock Options continue to be exercisable for the remainder of their ten-year term; and

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IBM prorates a portion of unvested PSU awards to continue to vest under their original vesting schedules.

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If an executive dies, outstanding Stock Options, RSU awards and RRSU awards would vest immediately, and outstanding PSU and RPSU awards would remain outstanding and continue to vest under their original vesting schedules.

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If an executive becomes disabled, outstanding Stock Options, RSUs and RRSUs would continue to vest under their original vesting schedules, and outstanding PSUs would remain outstanding and continue to vest under their original vesting schedules.

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In cases other than death or disability, certain executives may be eligible for continued vesting of these awards after separation.

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To ensure that the interests of the members of the Performance Team are aligned with IBM’s long-term interests as these leaders approach retirement, these executives, including the named executive officers, may be eligible to receive payouts of their full unvested PSU and RSU awards upon termination, and effective for Stock Options granted after 2021, unvested Stock Options may continue to vest upon termination, if the following criteria are met:

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The executive is on the Performance Team at the time of departure;

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For RSU awards and Stock Options, at least one year has passed since the award grant date; and for PSU awards, at least one year has passed in the performance period;

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622024 Notice of Annual Meeting & Proxy Statement |2023 Potential Payments Upon Termination Narrative

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The executive has reached age 55 with 15 years of service at the time of departure; and

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The payout has been approved by appropriate senior management, the Compensation Committee, or the Board, in their discretion.

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The Chairman and CEO is also eligible for the payouts described upon termination, but instead must reach age 60 with 15 years of service, and the payout must be approved by the Board, in its discretion.

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Payouts of PSU awards after termination as described above will be made in February after the end of the three-year performance period based on the final program score. Payouts of RSU awards after termination, as described above, will be made in accordance with the original vesting schedule. Unvested Stock Options will continue to vest and vested Stock Options (including those that vest after termination of employment) will be exercisable for the remainder of the original contractual term of the Stock Option.

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The 2023 Potential Payments Upon Termination Table assumes the following:

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Amounts shown include the payout of the 2021 PSU awards calculated using the actual performance achieved for the 2021-2023 performance period and the 2023 fiscal year-end closing price of $163.55 or IBM common stock; and

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Outstanding 2022 and 2023 PSU awards were not included because there is no guarantee of payment on these awards as they are subject to meeting threshold performance criteria.

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Amounts shown include the value of 2020, 2021 and 2022 RSU awards and 2022 Stock Options, if the required retirement criteria is met, at the fiscal year-end closing price of $163.55 for IBM common stock because the one-year service requirement from grant has been completed; and

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Outstanding 2023 RSU awards and Stock Options are not included because the required service of at least one year since the award date of grant has not been completed.

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LTPP awards for executive officers are subject to forfeiture and rescission if an executive is terminated for cause or engages in activity that is detrimental to IBM prior to or within 12 months following release, exercise, or payment (or within 36 months for RRSU awards). LTPP awards for executive officers also contain a covenant that the recipient will not solicit IBM clients for a period of one year or employees for a period of two years following termination of employment. In addition, PSU payouts to executive officers are subject to clawback as described in Section 4 of the 2023 Compensation Discussion and Analysis.

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IBM Supplemental Executive Retention Plan (Retention Plan)

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Payments under the Retention Plan are triggered by resignation, retirement, or involuntary termination without cause after attainment of eligibility criteria.

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Eligibility criteria are described in the 2023 Retention Plan Narrative.

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Retention Plan payments are paid as an annuity beginning on the first day of the month following termination of employment (subject to a six-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code).

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At termination, the executive chooses either a single life annuity or an actuarially equivalent joint and survivor annuity.

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The 2023 Potential Payments Upon Termination Table reflects the annual amount payable as a single life annuity.

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This table does not reflect the following provisions that would apply in accordance with Section 409A of the Internal Revenue Code:

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The payment would be delayed six months following termination; and

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Amounts not paid during the delay would be paid (with interest) in July 2024.

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Retention Plan payments are subject to forfeiture and rescission if an executive is terminated for cause or engages in activity that is detrimental to IBM at any time prior to or following commencement of Retention Plan payments.

