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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-K
ANNUAL REPORT
pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 2016

1-2360
(Commission file number)

INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)

NEW YORK
(State of Incorporation)
  13-0871985
(IRS Employer Identification Number)

ARMONK, NEW YORK
(Address of principal executive offices)

 

10504
(Zip Code)

914-499-1900
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
  Voting shares outstanding
at February 10, 2017
  Name of each exchange
on which registered
Capital stock, par value $.20 per share   943,212,551   New York Stock Exchange
        Chicago Stock Exchange

1.375%  Notes due 2019

 

 

 

New York Stock Exchange
2.750%  Notes due 2020       New York Stock Exchange
1.875%  Notes due 2020       New York Stock Exchange
0.500%  Notes due 2021       New York Stock Exchange
2.625%  Notes due 2022       New York Stock Exchange
1.25%    Notes due 2023       New York Stock Exchange
1.125%  Notes due 2024       New York Stock Exchange
2.875%  Notes due 2025       New York Stock Exchange
0.300%  Notes due 2026       New York Stock Exchange
1.750%  Notes due 2028       New York Stock Exchange
8.375%  Debentures due 2019       New York Stock Exchange
7.00%    Debentures due 2025       New York Stock Exchange
6.22%    Debentures due 2027       New York Stock Exchange
6.50%    Debentures due 2028       New York Stock Exchange
7.00%    Debentures due 2045       New York Stock Exchange
7.125%  Debentures due 2096       New York Stock Exchange

          Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes  ý     No  o

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o     No  ý

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

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

          The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was $145.0 billion.

Documents incorporated by reference:

          Portions of IBM's Annual Report to Stockholders for the year ended December 31, 2016 are incorporated by reference into Parts I, II and IV of this Form 10-K.

          Portions of IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017 are incorporated by reference into Part III of this Form 10-K.

   



PART I

Item 1. Business:

        International Business Machines Corporation (IBM or the company) was incorporated in the State of New York on June 16, 1911, as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the Computing Scale Co. of America, the Tabulating Machine Co. and The International Time Recording Co. of New York. Since that time, IBM has focused on the intersection of business insight and technological innovation, and its operations and aims have been international in nature. This was signaled over 90 years ago, in 1924, when C-T-R changed its name to International Business Machines Corporation. And it continues today—the company creates value for clients through integrated solutions and products that leverage data, information technology, deep expertise in industries and business processes, and a broad ecosystem of partners and alliances. IBM solutions typically create value by enabling new capabilities for clients that transform their businesses and help them engage with their customers and employees in new ways. These solutions draw from an industry-leading portfolio of consulting and IT implementation services, cloud and cognitive offerings, and enterprise systems and software; all bolstered by one of the world's leading research organizations.

Strategy

        IBM has a history of continuous re-invention, transforming itself throughout its 100-plus year history. In the past five decades alone, IBM has ushered in the eras of the mainframe, the personal computer, IT services and enterprise software. In its current transformation, IBM is once again leading the reordering of the technology industry.

        A number of years ago, the company declared its focus on the strategic forces behind the "digital" revolution; data, cloud and engagement, driven by mobile and social, and underpinned by security. Since 2010, IBM has invested approximately $40 billion in these areas, built out the IBM Cloud on a global scale and extended cognitive systems to numerous enterprises and industries. The company made 55 acquisitions and has formed partnerships with organizations that are leading players in key industries.

        Because of this transformation, IBM today is much more than a hardware, software and services company; IBM is a cognitive solutions and cloud platform company, with a focus on industry capabilities and expertise:

        Cognitive Solutions:     With the highest level of intelligence that exists in technology systems, these solutions tackle challenges ranging from answering client inquiries to helping physicians fight cancer.

        Cloud Platform:     IBM Cloud is the leading cloud platform for the enterprise, providing what enterprises need for speed, agility and, combined with Watson, for cognitive capability.

        Industry Focus:     As IBM brings higher levels of value to its clients, as its offerings are being built for the needs of individual industries. Healthcare and Financial Services are two examples of the company's initial cognitive focus.

Cognitive Solutions

        Since IBM's Watson was introduced in 2011, the company has been developing a new generation of cognitive systems that can see and analyze the massive amounts of data that have previously been invisible to computers and enterprises. IBM's cognitive systems have the capability to inject a kind of thinking ability into every digitized object, process and service, and learn from interactions. IBM is on the forefront of deploying these systems and helping clients to embrace the cognitive era.

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        Cognitive systems are not programmed; like humans, they learn from experts and from every interaction, and they are uniquely able to find patterns in big data. They learn by using advanced algorithms to sense, predict and infer. Doing so, they augment human intelligence, allowing individuals to make faster and more informed decisions.

        Since Watson's debut, many technologies have entered the market under the banner of artificial intelligence. However, IBM's approach to cognitive systems is quite unique:

    Highly adaptable intelligence systems: Watson has broad applicability and can help clients tackle challenges ranging from oncology to customer support.

    Protect and respect client data: Watson learns through data, both public data as well as clients' private data. Clients choose whether their data or insights are shared. IBM respects the clients' ownership and control of their own data.

    Easy entry points: Watson's open APIs offer easy on-ramps to experiment with speech, vision and other data.

    Trained in domain depth: Watson is trained to be an expert in industries and functional specialties. It augments the knowledge of professionals, giving them access to the insights of their best colleagues and the world's leading experts.

    Transformational services: IBM's Cognitive Solutions and Watson Internet of Things (IoT) practices help clients build their cognitive strategies. GBS provides outcome-focused methodologies, domain skills and deep industry expertise.

Cloud Platform

        Cloud represents more than a new architecture for delivering infrastructure and applications as services; it is also a catalyst for innovation, speed and agility. Cloud enables companies to focus on differentiating their strategies, capabilities and business models rather than on the underlying technology.

        The IBM Cloud brings a unique set of characteristics to clients:

    It is a world-class cloud platform designed for enterprises, where security, reliability, scalability and performance are critical.

    It is the industry-leading hybrid cloud, enabling clients to extend their existing IT investments, connecting valuable data and applications across public and private clouds.

    It is a world-class cognitive cloud platform with IBM Watson services that developers can embed into their applications to create differentiating customer experiences and powerful insights.

        The IBM Cloud has a strong global presence, with more than 50 cloud data centers around the world giving clients the flexibility to optimize the deployment of data and application, for performance, security and compliance.

        The IBM Cloud is also continually expanding its base of advanced capabilities including cloud data services, cloud object storage, cloud video services, as well as Internet of Things, blockchain and analytics services. In 2016, IBM brought new cognitive solutions to professionals in marketing, commerce, supply chain and human resources, extending industry clouds to further differentiate its cloud offerings.

Industry Focus

        To bring higher value to clients, IBM is providing solutions that are specific and tailored to challenges clients face in their industry, using the power of IBM's advanced cognitive computing

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capabilities built on the IBM Cloud. In 2016, IBM deepened its commitment to delivering higher value in several key ways:

    In the healthcare industry, IBM Watson Health combines the power of cloud and cognitive with value-based solutions to optimize performance, engage consumers, enable effective care and manage population health. Significant investment in the healthcare space, including the acquisition of Merge and Truven, has enabled the company to expand the scope of solutions aimed at solving some of the most pressing health challenges.

    IBM continues to partner with financial services clients to build a robust infrastructure addressing increasingly complex and fast-changing demands. From preventing fraud to supporting cyber security efforts, IBM is becoming ever-more essential to the financial industry.

    IBM offers analytics to help clients assess their risk and compliance against industry guidelines, and uses a cognitive approach to provide deeper and faster findings. In late 2016, the company acquired Promontory Financial Group, LLC (Promontory), one of the world's leading regulatory consulting firms. Promontory is training Watson to be a market-leading expert in the regulatory field, which will allow the company to deliver services at new levels of efficiency and transparency.

    IBM is committed to blockchain to provide a highly secure method of facilitating multi-step transactions, reducing the number of disputes and points of friction, including its participation in the Hyperledger Project. This cross-industry consortium is working to build the blockchain network in the cloud, doing for trusted transactions what the Internet did for information, and setting industry standards for years to come. Blockchain will enable financial institutions to settle securities in minutes instead of days; manufacturers to reduce product recalls by sharing production logs along their supply chain; and businesses of all types to more closely manage the flow of goods and payments. IBM is working with companies ranging from retailers, banks and shippers to apply this technology to transform their ecosystems through open standards and open platforms.

    IBM's Global Business Services consulting business, with broad expertise across industries and a strong global footprint and scale, provides a unique combination of technologies and services to help clients achieve their business outcomes.

Transforming Core Businesses

        While the company is focused on cognitive solutions, cloud platform and industry, it is important to note cognitive, cloud and industry are being embedded across IBM's offerings. These core businesses continue to run clients' most critical business processes. IBM's hardware systems are being designed from the ground up to power the cloud and cognitive systems of the future. The company's technology services help clients move to the cloud, embedding cognitive capabilities tailored for their industry. The company's software offerings are simultaneously being made available for the cloud as well as being connected to the cloud where our clients choose to keep them on premises. Additionally, cognitive capabilities are being added to these offerings to provide new levels of innovation. In short, all of IBM is transforming to support the way its clients are transforming.

Summary

        Each transformation of IBM ushers in a new capability to the world. More than 50 years ago, IBM introduced the programmable era and transformed the world's transactions through the mainframe. In the decades that followed, IBM commercialized the personal computer, created an industry around IT services and a software market around middleware. Each of these innovations remains essential to business and the world today.

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        The company's current chapter is ushering in an entirely new era of human-computer interaction, embodied in cognitive solutions and the cloud platform for the needs of industries. The company is embarking on an era where it will create new capabilities at speeds and depth never previously witnessed.

Business Model

        The company's business model is built to support two principal goals: helping enterprise clients to become more innovative, efficient and competitive through the application of business insight and IT solutions; and providing long-term value to shareholders. The business model has been developed over time through strategic investments in capabilities and technologies that have superior long-term growth and profitability prospects based on the value they deliver to clients.

        The company's global capabilities as a cognitive solutions and cloud platform company include services, software, systems, fundamental research and related financing. The broad mix of businesses and capabilities are combined to provide integrated solutions and platforms to the company's clients.

        The business model is dynamic, adapting to the continuously changing industry and economic environment, including the company's transformation into cloud and as-a-Service delivery models. The company continues to strengthen its position through strategic organic investments and acquisitions in higher-value areas, strengthening its industry expertise and applying advanced analytics across virtually all its offerings. In addition, the company is transforming into a more agile enterprise to drive innovation and speed, as well as helping to drive productivity, which supports investments for participation in markets with significant long-term opportunity.

        This business model, supported by the company's financial model, has enabled the company to deliver strong earnings, cash flows and returns to shareholders over the long term.

Business Segments and Capabilities

        The company's major operations consist of five business segments: Cognitive Solutions, Global Business Services, Technology Services & Cloud Platforms, Systems and Global Financing.

         Cognitive Solutions comprises a broad portfolio of capabilities that help IBM's clients to identify actionable new insights and inform decision-making for competitive advantage. Leveraging IBM's research, technology and industry expertise, this business delivers a full spectrum of capabilities, from descriptive, predictive and prescriptive analytics to cognitive systems. Cognitive Solutions includes Watson, the first commercially available cognitive computing platform that has the ability to interact in natural language, process vast amounts of big data, and learn from interactions with people and computers. These solutions are provided through the most contemporary delivery methods including through cloud environments and "as-a-Service" models. Cognitive Solutions consists of Solutions Software and Transaction Processing Software.

Cognitive Solutions Capabilities

         Solutions Software: provides the basis for many of the company's strategic areas including analytics, security and social. IBM has established the world's deepest portfolio of data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and solutions tailored by industry. Watson Platform, Watson Health and Watson Internet of Things capabilities are included in Solutions Software. IBM's world-class security platform delivers integrated security intelligence across clients' entire operations, including their cloud, applications, networks and data, helping them to prevent, detect and remediate potential threats.

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         Transaction Processing Software: includes software that primarily runs mission-critical systems in industries such as banking, airlines and retail. Most of this software is on-premise and annuity in nature.

         Global Business Services (GBS) provides clients with consulting, application management services and global process services. These professional services deliver business value and innovation to clients through solutions which leverage industry, technology and business process expertise. GBS is the digital reinvention partner for IBM clients, combining industry knowledge, functional expertise, and applications with the power of design, cognitive and cloud. The full portfolio of GBS services is backed by its globally integrated delivery network and integration with IBM solutions and services including Watson, cloud, blockchain, and Technology Services. To deepen its capabilities, in 2016 IBM acquired four consulting and design firms to enhance the GBS global network of 35 digital experience design studios. IBM also announced Watson IoT Consulting Solutions, a new practice that brings together IBM's industry and technical expertise to help clients introduce IoT innovation into their businesses.

GBS Capabilities

         Consulting: provides business consulting services focused on bringing to market solutions that help clients shape their digital blueprints and customer experiences, define their cognitive operating models, set their next-generation talent strategies and create new technology visions and architectures in a cloud-centric world.

         Application Management: delivers system integration, application management, maintenance and support services for packaged software, as well as custom and legacy applications. Value is delivered through advanced capabilities in areas such as security and privacy, application testing and modernization, cloud application migration and automation.

         Global Process Services: GBS' business process outsourcing service line, delivers finance, procurement, HR, and industry-specific business processes. These services deliver improved business results to clients through the strategic change and/or operation of the client's business processes, applications and infrastructure. GBS is redefining the efficiency and cost profiles of clients' core processes through the application of the power of Watson, cognitive and deep analytics.

         Technology Services & Cloud Platforms provides comprehensive IT infrastructure services creating business value for clients through integrated services that incorporate unique intellectual property within its global delivery model. By leveraging insights and experience drawn from IBM's global scale, skills and technology, with applied innovation from IBM Research, clients gain access to leading edge, high-quality services with improved productivity, flexibility, cost and outcomes.

Technology Services & Cloud Platforms Capabilities

         Infrastructure Services: delivers a portfolio of cloud, project-based, outsourcing and other managed services focused on clients' enterprise IT infrastructure environments to enable digital transformation and deliver improved quality, flexibility, risk management and financial value. The portfolio includes a comprehensive set of hybrid cloud services and solutions to assist clients in building and running enterprise IT environments that utilize public and private clouds and traditional IT. The IBM Cloud Platform offers leading edge services to developers and IBM's Cloud Infrastructure-as-a-Service covers a wide variety of workloads with unprecedented performance. These offerings integrate long-standing expertise in service management and technology with the ability to utilize the power of new technologies, including those from other IBM business segments. The portfolio is built around a key set of predictive and proactive solutions addressing systems, mobility, resiliency, networking, cloud and security. The company's capabilities, including IBM Cloud, cognitive computing and hybrid cloud implementation, can help to deliver high-performance, end-to-end innovation and an improved ability to achieve business objectives.

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         Technical Support Services: delivers a comprehensive line of support services to maintain and improve the availability of clients' IT infrastructures. These offerings include maintenance for IBM products and other technology platforms, as well as software and solution support.

         Integration Software: delivers industry-leading hybrid cloud solutions that empower clients to achieve rapid innovation, hybrid integration, and process transformation with choice and consistency across public, dedicated and local cloud environments, leveraging IBM's Bluemix Platform-as-a-Service solution. Integration Software offerings and capabilities help clients address the digital imperatives to create, connect and optimize their applications, data and infrastructure on their journey to become cognitive businesses.

         Systems provides clients with innovative infrastructure technologies to help meet the new requirements of hybrid cloud and cognitive workloads—from deploying advanced analytics, to moving to digital service delivery with the cloud, and securing mobile transaction processing. Approximately half of Systems Hardware's server and storage sales transactions are through the company's business partners, with the balance direct to end-user clients. IBM Systems also designs advanced semiconductor and systems technology in collaboration with IBM Research, primarily for use in the company's systems.

Systems Capabilities

         Servers: a range of high-performance systems designed to address computing capacity, security and performance needs of businesses, hyperscale cloud service providers and scientific computing organizations. The portfolio includes z Systems, a trusted enterprise platform for integrating data, transactions and insight, and Power Systems, a system designed from the ground up for big data and analytics, optimized for scale-out cloud and Linux, and delivering open innovation with OpenPOWER.

        The company is a founding member of the OpenPOWER foundation, a group of industry-leading companies developing high-performance compute technologies and solutions based on the IBM POWER architecture.

         Storage: data storage products and solutions that allow clients to retain and manage rapidly growing, complex volumes of digital information and to fuel data-centric cognitive applications. These solutions address critical client requirements for information retention and archiving, security, compliance and storage optimization including data deduplication, availability and virtualization. The portfolio consists of a broad range of software-defined storage solutions, flash storage, disk and tape storage solutions.

         Operating Systems Software: The company's z/OS is a security-rich, scalable, high-performance enterprise operating system for z Systems. Power Systems offers a choice of AIX or Linux operating systems. These operating systems leverage POWER architecture to deliver secure, reliable and high- performing enterprise-class workloads across a breadth of server offerings.

         Global Financing facilitates IBM clients' acquisition of information technology systems, software and services by providing financing solutions in the areas where the company has the expertise. The financing arrangements are predominantly for products or services that are critical to the end users' business operations. These financing contracts are entered into after a comprehensive credit evaluation and are secured by legal contracts. As a captive financier, Global Financing has the benefit of both deep knowledge of its client base and a clear insight into the products and services financed. These factors allow the business to effectively manage two of the major risks, credit and residual value, associated with financing while generating strong returns on equity. Global Financing also maintains a long-term partnership with the companies' clients through various stages of IT asset life cycle—from initial purchase and technology upgrades to asset disposition decisions.

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Global Financing Capabilities

         Client Financing: lease, installment payment plan and loan financing to end users and internal clients for terms up to seven years. Assets financed are primarily new and used IT hardware, software and services where the company has expertise. Internal financing is predominantly in support of Technology Services & Cloud Platforms' long-term client service contracts. All internal financing arrangements are at arm's-length rates and are based upon market conditions.

         Commercial Financing: short-term inventory and accounts receivable financing to suppliers, distributors and remarketers of IBM and OEM products. This includes internal activity where Global Financing factors a selected portion of the company's accounts receivable primarily for cash management purposes, at arm's-length rates.

         Remanufacturing and Remarketing: assets include used equipment returned from lease transactions, or used and surplus equipment acquired internally or externally. These assets may be refurbished or upgraded and sold or leased to new or existing clients both externally or internally. Externally remarketed equipment revenue represents sales or leases to clients and resellers. Internally remarketed equipment revenue primarily represents used equipment that is sold internally to Systems and Technology Services & Cloud Platforms. Systems may also sell the equipment that it purchases from Global Financing to external clients.

IBM Worldwide Organizations

        The following worldwide organizations play key roles in IBM's delivery of value to its clients:

    Global Markets (formerly Sales and Distribution)

    Research, Development and Intellectual Property

    Integrated Supply Chain

Global Markets

        IBM has a global presence, operating in more than 175 countries with a broad-based geographic distribution of revenue. The company's Global Markets organization manages IBM's global footprint, working closely with dedicated country-based operating units to serve clients locally. These country teams have client relationship managers who lead integrated teams of consultants, solution specialists and delivery professionals to enable clients' growth and innovation. These local teams develop deep relationships with their clients to bring together capabilities from IBM and its network of Business Partners to develop and implement solutions.

        By complementing local expertise with global experience and digital capabilities, IBM builds broad-based client relationships. This local management focus fosters speed in addressing new markets and making investments in emerging opportunities. The Global Markets organization serves clients with expertise in their industry as well as through the products and services that IBM and partners supply. IBM is also expanding its reach to smaller clients through digital marketing, digital marketplaces, inside sales and local Business Partner resources.

        IBM continues to invest to capture opportunities in key growth markets around the world—India, China and Southeast Asia; Eastern Europe; the Middle East and Africa; and Latin America. Major IBM markets include the G7 countries of Canada, France, Germany, Italy, Japan, the United States (U.S.) and the United Kingdom (U.K.), as well as Austria, the Bahamas, Belgium, the Caribbean, Cyprus, Denmark, Finland, Greece, Iceland, Ireland, Israel, Malta, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.

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Research, Development and Intellectual Property

        IBM's research and development (R&D) operations differentiate the company from its competitors. IBM annually invests 6 to 7 percent of total revenue for R&D, focusing on high-growth, high-value opportunities. IBM Research works with clients and the company's business units through global labs on near-term and midterm innovations. It contributes many new technologies to IBM's portfolio every year and helps clients address their most difficult challenges. IBM Research scientists are conducting pioneering work in artificial intelligence, analytics, security, nanotechnology, cloud computing, blockchain, quantum computing, silicon and post-silicon computing architectures, data-centric systems and more—applying these technologies across industries including healthcare, Internet of Things, education and financial services.

        In 2016, IBM was awarded more U.S. patents than any other company for the 24th consecutive year. IBM's 8,088 patents awarded in 2016 represent a diverse range of inventions in artificial intelligence and cognitive computing, cognitive health, cloud, cybersecurity and other strategic growth areas for the company.

        The company continues to actively seek intellectual property (IP) protection for its innovations, while increasing emphasis on other initiatives designed to leverage its IP leadership. Some of IBM's technological breakthroughs are used exclusively in IBM products, while others are licensed and may be used in IBM products and/or the products of the licensee. As part of its business model, the company licenses certain of its intellectual property, which is high-value technology, but may be in more mature markets. The licensee drives the future development of the IP and ultimately expands the customer base. This generates IP income for the company both upon licensing, and with ongoing royalty arrangements between it and the licensee. While the company's various proprietary IP rights are important to its success, IBM believes its business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses. IBM owns or is licensed under a number of patents, which vary in duration, relating to its products.

Integrated Supply Chain

        IBM has an extensive integrated supply chain, procuring materials and services globally. Additionally, growth in client spend managed by IBM's procurement organization continues to demonstrate clients' faith that IBM can reduce clients' cost through the transformation of source-to-pay operations. The supply, manufacturing and logistics operations are seamlessly integrated and have optimized inventories over time. Simplifying and streamlining internal processes has improved sales force productivity and operational effectiveness and efficiency. Supply chain resiliency enables IBM to reduce its risk during marketplace changes.

        The company continues to derive business value from its own globally integrated supply chain providing a strategic advantage for the company to create value for clients. IBM leverages its supply chain expertise for clients through its supply chain business transformation outsourcing service to optimize and help operate clients' end-to-end supply chain processes, from procurement to logistics. Utilizing analytics, mobile, cloud and social—with numerous projects, has allowed the integrated supply chain to drive positive business outcomes for the company and its clients.

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COMPETITION

        The company is a globally-integrated enterprise, operating in more than 175 countries. The company participates in a highly competitive environment, where its competitors vary by industry segment, and range from large multinational enterprises to smaller, more narrowly focused entities. Overall, across its business segments, the company recognizes hundreds of competitors worldwide.

        Across its business, the company's principal methods of competition are: technology innovation; performance; price; quality; brand; its broad range of capabilities, products and services; client relationships; the ability to deliver business value to clients; and service and support. In order to maintain leadership, a corporation must continue to invest, innovate and integrate. The company has been executing a strategy to transform its business, including shifting to higher value market segments and offerings and increasing its capabilities through organic investments, partnerships and strategic acquisitions. As the company executes its strategy, it has entered into new markets, such as cloud and cognitive, including business analytics and "as-a-service" solutions, which exposes the company to new competitors. Overall, the company is the leader or among the leaders in each of its business segments.

        A summary of the competitive environment for each business segment is included below:

Cognitive Solutions:

        The Cognitive Solutions segment leads the burgeoning market for artificial intelligence infused software solutions. Increasingly, technology companies are looking to implement software solutions that will take advantage of the massive amounts of data businesses hold in order to improve business outcomes for their clients. The Watson platform is integrated throughout the Cognitive Solutions segment. Watson is the first commercially available cognitive computing capability, representing a new era in computing. Delivered through the cloud, the platform analyzes high volumes of data, understands complex questions posed in natural language, and proposes evidence-based answers. Watson continuously learns in three ways: by being taught by its users, by learning from prior interactions, and by being presented with new information.

        Its key competitive factors include a wide range of powerful cognitive services—from conversation services and machine vision to deep learning. IBM is unique amongst its competitors in providing transparency so users and decision makers can see the data sources and training methods and thus have confidence in the recommendations. The insights produced by IBM's cognitive systems are trained and designed for specific industries including Health, Financial Services, Education, Retail and others.

        Specifically, Cognitive Solutions includes solutions software, delivered both on-premise and "as-a-service", and transaction processing software. The solutions software portfolio, which spans Watson data management, analytics, security, and social capabilities, provides comprehensive business and industry-specific offerings to IT decision makers. IT buyers include chief information officers as well as line of business buyers, such as chief marketing and procurement officers, chief information security officers and chief financial officers. The transaction processing software portfolio, mostly delivered on-premise, runs mission-critical systems in industries such as banking, airlines and retail.

        The depth and breadth of the software offerings, coupled with the company's global markets and technical support infrastructure, differentiate its capabilities from its competitors. The company's research and development capabilities and intellectual property patent portfolio also contribute to its differentiation. The company's principal competitors in this segment include Alphabet Inc. (Google), Amazon.com, Inc. (Amazon) Cisco Systems, Inc. (Cisco), Microsoft Corporation (Microsoft), Oracle Corporation (Oracle), Salesforce.com and SAP. The company also competes with smaller, niche competitors in specific geographic or product markets worldwide.

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Global Business Services and Technology Services & Cloud Platforms:

        The company's services segments, Global Business Services and Technology Services & Cloud Platforms, operate in a highly competitive and continually evolving global market. The principal competitive factors in these business segments include: technical skills and capabilities, innovative service and product offerings, industry knowledge and experience, value and speed, price, client relationships, quality of sales and delivery, reliability, security and the availability of resources. The company's competitive advantages in these businesses include its global reach and scale, global delivery model, best-of-breed process and industry skills, extensive technology expertise, services assets, an ability to deliver integrated solutions that can address clients' needs in any environment and with a strong set of relationships with clients and strategic business partners worldwide.

Global Business Services:

        GBS competes in consulting, systems integration, application management and business process outsourcing services. The company competes with broad based competitors including: Accenture, Capgemini, Computer Sciences Corporation, Fujitsu, Google, Hewlett-Packard (HPE) and Microsoft; India-based service providers; the consulting practices of public accounting firms; and many companies that primarily focus on local markets or niche service areas.

Technology Services & Cloud Platforms:

        Technology Services & Cloud Platforms competes in strategic outsourcing, cloud services, and a wide range of technical and IT support services. The company competes with broad based competitors including: Accenture, Amazon, Computer Sciences Corporation, Fujitsu, Google, HPE and Microsoft; India-based service providers; and many companies that primarily focus on local markets or niche service areas.

        This segment also includes the company's Integration Software offerings. Integration Software helps clients address the digital imperatives to create, connect and optimize their applications, data and infrastructure on their journey to become cognitive businesses. The company competes with Amazon, BMC, Microsoft, Oracle, VMWare as well as companies that primarily focus on niche solutions and offerings.

Systems:

        The enterprise server and storage market is characterized by competition in technology and service innovation focused on value, function, reliability, price and cost performance. The company's principal competitors include Dell Technologies, HPE, Intel, Pure Storage, Oracle, and lower cost original device manufacturer systems that are often re-branded. Also, alternative as-a-service providers are leveraging innovation in technology and service delivery both to compete with traditional providers and to offer new routes to market for server and storage systems. These alternative providers include Amazon, Google, Microsoft, and IBM's own cloud-based services.

        The company gains advantage and differentiation through investments in higher value capabilities—from semiconductor through software stack innovation—that increase efficiency, lower cost and improve performance. The company's research and development capabilities and intellectual property patent portfolio contribute significantly to this segment's leadership across areas as diverse as high performance computing, virtualization technologies, software optimization, power management, security, multi-operating system capabilities and open technologies like interconnect standards to be leveraged by broad ecosystems.

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Global Financing:

        Global Financing provides client financing, commercial financing and participates in the remarketing of used equipment. Global Financing's access to capital and its ability to manage increased exposures provide a competitive advantage for the company. The key competitive factors include price, IT product expertise, client service, contract flexibility, ease of doing business, global capabilities and residual values. In client and commercial financing, Global Financing competes with three types of companies in providing financial services to IT customers: other captive financing entities of IT companies such as Cisco and HP, non-captive financing entities of companies such as General Electric Company and banks or financial institutions. In remarketing, the company competes with local and regional brokers plus original manufacturers in the fragmented worldwide used IT equipment market.

Forward-looking and Cautionary Statements

        Certain statements contained in this Form 10-K may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("Reform Act"). Forward-looking statements are based on the company's current assumptions regarding future business and financial performance. These statements by their nature address matters that are uncertain to different degrees. The company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In addition, the company's representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as "anticipates," "believes," "expects," "estimates," "intends," "plans," "projects," and similar expressions, may identify such forward-looking statements. Any forward-looking statement in this Form 10-K speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. In accordance with the Reform Act, set forth under Item 1A. "Risk Factors" on pages 12 to 18 are cautionary statements that accompany those forward-looking statements. Readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-K, in the company's filings with the Securities and Exchange Commission or in materials incorporated therein by reference.

        The following information is included in IBM's 2016 Annual Report to Stockholders and is incorporated herein by reference:

        Segment information and revenue by classes of similar products or services—pages 150 to 154.

        Financial information by geographic areas—page 154.

        Amount spent during each of the last three years on R&D activities—page 132.

        Financial information regarding environmental activities—page 123.

        The number of persons employed by the registrant—page 76.

        The management discussion overview—pages 27 to 30.

        Available information—page 159.

Also refer to Item 1A. entitled "Risk Factors" in Part I of this Form.

11


Executive Officers of the Registrant (at February 28, 2017):

 
  Age   Officer since  

Virginia M. Rometty, Chairman of the Board, President and Chief Executive Officer*

    59     2005  

Michelle H. Browdy, Senior Vice President, Legal and Regulatory Affairs, and General Counsel

    52     2015  

Erich Clementi, Senior Vice President, IBM Global Markets

    58     2010  

Robert F. Del Bene, Vice President and Controller

    57     2017  

Diane J. Gherson, Senior Vice President, Human Resources

    59     2013  

James J. Kavanaugh, Senior Vice President, Transformation and Operations

    50     2008  

John E. Kelly III, Senior Vice President, IBM Cognitive Solutions and IBM Research

    63     2000  

Kenneth M. Keverian, Senior Vice President, Corporate Strategy

    60     2014  

Martin J. Schroeter, Senior Vice President and Chief Financial Officer

    52     2014  

*
Member of the Board of Directors.

        All executive officers are elected by the Board of Directors annually as provided in the By-laws. Each executive officer named above, with the exception of Kenneth M. Keverian, has been an executive of IBM or its subsidiaries during the past five years.

        Mr. Keverian was a Senior Partner at the Boston Consulting Group, a global management consulting firm, until joining IBM in 2014. He was with Boston Consulting Group for 26 years and he focused on serving technology companies in the computing and communications sectors.