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IBM Excess 401(k) Plus Plan

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As described in the 2023 Nonqualified Deferred Compensation Narrative, payment of the named executive officers’ Excess 401(k) Plus Plan accounts (Basic Accounts and any Deferred IBM Shares) is triggered by resignation, retirement, or involuntary termination.

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With respect to IBM matching and automatic contributions made to a participant’s account after March 31, 2010, if a participant engages in activity that is detrimental to IBM, the Excess 401(k) Plus Plan allows the clawback of such IBM contributions made during the 12-month period prior to the detrimental activity through the date of termination.

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The 2023 Potential Payments Upon Termination Table indicates the estimated amount and the time and form of payment, determined by either the executive’s distribution election in effect, if any, or the plan’s default distribution provision.

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Estimated payments were calculated using the aggregate account balance as of the last business day of the fiscal year end, without assumptions for the following between such date and the distribution date(s):

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Investment gains and losses on the Basic Account (including dividend equivalent reinvestment for the IBM Stock Fund); and

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Fluctuations in the market price of IBM stock for Deferred IBM Shares.

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The tables do not reflect:

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That payment of amounts deferred after December 31, 2004 (and the associated earnings) are subject to a six-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code; or

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Any other restriction on such payments imposed by the requirements of Section 409A of the Internal Revenue Code.

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2023 Potential Payments Upon Termination Table

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(1)

Termination generally includes the following separation scenarios: resignation, retirement, and involuntary termination without cause (in all cases, assuming the executive is not entering into competitive or other activity detrimental to IBM).

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(2)

Assumes that the AIP payment made to each named executive officer following termination of employment on the last business day of the fiscal year end would have been the same as the actual payment made in April 2024.

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(3)

While unvested 2022 Stock Options are included if required requirement criteria are met and assuming exercise at $163.55, unvested 2023 Stock Options are not included because the required service of at least one year since the award date of grant had not been completed.

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(4)

Assumes IBM released each named executive officer’s PSU award, granted in 2021 according to its policy, for the three-year performance period ending December 31, 2023. PSU awards are adjusted for performance and released in shares of IBM common stock (with any fractional shares rounded to the nearest whole share) in February in the year following the end of the performance period. While outstanding 2020, 2021 and 2022 RSU awards are included if required retirement criteria is met, 2023 RSU awards are not included because the required service of at least one year since the award date of grant had not been completed.

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(5)

Reflects the Retention Plan benefit payable for eligible named executive officers as an immediate annual single life annuity. See the IBM Supplemental Executive Retention Plan section above for more details.

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(6)

Estimated payments to each named executive officer were calculated using the aggregate account balance as of the last business day of the fiscal year end, and are based on their distribution elections under the plan. See the IBM Excess 401(k) Plus Plan section above for more details.

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(7)

The amount deferred prior to January 1, 2005 is payable in a lump sum in February 2024. The amount deferred on or after January 1, 2005 is payable in a lump sum immediately following separation. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2023 Nonqualified Deferred Compensation Table.

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(8)

Sum of the approximate annual amount of Basic Account deferred prior to January 1, 2005 payable for 2 years starting in February 2024 ($516,466) and the amount of the Basic Account deferred on or after January 1, 2005 payable in a lump sum in February 2024 ($6,956,716). Deferred shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2023 Nonqualified Deferred Compensation Table.

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(9)

Payable in an immediate lump sum following separation. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2023 Nonqualified Deferred Compensation Table.

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(10)

Payable in 10 annual installments starting in February 2024. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2023 Nonqualified Deferred Compensation Table.

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(11)

Payable in an immediate lump sum following separation. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2023 Nonqualified Deferred Compensation Table.

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Pay Ratio

The ratio of the CEO’s annual total compensation to that of the median employee’s annual total compensation is 312:1. This ratio is based on annual total compensation of $20,398,426 for the CEO (as reported in the Summary Compensation Table) and $65,463 for the median employee. The base salary for the median employee was $45,197. The median employee used for the pay ratio disclosure was determined as of October 1, 2021 using annual base pay for IBM employees on that date; all foreign currencies were converted to U.S. dollars.

642024 Notice of Annual Meeting & Proxy Statement |2023 Potential Payments Upon Termination Narrative