Item 1A. Risk Factors:

         Downturn in Economic Environment and Client Spending Budgets could impact the Company's Business: If overall demand for IBM's products and solutions decreases, whether due to general economic conditions or a shift in client buying patterns, the company's revenue and profit could be impacted.

         The Company may not meet its Growth and Productivity Objectives under its Internal Business Transformation and Global Integration Initiatives: On an ongoing basis, IBM seeks to drive greater agility, productivity, flexibility and cost savings by transforming and globally integrating its own business processes, functions and technologies to remain competitive and to enable scaling of resources and offerings in both emerging and more established markets. These various initiatives may not yield their intended gains in speed, quality, productivity and enablement of rapid scaling, which may impact the company's competitiveness and its ability to meet its growth and productivity objectives.

         Failure of Innovation Initiatives could impact the Long-Term Success of the Company: IBM has been moving away from certain segments of the IT industry and into areas in which it can differentiate itself through innovation, by leveraging its investments in R&D and attracting a successful developer ecosystem. If IBM is unable to continue its cutting-edge innovation in a highly competitive and rapidly evolving environment or is unable to commercialize such innovations, expand and scale them with sufficient speed and versatility, the company could fail in its ongoing efforts to maintain and increase its market share and its profit margins. In addition, IBM has one of the strongest brand names in the world, and its brand and overall reputation could be negatively impacted by many factors, including if the company does not continue to be recognized for its industry-leading technology and solutions and as a cognitive leader. If the company's brand image is tarnished by negative perceptions, its ability to attract and retain customers could be impacted.

         Risks from Investing in Growth Opportunities could impact the Company's Business: The company continues to invest significantly in its strategic imperatives to drive revenue growth and market share

12


gains. Client adoption rates and viable economic models are less certain in the high-value, highly competitive, and rapidly-growing segments, and new delivery models may unfavorably impact demand and profitability for our other products or services. In addition, as the company expands to capture emerging growth opportunities, it needs to rapidly secure the appropriate mix of trained, skilled and experienced personnel, and develop ecosystems and collaborative partnerships. In emerging growth countries, the developing nature presents potential political, social, legal and economic risks from evolving governmental policy, inadequate infrastructure, creditworthiness of customers and business partners, labor disruption and corruption, which could impact the company's ability to meet its growth objectives and to deliver to its clients around the world.

         IBM's Intellectual Property Portfolio may not prevent Competitive Offerings, and IBM may not be able to Obtain Necessary Licenses: The company's patents and other intellectual property may not prevent competitors from independently developing products and services similar to or duplicative to the company's, nor can there be any assurance that the resources invested by the company to protect its intellectual property will be sufficient or that the company's intellectual property portfolio will adequately deter misappropriation or improper use of the company's technology. In addition, the company may be the target of aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities. Also, there can be no assurances that IBM will be able to obtain from third parties the licenses it needs in the future. The company's ability to protect its intellectual property could also be impacted by changes to existing laws, legal principles and regulations governing intellectual property, including the ownership and protection of patents.

         Cybersecurity and Privacy Considerations could impact the Company's Business: The company's products, services, and systems may affect critical third party operations or involve the storage, processing and transmission of sensitive data, including valuable intellectual property, other proprietary or confidential data, regulated data, and personal information of employees, customers and others. In the current environment there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance, and human or technological error. As a global enterprise, the regulatory environment with regard to cybersecurity, privacy and data protection issues is increasingly challenging and may have impacts on the company's business, including increased risk, costs, and expanded compliance obligations. As the company's business focus on data grows, the potential impact of these vulnerabilities and regulations on the company's business, risks, and reputation may grow accordingly. The General Data Protection Regulation that will come into force in the European Union in May 2018 will cause the company to incur additional compliance costs.

        Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. The risk of such attacks to the company includes attempted breaches not only of our own products, services and systems, but also those of customers, contractors, business partners, vendors and other third parties. Successful breaches, employee malfeasance, or human or technological error could result in, for example, unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems; theft of sensitive, regulated, or confidential data including personal information and intellectual property; the loss of access to critical data or systems through ransomware or other attacks; and business delays, service or system disruptions or denial of service. In the event of such actions, the company, its customers or other third parties could be exposed to potential liability, litigation, and regulatory or other government action, as well as the loss of existing or potential customers, damage to brand and reputation, and other financial loss. In addition, the cost and operational consequences of responding to breaches and implementing remediation measures could be significant. The company experiences and responds to cybersecurity threats, although none has had a material adverse effect on the company to date. As the company's business and the cybersecurity

13


landscape evolve, the company may also find it necessary to make significant further investments to protect data and infrastructure. Cybersecurity risk to the company and its customers will also depend on factors such as actions, practices and investments of customers, contractors, business partners, vendors and other third parties. Cyber attacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to company, customer, or other third party operations or services, financial loss, injury to persons or property, potential liability, and damage to brand and reputation.

         The Company's Financial Results for Particular Periods are Difficult to Predict: IBM's revenues are affected by such factors as the introduction of new products and services, our ability to compete effectively in increasingly competitive marketplaces, the length of the sales cycles and the seasonality of technology purchases. Moreover, the company's strategic imperatives involve new products, new customers, new and evolving competitors, and new markets, all of which contribute to the difficulty of predicting the company's financial results. The company's financial results may also be impacted by the structure of products and services contracts and the nature of its customers' businesses; for example, certain of the company's services contracts with commercial customers in regulated industries are subject to periodic review by regulators with respect to controls and processes. As a result of the above-mentioned factors, the company's financial results are difficult to predict. Historically, the company has had lower revenue in the first quarter than in the immediately preceding fourth quarter. In addition, the high volume of products typically ordered at the end of each quarter, especially at the end of the fourth quarter, may affect IBM's ability to successfully ship all orders before the end of the quarter.

         Due to the Company's Global Presence, its Business and Operations could be impacted by Local Legal, Economic, Political and Health Conditions: The company is a globally integrated entity, operating in over 175 countries worldwide and deriving more than sixty percent of its revenues from sales outside the United States. Changes in the laws or policies of the countries in which the company operates, or inadequate enforcement of laws or policies, could affect the company's business and the company's overall results of operations. The company's results of operations also could be affected by economic and political changes in those countries and by macroeconomic changes, including recessions, inflation, currency fluctuations between the U.S. dollar and non-U.S. currencies and adverse changes in trade relationships amongst those countries. Further, as the company expands its customer base and the scope of its offerings, both within the U.S. and globally, it may be impacted by additional regulatory or other risks. In addition, any widespread outbreak of an illness, pandemic or other local or global health issue or uncertain political climates, international hostilities, natural disasters, or any terrorist activities, could adversely affect customer demand and the company's operations and its ability to source and deliver products and services to its customers.

         The Company could incur Substantial Costs for Environmental Matters: The company is subject to various federal, state, local and foreign laws and regulations concerning the discharge of materials into the environment or otherwise related to environmental protection, including the U.S. Superfund law. The company could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury, if it were to violate or become liable under environmental laws and regulations. Compliance with environmental laws and regulations is not expected to have a material adverse effect on the company's financial position, results of operations and competitive position.

         Tax Matters could impact the Company's Results of Operations and Financial Condition: The company is subject to income taxes in both the United States and numerous foreign jurisdictions. IBM's provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact the company's results of

14


operations and financial condition in future periods. The Organization for Economic Cooperation and Development (OECD) is issuing guidelines that are different, in some respects, than long-standing international tax principles. As countries unilaterally amend their tax laws to adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact the company's income taxes. Local country, state, provincial or municipal taxation may also be subject to review and potential override by regional, federal, national or similar forms of government. In addition, IBM is subject to the continuous examination of its income tax returns by the United States Internal Revenue Service and other tax authorities around the world. The company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. There can be no assurance that the outcomes from these examinations will not have an adverse effect on the company's provision for income taxes and cash tax liability.

         The Company's Results of Operations and Financial Condition could be negatively impacted by its U.S. and non-U.S. Pension Plans: Adverse financial market conditions and volatility in the credit markets may have an unfavorable impact on the value of the company's pension trust assets and its future estimated pension liabilities. As a result, the company's financial results in any period could be negatively impacted. In addition, in a period of an extended financial market downturn, the company could be required to provide incremental pension plan funding with resulting liquidity risk which could negatively impact the company's financial flexibility. Further, the company's results could be negatively impacted by premiums for mandatory pension insolvency insurance coverage outside the United States. Premium increases could be significant due to the level of insolvencies of unrelated companies in the country at issue. IBM's 2016 Annual Report to Stockholders includes information about potential impacts from pension funding and the use of certain assumptions regarding pension matters.

         Ineffective Internal Controls could impact the Company's Business and Operating Results: The company's internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if the company experiences difficulties in their implementation, the company's business and operating results could be harmed and the company could fail to meet its financial reporting obligations.

         The Company's Use of Accounting Estimates involves Judgment and could impact the Company's Financial Results: The application of generally accepted accounting principles requires the company to make estimates and assumptions about certain items and future events that directly affect its reported financial condition. The company's most critical accounting estimates are described in the Management Discussion in IBM's 2016 Annual Report to Stockholders, under "Critical Accounting Estimates." In addition, as discussed in note M, "Contingencies and Commitments," in IBM's 2016 Annual Report to Stockholders, the company makes certain estimates including decisions related to legal proceedings and reserves. These estimates and assumptions involve the use of judgment. As a result, actual financial results may differ.

         The Company Depends on Skilled Personnel and could be impacted by the loss of Critical Skills: Much of the future success of the company depends on the continued service, availability and integrity of skilled personnel, including technical, marketing and staff resources. Skilled and experienced personnel in the areas where the company competes are in high demand, and competition for their talents is intense. Changing demographics and labor work force trends may result in a loss of or insufficient knowledge and skills. In addition, as global opportunities and industry demand shifts, realignment, training and scaling of skilled resources may not be sufficiently rapid or successful. Further, many of IBM's key personnel receive a total compensation package that includes equity awards. Any new regulations, volatility in the stock market and other factors could diminish the

15


company's use, and the value, of the company's equity awards, putting the company at a competitive disadvantage or forcing the company to use more cash compensation.

         The Company's Business could be impacted by its Relationships with Critical Suppliers: IBM's business employs a wide variety of components, supplies, services and raw materials from a substantial number of suppliers around the world. Certain of the company's businesses rely on a single or a limited number of suppliers, and with the completion of GLOBALFOUNDRIES' acquisition of IBM's global commercial semiconductor business in 2015, it became IBM's exclusive server processor technology provider for certain semiconductors. Changes in the business condition (financial or otherwise) of these suppliers could subject the company to losses and affect its ability to bring products to market. Further, the failure of the company's suppliers to deliver components, supplies, services and raw materials in sufficient quantities, in a timely manner, and in compliance with all applicable laws and regulations could adversely affect the company's business. In addition, any defective components, supplies or materials, or inadequate services received from suppliers could reduce the reliability of the company's products and services and harm the company's reputation.

         Product Quality Issues could impact the Company's Business and Operating Results: The company has rigorous quality control standards and processes intended to prevent, detect and correct errors, malfunctions and other defects in its products and services. If errors, malfunctions, defects or disruptions in service are experienced by customers, there could be negative consequences that could impact customers' business operations and harm the company's business's operating results.

         The Company could be impacted by its Business with Government Clients: The company's customers include numerous governmental entities within and outside the U.S., including the U.S. Federal Government and state and local entities. Some of the company's agreements with these customers may be subject to periodic funding approval. Funding reductions or delays could adversely impact public sector demand for our products and services. Also, some agreements may contain provisions allowing the customer to terminate without cause and providing for higher liability limits for certain losses. In addition, the company could be suspended or debarred as a governmental contractor and could incur civil and criminal fines and penalties, which could negatively impact the company's results of operations and financial results.

         The Company is exposed to Currency and Financing Risks that could impact its Revenue and Business: The company derives a significant percentage of its revenues and costs from its affiliates operating in local currency environments, and those results are affected by changes in the relative values of non-U.S. currencies and the U.S. dollar. Further, inherent in the company's financing business are risks related to the concentration of credit, client creditworthiness, interest rate and currency fluctuations on the associated debt and liabilities, the determination of residual values and the financing of other than traditional IT assets. The company employs a number of strategies to manage these risks, including the use of derivative financial instruments, which involve the risk of non-performance by the counterparty. In addition, there can be no assurance that the company's efforts to manage its currency and financing risks will be successful.

         The Company's Financial Performance could be impacted by Changes in Market Liquidity Conditions and by Customer Credit Risk on Receivables: The company's financial performance is exposed to a wide variety of industry sector dynamics worldwide. The company's earnings and cash flows, as well as its access to funding, could be negatively impacted by changes in market liquidity conditions. IBM's 2016 Annual Report to Stockholders includes information about the company's liquidity position. The company's client base includes many worldwide enterprises, from small and medium businesses to the world's largest organizations and governments, with a significant portion of the company's revenue coming from global clients across many sectors. Most of the company's sales are on an open credit basis, and the company performs ongoing credit evaluations of its clients' financial conditions. If the company becomes aware of information related to the creditworthiness of a major customer, or, if

16


future actual default rates on receivables in general differ from those currently anticipated, the company may have to adjust its allowance for credit losses, which could affect the company's consolidated net income in the period the adjustments are made.

         The Company's Reliance on Third Party Distribution Channels and Ecosystems could impact its Business: The company offers its products directly and through a variety of third party distributors, resellers and ecosystem partners. Changes in the business condition (financial or otherwise) of these distributors, resellers and ecosystem partners could subject the company to losses and affect its ability to bring its products to market. As the company moves into new areas, distributors, resellers and ecosystem partners may be unable to keep up with changes in technology and offerings, and the company may be unable to recruit and enable appropriate partners to achieve growth objectives. In addition, the failure of third party distributors, resellers and ecosystem partners to comply with all applicable laws and regulations may prevent the company from working with them and could subject the company to losses and affect its ability to bring products to market.

         Risks to the Company from Acquisitions, Alliances and Dispositions include Integration Challenges, Failure to Achieve Objectives, and the Assumption of Liabilities: The company has made and expects to continue to make acquisitions, alliances and dispositions. Acquisitions and alliances present significant challenges and risks relating to the integration of the business into the company, and there can be no assurances that the company will manage acquisitions and alliances successfully or that strategic acquisition opportunities will be available to the company on acceptable terms or at all. The related risks include the company failing to achieve strategic objectives and anticipated revenue improvements and cost savings, as well as the failure to retain key personnel of the acquired business and the assumption of liabilities related to litigation or other legal proceedings involving the acquired business. From time to time, the company disposes or attempts to dispose of assets that are no longer central to its strategic objectives. Any such disposition or attempted disposition is subject to risks, including risks related to the terms and timing of such disposition, risks related to obtaining necessary governmental or regulatory approvals and risks related to retained liabilities not subject to the company's control.

         The Company is Subject to Legal Proceedings Risks: As a company with a substantial employee population and with clients in more than 175 countries, IBM is involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. The risks associated with such legal proceedings are described in more detail in note M, "Contingencies and Commitments," in IBM's 2016 Annual Report to Stockholders. The company believes it has adopted appropriate risk management and compliance programs. Legal and compliance risks, however, will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time.

         Risk Factors Related to IBM Securities: The company and its subsidiaries issue debt securities in the worldwide capital markets from time to time, with a variety of different maturities and in different currencies. The value of the company's debt securities fluctuates based on many factors, including the methods employed for calculating principal and interest, the maturity of the securities, the aggregate principal amount of securities outstanding, the redemption features for the securities, the level, direction and volatility of interest rates, changes in exchange rates, exchange controls, governmental and stock exchange regulations and other factors over which the company has little or no control. The company's ability to pay interest and repay the principal for its debt securities is dependent upon its ability to manage its business operations, as well as the other risks described under this Item 1A. entitled "Risk Factors." There can be no assurance that the company will be able to manage any of these risks successfully.

        The company also issues its common stock from time to time in connection with various compensation plans, contributions to its pension plan and certain acquisitions. The market price of

17


IBM common stock is subject to significant volatility, due to other factors described under this Item 1A. entitled "Risk Factors," as well as economic and geopolitical conditions generally, trading volumes, speculation by the press or investment community about the company's financial condition, and other factors, many of which are beyond the company's control. Since the market price of IBM's common stock fluctuates significantly, stockholders may not be able to sell the company's stock at attractive prices.

        In addition, changes by any rating agency to the company's outlook or credit ratings can negatively impact the value and liquidity of both the company's debt and equity securities. The company does not make a market in either its debt or equity securities and cannot provide any assurances with respect to the liquidity or value of such securities.

Item 1B. Unresolved Staff Comments:

        Not applicable.

Item 2. Properties:

        At December 31, 2016, IBM's manufacturing and development facilities in the United States had aggregate floor space of 8 million square feet, of which 7 million was owned and 1 million was leased. Similar facilities in 16 other countries totaled 6 million square feet, of which 2 million was owned and 4 million was leased. The company's facilities are utilized for current operations of all its segments.

        Although improved production techniques, productivity gains, divestitures and infrastructure reduction actions have resulted in reduced manufacturing floor space, continuous maintenance and upgrading of facilities is essential to maintain technological leadership, improve productivity and meet customer demand.

Item 3. Legal Proceedings:

        Refer to note M, "Contingencies and Commitments," on pages 127 to 129 of IBM's 2016 Annual Report to Stockholders, which is incorporated herein by reference.

Item 4. Mine Safety Disclosures:

        Not applicable.

18



PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:

        Refer to pages 156 and 159 of IBM's 2016 Annual Report to Stockholders, which are incorporated herein by reference solely as they relate to this item.

        IBM common stock is listed on the New York Stock Exchange and the Chicago Stock Exchange. There were 425,272 common stockholders of record at February 10, 2017.

        The following table provides information relating to the company's repurchase of common stock for the fourth quarter of 2016.

 
  Total Number
of Shares
Purchased
  Average
Price Paid
per Share
  Total Number
of Shares
Purchased
as Part of Publicly
Announced
Program
  Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under
the Program(1)
 

October 1, 2016—
October 31, 2016

    2,099,548   $ 153.73     2,099,548   $ 5,661,310,700  

November 1, 2016—
November 30, 2016

    1,584,897   $ 160.79     1,584,897   $ 5,406,480,346  

December 1, 2016—
December 31, 2016

    1,805,114   $ 165.07     1,805,114   $ 5,108,501,284  

Total

    5,489,559   $ 159.50     5,489,559        

(1)
On October 27, 2015, the Board of Directors authorized $4.0 billion in funds for use in the company's common stock repurchase program. On October 25, 2016, the Board of Directors authorized an additional $3.0 billion in funds for use in such program. In each case, the company stated that it would repurchase shares on the open market or in private transactions depending on market conditions. The common stock repurchase program does not have an expiration date. This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.

Item 6. Selected Financial Data:

        Refer to pages 155 and 156 of IBM's 2016 Annual Report to Stockholders, which are incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations:

        Refer to pages 26 through 81 of IBM's 2016 Annual Report to Stockholders, which are incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk:

        Refer to the section titled "Market Risk" on pages 74 and 75 of IBM's 2016 Annual Report to Stockholders, which is incorporated herein by reference.

19


Item 8. Financial Statements and Supplementary Data:

        Refer to pages 84 through 154 of IBM's 2016 Annual Report to Stockholders, which are incorporated herein by reference. Also refer to the Financial Statement Schedule on page S-1 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:

        Not applicable.

Item 9A. Controls and Procedures:

        The company's management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report.

        Refer to "Report of Management" and "Report of Independent Registered Public Accounting Firm" on pages 82 and 83 of IBM's 2016 Annual Report to Stockholders, which are incorporated herein by reference. There has been no change in the company's internal control over financial reporting that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

Item 9B. Other Information:

        Due to retirement, Joan E. Spero will not stand for re-election at the company's annual meeting of stockholders on April 25, 2017. As a result, Article III, Section 2 of the company's By-Laws was amended to decrease the number of directors to thirteen, effective April 25, 2017. The full text of IBM's By-Laws, as amended effective April 25, 2017, is included as Exhibit 3.2 to this report.

20



PART III

Item 10. Directors, Executive Officers and Corporate Governance:

        Refer to the information under the captions "Election of Directors for a Term of One Year," "General Information—Committees of the Board," "General Information—Audit Committee" and "2016 Director Compensation Narrative—Section 16(a) Beneficial Ownership Reporting Compliance" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017, all of which information is incorporated herein by reference. Also refer to Item 1 of this Form 10-K under the caption "Executive Officers of the Registrant (at February 28, 2017)" on page 12 for additional information on the company's executive officers.

Item 11. Executive Compensation:

        Refer to the information under the captions "2016 Director Compensation Narrative," "2016 Director Compensation Narrative—2016 Director Compensation Table," "2016 Compensation Discussion and Analysis," "2016 Summary Compensation Table Narrative," "2016 Summary Compensation Table," "2016 Grants of Plan-Based Awards Table," "2016 Outstanding Equity Awards at Fiscal Year-End Narrative," "2016 Outstanding Equity Awards at Fiscal Year-End Table," "2016 Option Exercises and Stock Vested Table," "2016 Retention Plan Narrative," "2016 Retention Plan Table," "2016 Pension Benefits Narrative," "2016 Pension Benefits Table," "2016 Nonqualified Deferred Compensation Narrative," "2016 Nonqualified Deferred Compensation Table," "2016 Potential Payments Upon Termination Narrative," "2016 Potential Payments Upon Termination Table," "General Information—Compensation Committee Interlocks and Insider Participation" and "Executive Compensation—2016 Report of the Executive Compensation and Management Resources Committee of the Board of Directors" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017, all of which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters:

        Refer to the information under the caption "Ownership of Securities—Security Ownership of Certain Beneficial Owners" and "Ownership of Securities—Common Stock and Stock-based Holdings of Directors and Executive Officers" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017, all of which information is incorporated herein by reference.

21


EQUITY COMPENSATION PLAN INFORMATION

Plan Category
  Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights(1)
(a)
  Weighted-average
exercise price of
outstanding options,
warrants and rights(1)
(b)
  Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column(a))
(c)
 

Equity compensation plans approved by security holders

                   

Options

    1,502,331   $ 139.78      

RSUs

    8,245,950     N/A      

PSUs

    4,145,700 (2)   N/A      

Subtotal

    13,893,981   $ 139.78     90,914,867  

Equity compensation plans not approved by security holders

                   

Options

    111,592   $ 102.80      

RSUs

    653,142     N/A      

PSUs

    166,437 (2)   N/A      

DCEAP shares

    184,240     N/A      

Subtotal

    1,115,411   $ 102.80     15,803,705  

Total

    15,009,392   $ 137.22     106,718,572  

N/A is not applicable

RSUs = Restricted Stock Units, including Retention Restricted Stock Units

PSUs = Performance Share Units

DCEAP Shares = Promised Fee Shares under the DCEAP (see plan description below)

(1)
In connection with 39 acquisition transactions, 604,784 additional share based awards, consisting of stock options, were outstanding at December 31, 2016 as a result of the Company's assumption of awards granted by the acquired entities. The weighted-average exercise price of these awards was $33.16. The Company has not made, and will not make, any further grants or awards of equity securities under the plans of these acquired companies.

(2)
The numbers included for PSUs in column (a) above reflect the maximum number payout. Assuming target number payout, the number of securities to be issued upon exercise of PSUs for equity compensation plans approved by security holders is 2,763,800 and for equity compensation plans not approved by security holders is 110,958. For additional information about PSUs, including payout calculations, refer to the information under "2016 Summary Compensation Table Narrative," in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017.

        The material features of each equity compensation plan under which equity securities are authorized for issuance that was adopted without stockholder approval are described below:

2001 Long-Term Performance PIan

        The 2001 Long-Term Performance Plan (the "2001 Plan") has been used to fund awards for employees other than senior executives of the Company. Awards for senior executives of the Company have been and will continue to be funded from the stockholder-approved 1999 Long-Term Performance Plan (the "1999 Plan"); the 1999 Plan is also used to fund awards for employees other than senior

22


executives, Otherwise, the provisions of the 2001 Plan are identical to the 1999 Plan, including the type of awards that may be granted under the plan (stock options, restricted stock and unit awards and long-term performance incentive awards).

        The 2001 Plan is administered by the Executive Compensation and Management Resources Committee of the Board of Directors (the "Committee"), and that Committee may delegate to officers of the company certain of its duties, powers and authority. Payment of awards may be made in the form of cash, stock or combinations thereof and may be deferred with Committee approval. Awards are not transferable or assignable except (i) by law, will or the laws of descent and distribution, (ii) as a result of the disability of the recipient, or (iii) with the approval of the Committee.

        If the employment of a participant terminates, other than as a result of the death or disability of a participant, all unexercised, deferred and unpaid awards shall be canceled immediately, unless the award agreement provides otherwise. In the event of the death of a participant or in the event a participant is deemed by the company to be disabled and eligible for benefits under the terms of the IBM Long-Term Disability Plan (or any successor plan or similar plan of another employer), the participant's estate, beneficiaries or representative, as the case may be, shall have the rights and duties of the participant under the applicable award agreement. In addition, unless the award agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred award at any time if the participant is not in compliance with all applicable provisions of the awards agreement and the 2001 Plan. In addition, awards may be cancelled if the participant engages in any conduct or act determined to be injurious, detrimental or prejudicial to any interest of the company.

PWCC Acquisition Long-Term Performance Plan

        The IBM PWCC Acquisition Long-Term Performance Plan (the "PWCC Plan") was adopted by the Board of Directors in connection with the company's acquisition of PricewaterhouseCoopers Consulting ("PwCC") from PricewaterhouseCoopers LLP, as announced on October 1, 2002. The PWCC Plan has been and will continue to be used solely to fund awards for employees of PwCC who have become employed by the company as a result of the acquisition. Awards for senior executives of the company will not be funded from the PWCC Plan. The terms and conditions of the PWCC Plan are substantively identical to the terms and conditions of the 2001 Plan, described above.

IBM Deferred Compensation and Equity Award Plan

        The IBM Deferred Compensation and Equity Award Plan (the "DCEAP") was adopted in 1993 and amended and restated effective January 1, 2014. Under the Amended and Restated DCEAP, non-management directors receive Promised Fee Shares in connection with deferred annual retainer payments. Each Promised Fee Share is equal in value to one share of the company's common stock. Upon a director's retirement or other completion of service as a director, amounts deferred into Promised Fee Shares are payable in either cash and/or shares of the company's stock either as lump sum or installments pursuant to the director's distribution election. For additional information about the DCEAP, see "2016 Director Compensation Narrative" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017.

Item 13. Certain Relationships and Related Transactions, and Director Independence:

        Refer to the information under the captions "General Information—IBM Board of Directors" and "General Information—Certain Transactions and Relationships" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017, which information is incorporated herein by reference.

23


Item 14. Principal Accounting Fees and Services:

        Refer to the information under the captions "Report of the Audit Committee of the Board of Directors" and "Audit and Non-Audit Fees" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017, all of which information is incorporated herein by reference.

24



PART IV

Item 15. Exhibits, Financial Statement Schedules:

    (a)
    The following documents are filed as part of this report:

    1.
    Financial statements from IBM's 2016 Annual Report to Stockholders, which are incorporated herein by reference:

        Report of Independent Registered Public Accounting Firm (page 83).

        Consolidated Statement of Earnings for the years ended December 31, 2016, 2015 and 2014 (page 84).

        Consolidated Statement of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014 (page 85).

        Consolidated Statement of Financial Position at December 31, 2016 and 2015 (page 86).

        Consolidated Statement of Cash Flows for the years ended December 31, 2016, 2015 and 2014 (page 87).

        Consolidated Statement of Changes in Equity at December 31, 2016, 2015 and 2014 (pages 88 and 89).

        Notes to Consolidated Financial Statements (pages 90 through 154).

      2.
      Financial statement schedule required to be filed by Item 8 of this Form:
Page
  Schedule
Number
   
 

34

       

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule.

 

S-1

    II  

Valuation and Qualifying Accounts and Reserves.

        All other schedules are omitted as the required matter is not present, the amounts are not significant or the information is shown in the Consolidated Financial Statements or the notes thereto.

      3.
      Exhibits:
Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
  (2)   Plan of acquisition, reorganization, arrangement, liquidation or succession.    Not applicable

 

(3)

 

Certificate of Incorporation and By-laws. 

 

 

 

 

 

The Certificate of Incorporation of IBM is Exhibit 3.2 to Form 8-K filed April 27, 2007, and is hereby incorporated by reference. 

 

 

 

 

 

The By-laws of IBM, as amended through April 26, 2016, is Exhibit 3.2(b) to Form 10-K for the year ended December 31, 2015, and is hereby incorporated by reference. 

 

 

 

 

 

The By-laws of IBM, as amended effective April 25, 2017. 

 

3.2

 

(4)

 

Instruments defining the rights of security holders. 

 

 

25


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
      The instruments defining the rights of the holders of the 8.375% Debentures due 2019 are Exhibits 4(a)(b)(c) and (d), respectively, to Registration Statement No. 33-31732 on Form S-3, filed on October 24, 1989, and are hereby incorporated by reference.     

 

 

 

The instruments defining the rights of the holders of the 7.00% Debentures due 2025 and the 7.00% Debentures due 2045 are Exhibits 2 and 3, respectively, to Form 8-K, filed on October 30, 1995, and are hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 7.125% Debentures due 2096 is Exhibit 2 to Form 8-K/A, filed on December 6, 1996, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 6.22% Debentures due 2027 is Exhibit 3 to Form 8-K, filed on August 1, 1997, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 6.50% Debentures due 2028 is Exhibit 2 to Form 8-K, filed on January 8, 1998, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 2.900% Notes due 2021 is Exhibit 3.1 to Form 8-K, filed October 31, 2011, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 1.875% Notes due 2019 is Exhibit 3.1 to Form 8-K, filed May 10, 2012, and is hereby incorporated by reference. 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.875% Notes due 2022 is Exhibit 2.1 to Form 8-K, filed July 27, 2012, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 1.375% Notes due 2019 is Exhibit 2.1 to Form 8-K, filed November 16, 2012, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 1.250% Notes due 2018 is Exhibits 2.1 to Form 8-K, filed February 7, 2013, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 1.625% Notes due 2020 is 3.1 to Form 8-K, filed May 6, 2013, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 3.375% Notes is Exhibit 2.1 to Form 8-K, filed July 31, 2013, and is hereby incorporated by reference. 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.875% Notes due 2020 and 2.875% Notes due 2025 are Exhibits 2.1 and 3.1 to Form 8-K, filed November 6, 2013, and are hereby incorporated by reference. 

 

 

26


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
      The instrument defining the rights of the holders of the 2.750% Notes due 2020 is Exhibit 2 to Form 8-K, filed November 20, 2013, and is hereby incorporated by reference.     

 

 

 

The instruments defining the rights of the holders of the 1.950% Notes due 2019, Floating Rate Notes due 2019 and 3.625% due 2024 are Exhibits 3, 4 and 5 to Form 8-K, filed February 11, 2014, and are hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the Floating Rate Notes due 2021 is Exhibit 2 to Form 8-K, filed November 5, 2014, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 1.25% Notes due 2023 is Exhibit 2 to Form 8-K, filed November 25, 2014, and is hereby incorporated by reference. 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.125% Notes due 2018 and Floating Rate Notes due 2018 are Exhibits 2 and 3 to Form 8-K, filed February 5, 2015, and are hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 2.625% Notes due 2022 is Exhibit 2 to Form 8-K, filed on August 4, 2015, and is hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 2.875% Notes due 2022 is Exhibit 2 to Form 8-K, filed on November 6, 2015, and is hereby incorporated by reference. 

 

 

 

 

 

The instruments defining the rights of the holders of the Floating Rate Notes due 2017, 1.800% Notes due 2019, 2.250% Notes due 2021, 3.450% Notes due 2026 and 4.700% Notes due 2046 are Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5 to Form 8-K filed February 18, 2016, and are hereby incorporated by reference. 

 

 

 

 

 

The instruments defining the rights of the holders of the 0.500% Notes due 2021, 1.125% Notes due 2024 and 1.750% Notes due 2028 are Exhibits 4.1, 4.2 and 4.3 to Form 8-K filed March 4, 2016 and are hereby incorporated by reference. 

 

 

 

 

 

The instrument defining the rights of the holders of the 0.30 Notes due 2026 is Exhibit 4 to Form 8-K filed November 1, 2016 and is hereby incorporated by reference. 

 

 

 

(9)

 

Voting trust agreement

 

Not applicable

 

(10)

 

Material contracts

 

 

 

 

 

The IBM 2001 Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-87708 on Form S-8, as such amended plan was filed as Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*

 

 

27


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
      The IBM PWCC Acquisition Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-102872 on Form S-8, as such amended plan was filed as Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*    

 

 

 

The IBM 1999 Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-30424 on Form S-8, as such amended plan was filed as Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*

 

 

 

 

 

The IBM 1997 Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-31305 on Form S-8, as such amended plan was filed as Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*

 

 

 

 

 

Forms of LTPP equity award agreements for (i) stock options, restricted stock, restricted stock units, cash-settled restricted stock units, SARS and (ii) retention restricted stock unit awards. Such equity award agreement forms and the related terms and conditions document, effective June 9, 2014, were filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2014, are hereby incorporated by reference.*

 

 

 

 

 

Form of LTPP equity award agreement for performance share units was filed as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2015, and is hereby incorporated by reference.*

 

 

 

 

 

Terms and Conditions of LTPP equity award agreements was filed as Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2016, and is hereby incorporated by reference.*

 

 

 

 

 

Board of Directors compensatory plans, as described under the caption "General Information—2016 Director Compensation" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 25, 2017, are hereby incorporated by reference.*

 

 

 

 

 

The IBM Non-Employee Directors Stock Option Plan, contained in Registration Statement 33-60227 on Form S-8, is hereby incorporated by reference.*

 

 

 

 

 

The IBM Board of Directors Deferred Compensation and Equity Award Plan, a compensatory plan, as amended and restated effective January 1, 2014, which was filed as Exhibit 10.1 to Form 10-K for the year ended December 31, 2013, and is hereby incorporated by reference.*

 

 

 

 

 

The IBM Supplemental Executive Retention Plan, a compensatory plan, as amended and restated through December 31, 2008, which was filed as Exhibit 10.2 to Form 10-K for the year ended December 31, 2008, is hereby incorporated by reference.*

 

 

28


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
      Amendment No. 1 to the IBM Supplemental Executive Retention Plan, a compensatory plan, effective December 9, 2014, which was filed as Exhibit 10.1 to the Form 10-K for the year ended December 31, 2014, and is hereby incorporated by reference.*    

 

 

 

The IBM Excess 401(k) Plus Plan, a compensatory plan (formerly the IBM Executive Deferred Compensation Plan), as amended and restated through January 1, 2010, which was filed as Exhibit 10.1 to the Form 10-K for the year ended December 31, 2009 contained in Registration Statement No. 333-171968 on Form S-8, is hereby incorporated by reference.*

 

 

 

 

 

Amendment No. 1 to the IBM Excess 401(k) Plus Plan, a compensatory plan, effective January 1, 2013 which was filed as Exhibit 10.1 to the Form 10-K for the year ended December 31, 2012, and is hereby incorporated by reference.*

 

 

 

 

 

Amendment No. 2 to the IBM Excess 401(k) Plus Plan, a compensatory plan, effective January 1, 2013 which was filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 2012, and is hereby incorporated by reference.*

 

 

 

 

 

Amendment No. 3 to the IBM Excess 401(k) Plus Plan, a compensatory plan, effective January 1, 2013 which was filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 2013, and is hereby incorporated by reference.*

 

 

 

 

 

Amendment No. 4 to the IBM Excess 401(k) Plus Plan, a compensatory plan, dated as of February 25, 2014, which was filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2014, and is hereby incorporated by reference.*

 

 

 

 

 

Amendment No. 5 to the IBM Excess 401(k) Plus Plan, a compensatory plan, dated as of December 9, 2014 , which was filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 2014, and is hereby incorporated by reference.*

 

 

 

 

 

Amendment No. 6 to the IBM Excess 401(k) Plus Plan, a compensatory plan, dated as of December 18, 2015, which was filed as Exhibit 10.1 to the Form 10-K for the year ended December 31, 2015, and is hereby incorporated by reference.*

 

 

 

 

 

Amendment No. 7 to the IBM Excess 401 (k) Plus Plan, a compensatory plan, dated as of June 30, 2016, which was filed as Exhibit 10.2 to the Form 10-Q for the quarter ended June 30, 2016, and is hereby incorporated by reference.*

 

 

 

 

 

The IBM 2003 Employees Stock Purchase Plan, contained in Registration Statement 333-104806 on Form S-8, as amended through April 1, 2005, which was filed as Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2005, is hereby incorporated by reference.*

 

 

 

 

 

Form of Noncompetition Agreement, filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2009, is hereby incorporated by reference.*

 

 

29


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
      Form of Noncompetition Agreement, filed as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2012, is hereby incorporated by reference.*    

 

 

 

Form of Noncompetition Agreement, filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 2015, is hereby incorporated by reference.*

 

 

 

 

 

Form of Noncompetition Agreement, filed as Exhibit 10.3 to Form 10-Q for the quarter ended June 30, 2016, is hereby incorporated by reference.*

 

 

 

 

 

Form of Noncompetition Agreement. 

 

10.1

 

 

 

Letter dated December 4, 2008, signed by Erich Clementi and IBM, effective January 1, 2009. 

 

10.2

 

 

 

Letter dated January 28, 2015, signed by Martin Jetter and IBM, effective February 1, 2015. 

 

10.3

 

 

 

The $10,000,000 5-Year Credit Agreement dated as of November 10, 2011, among International Business Machines Corporation, the Subsidiary Borrowers parties thereto, the Lenders parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the Syndication and Documentation Agents named therein, which was filed as Exhibit 10.1 to Form 8-K dated November 14, 2011, the term of which was extended through November 10, 2020, is hereby incorporated by reference. 

 

 

 

 

 

First Amendment, dated as of October 16, 2014, to the 5-Year Credit Agreement, among International Business Machines Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent, the Subsidiary Borrowers parties thereto, the Lenders parties thereto and the Syndication Agents and Documentation Agents therein, which was filed as Exhibit 10.4 to Form 10-K for the year ended December 31, 2014, is hereby incorporated by reference. 

 

 

 

 

 

Second Amendment, dated as of October 21, 2016, to the 5-Year Credit Agreement, among International Business Machines Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent, the Subsidiary Borrowers parties thereto, the Lenders parties thereto and the Syndication Agents and Documentation Agents therein. 

 

10.4

 

 

 

Agent Letter dated October 21, 2016 from JPMorgan Chase Bank, N.A., as Administrative Agent to the Five-Year Credit Agreement (as amended), confirming the extension of the Termination Date of the Five-Year Credit Agreement to November 10, 2021, with Schedule 1 reflecting Revolving Credit Commitments of $10,250,000,000. 

 

10.5

 

(11)

 

Statement re computation of per share earnings

 

 

 

 

 

The statement re computation of per share earnings is note [P], "Earnings Per Share of Common Stock," on page 132 of IBM's 2016 Annual Report to Stockholders, and is hereby incorporated by reference. 

 

 

30


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
  (12)   Statement re computation of ratios   12

 

(13)

 

Annual report to security holders**

 

13

 

(18)

 

Letter re: change in accounting principles

 

Not applicable

 

(19)

 

Previously unfiled documents

 

Not applicable

 

(21)

 

Subsidiaries of the registrant

 

21

 

(22)

 

Published report regarding matters submitted to vote of security holders

 

Not applicable

 

(23)

 

Consent of experts

 

23.1

 

(24)

 

Powers of attorney

 

24.1

 

 

 

Resolution of the IBM Board of Directors authorizing execution of this report by Powers of Attorney

 

24.2

 

(28)

 

Information from reports furnished to state insurance regulatory authorities

 

Not applicable

 

(31)

 

Certification by CEO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.1

 

 

 

Certification by CFO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

 

(32)

 

Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.1

 

 

 

Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

101

*
Management contract or compensatory plan or arrangement.

**
The Performance Graphs, set forth on page 157 of IBM's 2016 Annual Report to Stockholders, are deemed to be furnished but not filed.

Item 16.    Form 10-K Summary:

        None.

31



SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    INTERNATIONAL BUSINESS MACHINES CORPORATION
(Registrant)

 

 

By:

 

/s/ VIRGINIA M. ROMETTY

Virginia M. Rometty
Chairman of the Board,
President and Chief Executive Officer

 

 

 

 

Date: February 28, 2017

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 

/s/ VIRGINIA M. ROMETTY


Virginia M. Rometty
 

    Chairman of the Board,
President and Chief Executive
Officer

  February 28, 2017


/s/ MARTIN J. SCHROETER


Martin J. Schroeter

 


Senior Vice President and Chief
Financial Officer


 


February 28, 2017


/s/ ROBERT F. DEL BENE


Robert F. Del Bene

 


Vice President and Controller
(Chief Accounting Officer)


 


February 28, 2017

 


Kenneth I. Chenault

 

Director

 

By:

 

/s/ CHRISTINA M. MONTGOMERY

Christina M. Montgomery
Michael L. Eskew   Director       Attorney-in-fact
February 28, 2017
David N. Farr   Director        

Mark Fields

 

Director

 

 

 

 

Alex Gorsky

 

Director

 

 

 

 

Shirley Ann Jackson

 

Director

 

 

 

 

Andrew N. Liveris

 

Director

 

 

 

 

W. James McNerney, Jr.

 

Director

 

 

 

 

Hutham S. Olayan

 

Director

 

 

 

 

James W. Owens

 

Director

 

 

 

 

Joan E. Spero

 

Director

 

 

 

 

Sidney Taurel

 

Director

 

 

 

 

Peter R. Voser

 

Director

 

 

 

 

32



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE

To the Stockholders and Board of Directors of
International Business Machines Corporation:

        Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 28, 2017 appearing in the 2016 Annual Report to Shareholders of International Business Machines Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
February 28, 2017

33



SCHEDULE II

INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31:
(Dollars in Millions)

Description
  Balance at
Beginning
of Period
  Additions*   Write-offs**   Other***   Balance at
End of
Period
 

Allowance For Credit Losses

                               

2016

                               

—Current

  $ 909   $ 87   $ (307 ) $ (13 ) $ 675  

—Noncurrent

  $ 118   $ (2 ) $ (7 ) $ (8 ) $ 101  

2015

                               

—Current

  $ 829   $ 226   $ (92 ) $ (55 ) $ 909  

—Noncurrent

  $ 126   $ 8   $ (1 ) $ (14 ) $ 118  

2014

                               

—Current

  $ 636   $ 276   $ (48 ) $ (35 ) $ 829  

—Noncurrent

  $ 80   $ 57   $ (4 ) $ (7 ) $ 126  

Allowance For Inventory Losses

                               

2016

  $ 483   $ 178   $ (150 ) $ 14   $ 525  

2015

  $ 564   $ 165   $ (230 ) $ (15 ) $ 483  

2014

  $ 623   $ 211   $ (232 ) $ (38 ) $ 564  

Revenue Based Provisions

                               

2016

  $ 505   $ 1,377   $ (1,392 ) $ (9 ) $ 481  

2015

  $ 616   $ 1,658   $ (1,741 ) $ (28 ) $ 505  

2014

  $ 827   $ 2,519   $ (2,693 ) $ (37 ) $ 616  

*
Additions for Allowance for Credit Losses and Allowance for Inventory Losses are charged to expense and cost accounts, respectively, while Revenue Based Provisions are charged to revenue accounts.

**
See Note A, "Significant Accounting Policies," on Exhibit 13 to Form 10-K, page 98 in the Notes to the Consolidated Financial Statements for additional information regarding allowance for credit loss write-offs.

***
Primarily comprises currency translation adjustments.

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PART I
PART II
PART III
PART IV
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31: (Dollars in Millions)

Exhibit 3.2

 

BY-LAWS

 

of

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

 

Adopted April 29,1958

 

As Amended Through

 

April 25, 2017

 



 

TABLE OF CONTENTS

 

ARTICLE I — Definitions

1

 

 

ARTICLE II — MEETINGS OF STOCKHOLDERS

 

 

 

SECTION  1.

Place of Meetings

1

SECTION  2.

Annual Meetings

1

SECTION  3.

Special Meetings

2

SECTION  4.

Notice of Meetings

2

SECTION  5.

Quorum

2

SECTION  6.

Organization

3

SECTION  7.

Items of Business

3

SECTION  8.

Voting

5

SECTION  9.

List of Stockholders

5

SECTION 10.

Inspectors of Election

5

 

 

 

ARTICLE III — BOARD OF DIRECTORS

 

 

 

SECTION  1.

General Powers

6

SECTION  2.

Number; Qualifications; Election; Term of Office

6

SECTION  3.

Place of Meetings

6

SECTION  4.

First Meeting

6

SECTION  5.

Regular Meetings

6

SECTION  6.

Special Meetings

7

SECTION  7.

Notice of Meetings

7

SECTION  8.

Quorum and Manner of Acting

7

SECTION  9.

Organization

7

SECTION 10.

Resignations

7

SECTION 11.

Vacancies

8

SECTION 12.

Retirement of Directors

8

 

 

 

ARTICLE IV — EXECUTIVE AND OTHER COMMITTEES

 

 

 

SECTION  1.

Executive Committee

8

SECTION  2.

Powers of the Executive Committee

9

SECTION  3.

Meetings of the Executive Committee

9

SECTION  4.

Quorum and Manner of Acting of the Executive Committee

9

SECTION  5.

Other Committees

9

SECTION  6.

Changes in Committees; Resignations; Removals; Vacancies

10

 

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ARTICLE V — OFFICERS

 

 

 

SECTION  1.

Number and Qualifications

10

SECTION  2.

Resignations

11

SECTION  3.

Removal

11

SECTION  4.

Vacancies

11

SECTION  5.

Chairman of the Board

11

SECTION  6.

Vice Chairman of the Board

11

SECTION  7.

President

12

SECTION  8.

Designated Officers

12

SECTION  9.

Executive Vice Presidents, Senior Vice Presidents and Vice Presidents

12

SECTION 10.

Treasurer

12

SECTION 11.

Secretary

13

SECTION 12.

Controller

14

SECTION 13.

Compensation

14

 

 

 

ARTICLE VI — CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

 

 

 

SECTION  1.

Execution of Contracts

14

SECTION  2.

Loans

14

SECTION  3.

Checks, Drafts, etc

15

SECTION  4.

Deposits

15

SECTION  5.

General and Special Bank Accounts

15

SECTION  6.

Indemnification

15

 

 

 

ARTICLE VII — SHARES

 

 

 

SECTION  1.

Stock Certificates

16

SECTION  2.

Books of Account and Record of Stockholders

16

SECTION  3.

Transfers of Stock

16

SECTION  4.

Regulations

17

SECTION  5.

Fixing of Record Date

17

SECTION  6.

Lost, Destroyed or Mutilated Certificates

17

SECTION  7.

Inspection of Records

17

SECTION  8.

Auditors

18

 

 

 

ARTICLE VIII — OFFICES

 

 

 

SECTION  1.

Principal Office

18

SECTION  2.

Other Offices

18

 

 

 

ARTICLE IX — Waiver of Notice

18

 

 

ARTICLE X — Fiscal Year

18

 

 

ARTICLE XI — Seal

19

 

 

ARTICLE XII — Amendments

19

 

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BY-LAWS

 

OF

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

 

ARTICLE I

 

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE II

 

MEETINGS OF STOCKHOLDERS

 

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

 

SECTION 2.  Annual Meetings.  The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the last Tuesday of April of each year, if not a legal holiday, or, if such day shall be a legal holiday, then on the next succeeding day not a legal holiday, or any other day as determined by the Board. If the directors to be elected at such annual meeting shall not have been elected thereat or at any adjournment thereof, the Board shall forthwith call a special meeting of the stockholders for the election of directors to be held as soon thereafter as convenient and give notice thereof as provided in these By-laws in respect of the notice of an

 

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annual meeting of the stockholders. At such special meeting the stockholders may elect the directors and transact other business with the same force and effect as at an annual meeting of the stockholders duly called and held.

 

SECTION 3.  Special Meetings.  Special meetings of the stockholders, unless otherwise provided by law, may be called at any time by the Chairman of the Board or by the Board, and shall be called by the Board upon written request delivered to the Secretary of the Corporation by the holder(s) with the power to vote and dispose of at least 25% of the outstanding shares of the Corporation.  Such request shall be signed by each such holder, stating the number of shares owned by each holder, and shall indicate the purpose of the requested meeting.  In addition, any stockholder(s) requesting a special meeting shall promptly provide any other information reasonably requested by the Corporation.

 

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

 

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

 

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

 

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

 

· Call to order.

 

· Proof of notice of meeting or of waiver thereof.

 

· Appointment of inspectors of election, if necessary.

 

· A quorum being present.

 

· Reports.

 

· Election of directors proposed by the Corporation’s Board of Directors, as set forth in the Corporation’s proxy statement.

 

· Other business specified in the notice of the meeting.

 

· Voting.

 

· Adjournment.

 

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

 

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

 

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For business to be properly submitted by a stockholder before any annual meeting under subparagraph (iii) above, a stockholder must give timely notice in writing of such business to the Secretary of the Corporation.  To be considered timely, a stockholder’s notice must be received by the Secretary at the principal executive offices of the Corporation not less than 120 calendar days nor more than 150 calendar days before the anniversary date of the Corporation’s proxy statement released to stockholders in connection with the prior year’s annual meeting.

 

However, if no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days from the anniversary date of the prior year’s annual meeting, a stockholder’s notice must be received by the Secretary not later than the 10th calendar day following the date on which the Corporation publicly announces the date of the applicable annual meeting.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Any vote on stock of the Corporation at any meeting of the stockholders may be given by the stockholder of record entitled thereto in person or by proxy appointed by such stockholder or by the stockholder’s attorney thereunto duly authorized and delivered or transmitted to the secretary of such meeting at or prior to the time designated in the order of business for turning in proxies. At all meetings of the stockholders at which a quorum shall be present, all matters (except where otherwise provided by law, the Certificate of Incorporation or these By-laws) shall be decided by the vote of a majority in voting interest of the stockholders present in person or represented by proxy and entitled to vote thereat.  Unless required by law, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by the stockholder’s proxy as such, if there be such proxy.

 

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

 

SECTION  10.   Inspectors of Election.   Prior to the holding of each annual or special meeting of the stockholders, two inspectors of election to serve thereat shall be appointed by the Board, or, if the Board shall not have made such appointment, by the Chairman of the Board. If there shall be a failure to appoint inspectors, or if, at any such meeting, any inspector so appointed shall be absent or shall fail to act or the office shall become vacant, the chairman of the meeting may, and at the request of a stockholder present in person and entitled to vote at such meeting shall, appoint such inspector or inspectors of election, as the case may be, to act thereat. The inspectors of election so appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors at such meeting, with strict impartiality and according to the best of their ability, and the oath so taken shall be subscribed by them. Such inspectors of election shall take charge of the

 

5



 

polls, and, after the voting on any question, shall make a certificate of the results of the vote taken. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders.

 

ARTICLE III

 

BOARD OF DIRECTORS

 

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

 

SECTION 2.  Number; Qualifications; Election; Term of Office.  The number of directors of the Corporation shall be thirteen, but the number thereof may be increased to not more than twenty-five, or decreased to not less than nine, by amendment of these By-laws. The directors shall be elected at the annual meeting of the stockholders. At each meeting of the stockholders for the election of directors at which a quorum is present, the vote required for election of a director shall, except in a contested election, be the affirmative vote of a majority of the votes cast in favor of or against such nominee.  In a contested election, a nominee receiving a plurality of the votes cast at such election shall be elected.  An election shall be considered to be contested if, as of the record date for such meeting, there are more nominees for election than positions on the Board to be filled by election at the meeting.  Each director shall hold office until the annual meeting of the stockholders which shall be held next after the election of such director and until a successor shall have been duly elected and qualified, or until death, or until the director shall have resigned as hereinafter provided in Section 10 of this Article III.

 

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

 

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

 

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

 

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SECTION 6.  Special Meetings.  Special meetings of the Board may be called by the Chairman of the Board, provided, however, that if the Chairman of the Board is unavailable, a special meeting of the Board may be called by agreement of each of the remaining members of the Executive Committee.

 

SECTION 7.  Notice of Meetings.  Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time, place and, if required by law or these By-laws, the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall waive notice thereof as provided in Article IX of these By-laws. Any meeting of the Board shall be a legal meeting without notice thereof having been given, if all the directors of the Corporation then holding office shall be present thereat.

 

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

 

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

 

SECTION 10.  Resignations.

 

(a) Any director of the Corporation may resign at any time by giving written notice of resignation to the Board or the Chairman of the Board or the Secretary. Subject to Section 10(b), any such resignation shall take effect at the time specified therein, or if

 

7



 

the time when it shall become effective shall not be specified therein, then it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

(b) In an uncontested election, any incumbent nominee for director who does not receive an affirmative vote of a majority of the votes cast in favor of or against such nominee shall promptly tender his or her resignation after such election.  The independent directors of the Board, giving due consideration to the best interests of the Corporation and its stockholders, shall evaluate the relevant facts and circumstances, and shall make a decision, within 90 days after the election, on whether to accept the tendered resignation.  Any director who tenders a resignation pursuant to this provision shall not participate in the Board’s decision. The Board will promptly disclose publicly its decision and, if applicable, the reasons for rejecting the tendered resignation.

 

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

 

SECTION 12.  Retirement of Directors. The Board may prescribe a retirement policy for directors on or after reaching a certain age, provided, however, that such retirement shall not cut short the annual term for which any director shall have been elected by the stockholders.

 

ARTICLE IV

 

EXECUTIVE AND OTHER COMMITTEES

 

SECTION 1.  Executive Committee.  The Executive Committee shall be comprised of the Chairman of the Board, and each of the respective chairs of the (i) Audit Committee, (ii) Executive Compensation and Management Resources Committee, and (iii) Directors and Corporate Governance Committee, in each case including any successor committee. The Chairman of the Board shall serve as the Chairman of the Executive Committee to preside at all meetings of such Committee.  The Secretary, or if the Secretary shall be absent from such meeting, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof.

 

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

 

8



 

of minutes a report of its several acts at each regular meeting of the Board and at any other time when so directed by the Board.

 

SECTION 3.  Meetings of the Executive Committee.  Regular meetings of the Executive Committee shall be held at such times, on such dates and at such places as shall be fixed by resolution adopted by a majority of the Executive Committee, of which regular meetings notice need not be given, or as shall be fixed by the Chairman of the Executive Committee or in the absence of the Chairman of the Executive Committee the Chief Executive Officer and specified in the notice of such meeting. Special meetings of the Executive Committee may be called by the Chairman of the Executive Committee or by the Chief Executive Officer. Notice of each such special meeting of the Executive Committee (and of each regular meeting for which notice shall be required), stating the time and place thereof shall be mailed, postage prepaid, to each member of the Executive Committee, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the time at which such meeting is to be held; but notice need not be given to a member of the Executive Committee who shall waive notice thereof as provided in Article IX of these By-laws, and any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given, if all the members of such Committee shall be present thereat.

 

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

 

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

 

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In addition to the foregoing, the Board may, by resolution adopted by a majority of the Board, create a committee of indeterminate membership and duration and not subject to the limitations as to the membership, quorum and manner of meeting and acting prescribed in these By-laws, which committee, in the event of a major disaster or catastrophe or national emergency which renders the Board incapable of action by reason of the death, physical incapacity or inability to meet of some or all of its members, shall have, and may exercise all the powers of the Board in the management of the business and affairs of the Corporation (including, without limitation, the power to authorize the seal of the Corporation to be affixed to all papers which may require it and the power to fill vacancies in the Board). An act of such committee taken within the scope of its authority shall be an act of the Board.

 

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

 

ARTICLE V

 

OFFICERS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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Board, perform all the duties and functions and exercise all the powers of the Chairman of the Board.

 

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

 

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

 

SECTION 10.  Treasurer.  The Treasurer shall:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

SECTION 11.  Secretary.  The Secretary shall:

 

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

 

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

 

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

 

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

 

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

 

SECTION  12.  Controller.  The Controller shall:

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VI

 

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

 

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

 

SECTION 2.  Loans.  Unless the Board shall otherwise determine, the Chairman of the Board or a Vice Chairman of the Board or the President or any Vice President, acting together with the Treasurer or the Secretary, may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but in making such loans or advances no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation, except when authorized by resolution adopted by the Board.

 

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

 

SECTION 4.  Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust

 

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companies or other depositaries as the Board or the Executive Committee may from time to time designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board or the Executive Committee. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer, employee or agent of the Corporation.

 

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

 

SECTION 6.  Indemnification.  The Corporation shall, to the fullest extent permitted by applicable law as in effect at any time, indemnify any person made, or threatened to be made, a party to an action or proceeding whether civil or criminal (including an action or proceeding by or in the right of the Corporation) by reason of the fact that such person is (i) an officer or director of the Corporation or (ii) an officer or director of the Corporation who is asked to serve in any capacity at the request of the Corporation in any corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against, in each case, judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys’ fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein. Such indemnification shall be a contract right that vests upon the occurrence or alleged occurrence of any act or omission to act that forms the basis for or is related to the claim for which indemnification is sought and shall include the right to be paid advances of any expenses incurred by such person in connection with such action, suit or proceeding, and the right to be indemnified for expenses incurred by such person in connection with successfully establishing a right to indemnification, in each case consistent with the provisions of applicable law in effect at any time. Indemnification shall be deemed to be ‘permitted’ within the meaning of the first sentence hereof if it is not expressly prohibited by applicable law as in effect at the time.  The indemnification rights hereunder shall continue as to any such person who has ceased to be an officer or director of the Corporation and shall inure to the benefit of the heirs, executors and administrators of any such person.  If the right of indemnification provided for in this Section 6 is amended or repealed, such amendment or repeal will not limit the indemnification provided for herein with respect to any acts or omissions to act occurring prior to any such amendment or repeal.

 

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ARTICLE VII

 

SHARES

 

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

 

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

 

SECTION 3.  Transfers of Stock.  Transfers of shares of stock of the Corporation shall be made on the record of stockholders of the Corporation only upon authorization by the registered holder thereof, or by an attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed, provided such shares are represented by a certificate, or accompanied by a duly executed stock transfer power and the payment of all taxes thereon.  The person in whose names shares of stock shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfers of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to such transfer agent or transfer clerk, such fact shall be stated in the entry of the transfer.

 

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

 

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transfer agents or one or more transfer clerks and one or more registrars and may require all certificates of stock to bear the signature or signatures of any of them.

 

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

 

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

 

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

 

SECTION 8.  Auditors.  The Board shall employ an independent public or certified public accountant or firm of such accountants who shall act as auditors in making examinations of the consolidated financial statements of the Corporation and its subsidiaries in accordance with generally accepted auditing standards. The auditors shall certify that the annual financial statements are prepared in accordance with generally accepted accounting principles, and shall report on such financial statements

 

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to the stockholders and directors of the Corporation. The Board’s selection of auditors shall be presented for ratification by the stockholders at the annual meeting. Directors and officers, when acting in good faith, may rely upon financial statements of the Corporation represented to them to be correct by the officer of the Corporation having charge of its books of account, or stated in a written report by the auditors fairly to reflect the financial condition of the Corporation.

 

ARTICLE VIII

 

OFFICES

 

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

 

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

 

ARTICLE IX

 

WAIVER OF NOTICE

 

Whenever under the provisions of any law of the State of New York, the Certificate of Incorporation or these By-laws or any resolution of the Board or any committee thereof, the Corporation or the Board or any committee thereof is authorized to take any action after notice to the stockholders, directors or members of any such committee, or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time, if, at any time before or after such action shall be completed, such notice or lapse of time shall be waived by the person or persons entitled to said notice or entitled to participate in the action to be taken, or, in the case of a stockholder, by an attorney thereunto authorized. Attendance at a meeting requiring notice by any person or, in the case of a stockholder, by the stockholder’s attorney, agent or proxy, shall constitute a waiver of such notice on the part of the person so attending, or by such stockholder, as the case may be.

 

ARTICLE X

 

FISCAL YEAR

 

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

 

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ARTICLE XI

 

SEAL

 

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

 

ARTICLE XII

 

AMENDMENTS

 

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

 

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            EXHIBIT 10.1

 

NONCOMPETITION AGREEMENT

 

In recognition of the critical role that you will play as a senior executive with International Business Machines Corporation (“IBM”) and in recognition of your access to IBM Confidential Information by virtue of your position, and/or your membership on the Growth & Transformation Team, and/or your appointment as an IBM Fellow, and/or as consideration for your promotion or hiring as a senior executive, along with any awards to be granted to you under an IBM Long-Term Performance Plan (“LTPP”), and/or for other good and valuable consideration, you (“Employee” or “you”) agree to the terms and conditions herein of this Noncompetition Agreement (the “Agreement”).  Capitalized terms not otherwise defined shall have the meaning ascribed to them in Paragraph 2.

 

1.                                       Covenants.

 

You acknowledge and agree that:

 

a)                                      the compensation that you will receive in connection with this Agreement, including any equity awards, cash and other compensation, your position as a senior executive, and/or your appointment to or continued membership on the Growth & Transformation Team or any successor team or group (“G&TT”), if applicable, and/or your appointment as an IBM Fellow, if applicable, is consideration both for your work at IBM and for your compliance with the post-employment restrictive covenants included in this Agreement.

 

b)                                      (i) the business in which IBM and its affiliates (collectively, the “Company”) are engaged is intensely competitive and that your employment by IBM and/or your membership on the G&TT, if applicable, and/or your role as an IBM Fellow, if applicable, requires that you have access to, and knowledge of, IBM Confidential Information, including IBM Confidential Information that pertains not only to your business or unit, but also to the Company’s global operations; (ii) you are given access to, and develop relationships with, customers of the Company at the time and expense of the Company; and (iii) by your training, experience and expertise, your services to the Company are, and will continue to be, extraordinary, special and unique.

 

c)                                       (i) the disclosure of IBM Confidential Information would place the Company at a serious competitive disadvantage and would do serious damage, financial and

 



 

otherwise, to the business of the Company; and (ii) you will keep in strict confidence, and will not, directly or indirectly, at any time during or after your employment with IBM, disclose, furnish, disseminate, make available or use, except in the course of performing your duties of employment, any IBM Confidential Information or any other trade secrets or confidential business and technical information of the Company’s customers or vendors, without limitation as to when or how you may have acquired such information.

 

d)                                      (i) that IBM Confidential Information, whether reduced to writing, maintained on any form of electronic media, or maintained in your mind or memory and whether compiled by the Company and/or you, is owned by the Company, derives independent economic value from not being generally known to or readily ascertainable through proper means by others who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy of such information; (ii) that IBM Confidential Information therefore constitutes a trade secret  of the Company; and (iii)  that any retention and use of such information by you during or after your  employment with IBM (except in the course of performing your duties and obligations to IBM) shall constitute a misappropriation of the Company’s trade secrets.

 

e)                                       during your employment with IBM and for twelve (12) months following the termination of your employment either by you or by IBM, that: (i) you will not directly or indirectly within the “Restricted Area” “Engage in or Associate with” (a) any “Business Enterprise” or (b) any competitor of the Company, if performing the duties and responsibilities of such engagement or association could result in you intentionally or unintentionally using, disclosing, or relying upon IBM Confidential Information to which you had access by virtue of your job duties or other responsibilities with IBM; however, in the event that your employment with IBM is terminated by IBM for a reason other than Cause, including but not limited to as a direct result of a resource action or similar restructuring action, the postemployment restriction in this clause will not apply; and (ii) you will not directly or indirectly solicit, for competitive business purposes, any customer of the Company with which you were directly or indirectly involved as part of your job responsibilities during the last twelve (12) months of your employment with IBM.

 

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f)                                        during your employment with IBM and for two (2) years following the termination of your employment by either you or by IBM for any reason, you will not directly or indirectly within the “Restricted Area” hire, solicit or make an offer to, or attempt to or participate or assist in any effort to hire, solicit, or make an offer to, any employee of the Company to be employed or to perform services outside of the Company.  As used herein, “employee of the Company” means any employee of the Company who worked within the Restricted Area at any time in the twelve (12) month period immediately preceding any actual or attempted hiring, solicitation or making of an offer.

 

2.                                       Definitions.

 

The following terms have the meanings provided below.

 

a)                                      “Business Enterprise” means any entity that engages in, or owns or controls an interest in any entity that engages in, competition with any business unit or division of the Company in which you worked at any time during the three (3) year period prior to the termination of your employment.

 

b)                                      “Cause” means, as reasonably determined by IBM, the occurrence of any of the following: (i) embezzlement, misappropriation of corporate funds or other material acts of dishonesty; (ii) commission or conviction of any felony or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor (other than a minor traffic violation or other minor infraction); (iii) engagement in any activity that you know or should know could harm the business or reputation of the Company; (iv) failure to adhere to the Company’s corporate codes, policies or procedures; (v) a breach of any covenant in any employment agreement or any intellectual property agreement, or a breach of any other provision of your employment agreement, in either case if the breach is not cured to the Company’s satisfaction within a reasonable period after you are provided with notice of the breach (no notice and cure period is required if the breach cannot be cured), provided, however, that the mere failure to achieve performance objectives shall not constitute Cause; (vi) failure by you to perform your duties or follow management direction, which failure is not cured to the Company’s satisfaction within a reasonable period of time after a written demand for substantial performance is delivered to you (no notice or cure period is required if the failure to perform

 

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cannot be cured); or (vii) violation of any statutory, contractual or common law duty or obligation to the Company, including, without limitation, the duty of loyalty.

 

c)                                       “Engage in or Associate with” includes, without limitation, engagement or association as a sole proprietor, owner, employer, director, partner, principal, joint venture, associate, employee, member, consultant, or contractor.  The phrase also includes engagement or association as a shareholder or investor during the course of your employment with IBM, and includes beneficial ownership of five percent (5%) or more of any class of outstanding stock of a Business Enterprise or competitor of the Company following the termination of your employment with IBM.

 

d)                                      “IBM Confidential Information” includes, without limitation, the Company’s formulae, patterns, compilations, programs, devices, methods, techniques, software, tools, systems, and processes, the Company’s selling, manufacturing, servicing methods and business techniques, implementation strategies, and information about any of the foregoing, the Company’s training, service, and business manuals, promotional materials, training courses and other training and instructional materials, vendor and product information, customer and prospective customer lists, other customer and prospective customer information, client data, global strategic plans, marketing plans, information about the Company’s management techniques and management strategies, information regarding long-term business opportunities, information regarding the development status of specific Company products, assessments of the global competitive landscape of the industries in which the Company competes, plans for acquisition or disposition of products or companies or business units, expansion plans, financial status and plans, compensation information, and personnel information.

 

e)                                       “Restricted Area” means any geographic area in the world in which you worked or for which you had job responsibilities, including supervisory responsibilities, during the last twelve (12) months of your employment with IBM.  You acknowledge that IBM is a global company and that the responsibilities of certain IBM employees, including, without limitation, G&TT members, are global in scope.

 

3.                                       Acknowledgements.

 

You acknowledge that a mere agreement not to disclose, use, or rely on IBM Confidential Information after your employment by IBM ends would be inadequate, standing

 

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alone, to protect IBM’s legitimate business interests.  You acknowledge that disclosure of, use of, or reliance on IBM Confidential Information, whether or not intentional, is often difficult or impossible for the Company to detect until it is too late to obtain any effective remedy.  You acknowledge that the Company would suffer irreparable harm if you fail to comply with Paragraph 1 or otherwise improperly disclose, use, or rely on IBM Confidential Information.  You acknowledge that the restrictions set forth in Paragraph 1 are reasonable as to geography, scope and duration.

 

4.                                       Injunctive Relief.

 

You agree that the Company would suffer irreparable harm if you were to breach, or threaten to breach, any provision of this Agreement and that the Company would by reason of such breach, or threatened breach, be entitled to injunctive relief in a court of appropriate jurisdiction, without the need to post any bond, and you further consent and stipulate to the entry of such injunctive relief in such a court prohibiting you from breaching this Agreement.  This Paragraph shall not, however, diminish the right of the Company to claim and recover damages in addition to injunctive relief.

 

5.                                       Severability.

 

In the event that any one or more of the provisions of this Agreement shall be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  Moreover, if any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent allowed by applicable law.  Furthermore, a determination in any jurisdiction that this Agreement, in whole or in part, is invalid or unenforceable shall not in any way affect or impair the validity or enforceability of this Agreement in any other jurisdiction.

 

6.                                       Headings.

 

The headings in this Agreement are inserted for convenience and reference only and shall in no way affect, define, limit or describe the scope, intent or construction of any provision hereof.

 

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7.                                       Waiver.

 

The failure of IBM to enforce any terms, provisions or covenants of this Agreement shall not be construed as a waiver of the same or of the right of IBM to enforce the same.  Waiver by IBM of any breach or default by you (or by any other employee or former employee of IBM) of any term or provision of this Agreement (or any similar agreement between IBM and you or any other employee or former employee of IBM) shall not operate as a waiver of any other breach or default.

 

8.                                       Successors and Assigns.

 

This Agreement shall inure to the benefit of and be binding upon IBM, any successor organization which shall succeed to IBM by acquisition, merger, consolidation or operation of law, or by acquisition of assets of IBM and any assigns.  You may not assign your obligations under this Agreement.

 

9.                                       Disclosure of Existence of Covenants.

 

You agree that while employed by IBM and for two (2) years thereafter, you will communicate the contents of this Agreement to any person, firm, association, partnership, corporation or other entity which you intend to be employed by, associated with or represent, prior to or at the time of accepting such employment, association or representation.

 

10.                                Notice to IBM of Prospective Position.

 

You agree that if, at any time during your employment or within twelve (12) months following the termination of your employment with IBM, you are offered and intend to accept a position with any person, firm, association, partnership, corporation or other entity other than the Company, you will provide the Senior Vice President of Human Resources for IBM Corporation with two (2) week written notice prior to accepting any such position.  This two (2) week written notice is separate from any other notice obligations you may have under agreements with IBM.  If for any reason you cannot, despite using your best efforts, provide the two (2) week written notice prior to accepting any such position, you agree that you will provide two (2) week written notice prior to commencing that new position.  You acknowledge and agree that a two (2) week written notice period is appropriate and necessary to permit IBM to determine whether, in its view, your proposed new position could lead to a violation of this

 

6



 

Agreement, and you agree that you will provide IBM with such information as IBM may request to allow IBM to complete its assessment (except that you need not provide any information that would constitute confidential or trade secret information of any entity other than the Company).  During the notice period required by this Paragraph, IBM may choose, in its sole discretion, to limit your duties in your position with IBM and to restrict your access to IBM’s premises, systems, products, information, and employees.  IBM is committed to protect its trade secrets and other confidential and proprietary information, and will take all necessary and appropriate steps to do so.  Upon giving notice, you agree to cooperate with IBM in good faith to ensure that its trade secrets and other confidential and proprietary information are not disclosed, either intentionally or inadvertently.

 

11.                                No Oral Modification.

 

This Agreement may not be changed orally, but may be changed only in a writing signed by the Employee and a duly authorized representative of IBM.

 

12.                                Entire Agreement.

 

Although this Agreement sets forth the entire understanding between the Employee and IBM concerning the restrictive covenants herein, this Agreement does not impair, diminish, restrict or waive any other restrictive covenant, nondisclosure obligation or confidentiality obligation of the Employee to the Company under any other agreement, policy, plan or program of the Company.  Nothing herein affects your rights, immunities, or obligations under any federal, state, or local law, including under the Defend Trade Secrets Act of 2016, as described in the Company’s Business Conduct Guidelines, or prohibits you from reporting possible violations of law or regulation to a government agency, as protected by law.  The Employee and IBM represent that, in executing this Agreement, the Employee and IBM have not relied upon any representations or statements made, other than those set forth herein, with regard to the subject matter, basis or effect of this Agreement.

 

13.                                Governing Law and Choice of Forum.

 

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflict of law rules.  The parties agree that any action or proceeding with respect to this Agreement shall be brought exclusively in the state and

 

7



 

federal courts sitting in New York County or Westchester County, New York.  The parties agree to the personal jurisdiction thereof, and irrevocably waive any objection to the venue of such action, including any objection that the action has been brought in an inconvenient forum.

 

[INSERT EMPLOYEE NAME HERE]

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

 

 

 

 

 

 

 

 

 

 

By:

 

 

By:

 

 

(Employee Signature)

 

 

Diane J. Gherson
Senior Vice President, Human Resources

 

 

 

 

 

 

 

 

 

 

 

 Employee Serial No.

 

Date

 

 

 

 

8




Exhibit 10.2

 

December 4, 2008

 

Erich Clementi

93 Greenhaven Rd

Rye, NY  10580

 

This letter confirms our offer of IBM employment to you as General Manager, Enterprise Initiatives, Systems and Technology Group, reporting to Samuel J. Palmisano, Chairman, President, and Chief Executive Officer.

 

The elements of your employment offer are:

 

Effective on your first day of employment, your total target annualized compensation will be $1,100,000.00.  It will be comprised of $564,000.00 annual base salary (paid to you in equal semi-monthly payments) and $536,000.00 target incentive, plus the opportunity to participate in IBM benefits.

 

The incentive payout amount will be determined based on IBM’s business performance and the attainment of your individual annual business objectives.  You must be an active employee on December 31, 2009 in order to be eligible for a payout.  You will receive a letter detailing the objectives and structure of your incentive compensation shortly after you begin your IBM employment.  You will find it helpful to read the IBM Annual Incentive Program description for a detailed explanation of how the program works and how it relates to the rest of your compensation package after you join IBM.

 

All outstanding Long Term Incentive awards will be reinstated under your US serial number with the original terms and conditions of the award retained.

 

If you remain employed with IBM for 5 years following January 1, 2009, you will be eligible to receive a payment equal to $500,000.00.  For each year you work beyond the 5 year anniversary date, the amount payable to you will be increased by 10%, for a maximum period of 5 years (the amount payable shall be referred to herein as the “Amount”).  The payment of the Amount shall be made no later than the end of the year after your year of separation from service with IBM, which includes any company that is at least 80% owned, directly or indirectly, by IBM Corp.  The payment of the Amount shall be made in a lump sum.

 

If at the time you separate employment with IBM, you are a key employee, as defined under Internal Revenue Code Section 409A for the year that you leave IBM, the payment of the amount must be delayed for six months from the date of your separation from service with IBM.

 

This payment will be subject to all applicable withholding for taxes and will not be considered compensation for any purposes under any IBM employee benefit plan or program.

 



 

Erich Clementi

 

December 4, 2008

 

Page 2

 

You will be eligible for tax filing assistance from IBM in any tax year following the year of your localization during which you incur a tax impact as a result of trailing income (income relating back to the period of your assignment) such as, for example, excess tax or IBM equity awards held prior to your localization.  Tax equalization as per the terms and conditions of your assignment will continue to apply.  The equalization will be calculated on the basis that you remained in your pre-localization home country until the date of localization, and took up residence for the first time in the United States from the date of localization.

 

In order to assist you in the move from Italy to the Armonk, NY area, we are pleased to offer you benefits under the IBM US Mobility Plan for the Permanent Work Location.  Part of the eligibility for relocation is that your new residence must be within 50 miles of your new work location.  For detailed information on plan features, please work with the counselor who will be assigned to you by the relocation firm.  As part of the IBM US Mobility Plan, you will also receive a one-time, net, lump sum payment of $3,000.00, which is a tax assisted gross payment of $4,800.00.  The $3,000.00 payment is intended to assist you with miscellaneous costs.  At year end, tax assistance will be provided, and an employee W-2 form will be issued.

 

By accepting this offer, you are required to complete and sign the Repayment Agreement Form that was provided to you.  Since receipt of this form is necessary to initiate the relocation process, please return it by fax or mail as directed on the form at your earliest convenience.

 

During your employment, you will be eligible to participate in the various benefit plans which IBM generally makes available to its regular employees, including medical and dental coverage, accident, disability and life insurance.  For detailed information on IBM Health Care benefits, visit the Health Care Benefits at IBM site http://www.ibm.com/employment/us/benefits/.

 

In addition, you will be eligible to participate in the IBM 401(k) Plus Plan.  This Plan offers a 100% Company match, up to 5% of pay, plus a 1% automatic contribution after you complete one year of IBM service.  If you meet certain eligibility requirements, you may also be eligible to participate in the IBM Excess 401(k) Plus Plan (Excess Plan) that provides benefits in excess of the IRS limits.  Additional details on these programs are being sent to you under separate cover.

 

IBM employees are required to comply with IBM’s Business Conduct Guidelines.  As an IBM US employee, you will need to read these documents, and will be required to acknowledge receipt and compliance with the Business Conduct Guidelines.

 

Your employment is also contingent upon your compliance with the U.S. immigration law.  The law requires you to complete the U.S. Government Employment Eligibility Verification form   (I-9) and to provide on your first day of employment documents that verify your identity and employment eligibility.  By accepting this offer, you will be required to comply with this law.

 



 

Erich Clementi

 

December 4, 2008

 

Page 3

 

Further, your employment is contingent upon your obtaining and maintaining employment authorization from the United States Immigration Service.  As we have done in the past, IBM will continue to assist you, if required, in obtaining/maintaining this authorization and will sponsor your application for permanent residency.

 

On your first day of employment you will be required to sign IBM’s form regarding confidential information and intellectual property.

 

U.S. Laws and regulations prohibit the unauthorized release of restricted technology to certain persons.  IBM, in order to comply with these legal requirements, must ascertain whether someone who may be given access to restricted technology is a “Foreign Person” subject to these export control restrictions.  If someone is a Foreign Person for export control purposes, then he/she may need to be granted an export license or other government authorization before starting in a position with access to restricted technology.

 

Because you indicated that you are a Foreign Person on your employment application (by answering “no” to the question, “Are you a U.S. Citizen or national, a permanent resident, a refugee, an asylee or authorized to work under the amnesty provisions of U.S. immigration law?”), you will be contacted by a member of IBM’s Staffing organization who will ask for your country(s) of citizenship and permanent residence.  Your country(s) of citizenship and permanent residence will enable IBM to determine the type of export license which would be required, should you be placed in a position with access to restricted technology.

 

 

Accepted:

/s/ Erich Clementi

 

 

 

 

Date:

12-16-08

 

 

 

 

Projected Start Date:

1-1-09

 

 




Exhibit 10.3

 

January 28, 2015

 

Mr. Martin Jetter

 

This letter confirms our offer of IBM employment to you as Senior Vice President
IBM Global Technology Services reporting to Ginni Rometty, Chairman, President and CEO.

 

The elements of your employment offer are:

 

Total Target Cash:

 

Effective on your first day of IBM US employment, your total target annualized compensation will be $1,469,000.  It will be comprised of $625,000 annual base salary and $844,000 target incentive, plus the opportunity to participate in the IBM US benefits. You will receive a paycheck on a semi-monthly basis, on or around the 15th and 31st of each month.

 

The incentive payout amount will be determined based on IBM’s business performance and the attainment of your individual annual business objectives.  You must be an active employee on December 31, 2015 in order to be eligible for a payout.

 

Benefits :

 

During your IBM US employment, you will be eligible to participate in the various benefit plans which IBM US generally makes available to its regular employees, including medical and dental coverage, accident, disability and life insurance, as well as the IBM 401(k) Plus Plan. Specific to the IBM 401(k) Plus Plan, this plan offers a 100% Company match, up to 5% of pay, plus a 1% automatic contribution. In addition, if you meet certain eligibility requirements during the annual enrollment period held each fall, you may also be eligible to participate in the IBM Excess 401(k) Plus Plan that provides the same benefits as the 401(k) Plus Plan on pay in excess of the IRS limits.  Additional details on these programs will be provided separately.

 

Special Payment:

 

Upon your Separation from Service (as defined in the IBM Excess 401(k) Plus Plan), you will be eligible for a one-time special payment (“Special Payment”) equal to the difference between (i) the amount of the benefit you would have accumulated, but have not yet earned under the IBM Vorsorgeplan (IVP) had you remained an employee of IBM Germany, and (ii) the maximum amount of IBM matching and automatic contributions you are eligible to receive under the IBM 401(k) Plus Plan and the IBM Excess 401(k) Plus Plan (US Plans) regardless of whether you participate, each amount in clauses (i) and (ii) shall be measured from February 1, 2015, your IBM US date of hire, through the

 



 

January 28, 2015

 

Mr. Martin Jetter

 

Page 2

 

date of your Separation from Service from IBM.  The Special Payment shall be calculated in accordance with the terms and conditions of the IVP and the US Plans respectively, as such plans may be amended from time to time.  The Special Payment shall be made in a lump sum payment in the February following the year in which your Separation from Service occurs.  If on the date of your Separation from Service you are a Key Employee (“409A Key Employee” as defined in the IBM Excess 401(k) Plus Plan), the payment date for the Special Payment shall be the later of (a) the first business day that is six months after the date of your Separation from Service, or (b) the otherwise applicable payment date noted above.

 

If your employment terminates due to death, the Special Payment shall be paid to your estate within 90 days from your death in a lump sum payment (even if you are a 409A Key Employee).  If you Separate from Service as a result of disability (determined in accordance with the IBM Long-Term Disability Plan), the Special Payment shall be paid within 90 days from your separation in a lump sum payment.

 

The Special Payment is subject to applicable tax withholdings, and will not be considered compensation for purposes of any IBM employee benefit plan or program.

 

Additional Information:

 

As is customary at IBM, this offer is contingent upon the following:

 

·                   Compliance with the U.S. immigration law.  The law requires you to complete the U.S. Government Employment Eligibility Verification form (I-9) and to provide on your first day of employment documents that verify your identity and employment eligibility.  By accepting this offer, you will be required to comply with this law.

 

·                   Maintaining employment authorization from the United States Immigration Service.  As we have done in the past, IBM will continue to assist you, if required, in maintaining this authorization and will sponsor your application for permanent residency.

 

·                  As you know, IBM employees are required to comply with IBM’s Business Conduct Guidelines.  As an IBM US employee, need to read these documents, and will be required to acknowledge receipt and compliance with the Business Conduct Guidelines.

 

·                   For your awareness, the terms of this offer letter do not create a contract of employment and do not entitle you to employment for any specific period of time.  Rather, your employment at IBM is at-will, which means that either party may terminate your employment at any time, for any reason, and without prior notice.

 



 

January 28, 2015

 

Mr. Martin Jetter

 

Page 3

 

Please note that on your first day of IBM US employment you will be required to sign IBM’s form regarding confidential information and intellectual property. If you would like to review or discuss this document in advance, please feel free to contact me.

 

Response requested on or before January 29, 2015.

 

 

Accepted:

/s/ Martin Jetter

 

 

 

 

Date:

January 29, 2015

 

 

 

 

Start Date:

February 1, 2015

 

 




Exhibit 10.4

 

SECOND AMENDMENT dated as of October 21, 2016  (this “ Amendment ”) to the 5-Year Credit Agreement dated as of November 10, 2011 (the “ Credit Agreement ”), among INTERNATIONAL BUSINESS MACHINES CORPORATION (“ IBM ”), JPMORGAN CHASE BANK, N.A., as Administrative Agent, the Subsidiary Borrowers parties thereto (the “ Subsidiary Borrowers ”), the Lenders parties thereto, and the Syndication Agents and Documentation Agents named therein. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

 

RECITALS

 

WHEREAS, IBM has requested that the Credit Agreement be amended as set forth herein.

 

WHEREAS, pursuant to, and in compliance with the requirements of, Section 11.1 of the Credit Agreement, the Required Lenders are willing to agree to this Amendment on the terms set forth herein.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:

 

SECTION 1.   Amendments to Credit Agreement .   As of the Second Amendment Effective Date (as defined below), the Credit Agreement is hereby amended as follows:

 

(a)   By adding the following defined terms to Section 1.1 thereof in the appropriate alphabetical order:

 

Bail-In Action ”: the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

 

Bail-In Legislation ”: with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

 

EEA Financial Institution ”: (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

 

EEA Member Country ”: any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

 

EEA Resolution Authority ”: any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

 

EU Bail-In Legislation Schedule ”: the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.

 



 

Write-Down and Conversion Powers ”: with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

 

(b)   By amending the definition of “Defaulting Lender” to add the following words immediately after the words “the subject of a Bankruptcy Event”:

 

“or a Bail-In Action”

 

(c)   By amending the definition of “Eurodollar Rate” to replace the words “the rate of interest determined on the basis of the rate for deposits in Dollars” with the following words:

 

“the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate for Dollars)”

 

(d)   By amending the definition of “Eurodollar Rate” to add the following sentence to the end thereof:

 

“Notwithstanding the foregoing, if the Eurodollar Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.”

 

(e)   By amending the penultimate paragraph of Section 2.22 to add the following words immediately after the words “Bankruptcy Event”:

 

“or a Bail-In Action”; and

 

(f)   By adding the following new Section 11.26:

 

11.26  EU Bail-In .

 

Notwithstanding anything to the contrary in this Agreement or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender deemed to be an EEA Financial Institution arising under this Agreement may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

 

(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

 

(b) the effects of any Bail-In Action on any such liability, including, if applicable:

 

(i) a reduction in full or in part or cancellation of any such liability;

 

(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership

 

2



 

will be accepted by it in lieu of any rights with respect to any such liability under this Agreement; or

 

(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.

 

SECTION 2.   Conditions to Effectiveness of Second Amendment .  This Amendment shall become effective on the first date (the “ Second Amendment Effective Date ”) on which the Administrative Agent (or its counsel) shall have received duly executed counterparts hereof that, when taken together, bear the signatures of IBM, the Subsidiary Borrowers and Lenders representing the Required Lenders.

 

SECTION 3.   Effects on Credit Agreement .  Except as specifically amended herein, all provisions of the Credit Agreement shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.  Except as otherwise expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under the Credit Agreement or constitute a waiver of or consent to any departure from any term or provision of the Credit Agreement  or to any further or future action on the part of IBM or the Subsidiary Borrowers that would require a waiver or consent of the Required Lenders or the Administrative Agent.

 

SECTION 4.   Expenses .  IBM shall reimburse the Administrative Agent for all reasonable and documented out-of-pocket costs and expenses, including, reasonable and documented attorneys’ fees, in connection with or relating to this Amendment.

 

SECTION 5.   Integration .  This Amendment represents the agreement of IBM, the Subsidiary Borrowers, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein.

 

SECTION 6.   GOVERNING LAW ; WAIVER OF JURY TRIAL .  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. EACH OF THE BORROWERS, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM THEREIN.

 

SECTION 7.   Counterparts .  This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed signature page of this Agreement by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.  A set of the copies of this Amendment signed by all the parties shall be lodged with IBM and the Administrative Agent.

 

3


 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.

 

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

 

 

 

By:

/s/ Simon Beaumont

 

Title:

Vice President and Treasurer

 

 

 

JPMORGAN CHASE BANK , N.A., as

 

Administrative Agent and Lender,

 

 

 

By:

/s/ Donatus O. Anusionwu

 

Title:

Vice President

 

 

 

BNP PARIBAS

 

 

 

By:

/s/ Mathew Harvey

 

Title:

Managing Director

 

and

 

By:

/s/ Todd Rogers

 

Title:

Director

 

 

 

CITIBANK, N.A.

 

 

 

By:

/s/ James Walsh

 

Title:

Vice President and Managing Director

 

 

 

ROYAL BANK OF CANADA

 

 

 

By:

/s/ Mark Gronich

 

Title:

Authorized Signatory

 

 

 

MIZUHO BANK, LTD.

 

 

 

By:

/s/ Daniel Guevara

 

Title:

Authorized Signatory

 

 

 

BANK OF AMERICA, N.A.

 

 

 

By:

/s/ Mukesh Singh

 

Title:

Vice President

 

 

 

B ARCLAYS BANK PLC

 

 

 

By:

/s/ Christopher M. Aitkin

 

Title:

Assistant Vice President

 

[Signature Page to Second Amendment]

 



 

 

DEUTSCHE BANK AG NEW YORK BRANCH

 

By:

/s/ Ming K. Chu

 

Title:

Director

 

and

 

By:

/s/ Virginia Cosenza

 

Title:

Vice President

 

 

 

HSBC Bank USA N.A.

 

 

 

By:

/s/ Jonathan Yip

 

Title:

Vice President

 

 

 

Wells Fargo Bank, N.A.

 

 

 

By:

/s/ Sid Khanolkar

 

Title:

Director

 

 

 

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

 

 

 

By:

/s/ Lillian Kim

 

Title:

Director

 

 

 

BANCO SANTANDER, S.A.

 

 

 

By:

/s/ Federico Robin

 

Title:

Executive Director

 

and

 

By:

/s/ Paloma Garca Castro

 

Title:

Associate

 

 

 

C OMMERZBANK AG, NEW YORK BRANCH

 

 

 

By:

/s/ Tom H.S. Kang

 

Title:

Director

 

and

 

By:

/s/ Justin Hull

 

Title:

Associate

 

 

 

Credit Suisse AG, Cayman Islands Branch

 

 

 

By:

/s/ Christopher Day

 

Title:

Authorized Signatory

 

and

 

By:

/s/ Karim Rahimtoola

 

Title:

Authorized Signatory

 

 

 

Goldman Sachs Bank USA

 

 

 

By:

/s/ Mehmet Barlas

 

Title:

Authorized Signatory

 

5



 

 

ING Bank N.V., Dublin Branch

 

 

 

By:

/s/ Barry Fehily

 

Title:

Managing Director

 

and

 

By:

Sean Hassett

 

Title:

Director

 

 

 

S OCIETE GENERALE

 

 

 

By:

/s/ Kimberly Metzger

 

Title:

Director

 

 

 

U.S. Bank National Association

 

 

 

By:

/s/ Patrick McGraw

 

Title:

Senior Vice President

 

 

 

UniCredit Bank AG, New York Branch

 

 

 

By:

/s/ Filippo Pappalardo

 

Title:

Managing Director

 

and

 

By:

/s/ Bryon Korutz

 

Title:

Associate Director

 

 

 

Bank of China, New York

 

 

 

By:

/s/ Haifeng Xu

 

Title:

Executive Vice President

 

 

 

Mitsubishi UFJ Trust and Banking Corporation

 

 

 

By:

/s/ Kota Goto

 

Title:

Senior Vice President

 

 

 

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

 

 

 

By:

/s/ Robert Grillo

 

Title:

Director

 

 

 

PNC BANK, NATIONAL ASSOCIATION

 

 

 

By:

/s/ Michael Richards

 

Title:

Senior Vice President

 

 

 

Standard Chartered Bank

 

 

 

By:

/s/ Steven Aloupis

 

Title:

Managing Director

 

6



 

 

Sumitomo Mitsui Banking Corporation

 

 

 

By:

/s/ David W. Kee

 

Title:

Managing Director

 

 

 

 

Toronto Dominion (New York) LLC

 

By:

/s/ Annie Dorval

 

Title:

Authorized Signatory

 

 

 

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

 

NEW YORK BRANCH

 

 

 

 

By:

/s/ Brian Crowley

 

Title:

Managing Director

 

and

 

By:

/s/ Cara Younger

 

Title:

Director

 

 

 

 

Banco Bradesco S.A., New York Branch

 

 

 

 

By:

/s/ Mauro Lopes

 

Title:

Manager

 

and

 

By:

/s/ Adrian de A. da Graca e Costa

 

Title:

Manager

 

 

 

 

Canadian Imperial Bank of Commerce, New York Branch

 

 

 

 

By:

/s/ Robert Robin

 

Title:

Authorized Signatory

 

and

 

By:

/s/ Zhen Ma

 

Title:

Authorized Signatory

 

 

 

 

Danske Bank A/S

 

 

 

 

By:

/s/ Merete Ryvald-Christensen

 

Title:

Chief Loan Officer

 

and

 

Name:

/s/ Gert Carstens

 

Title:

Senior Loan Manager

 

 

 

 

Industrial and Commercial Bank of China Limited

 

New York Branch

 

 

 

 

By:

/s/ Yuanyuan Peng

 

Title:

Vice President

 

and

 

By:

/s/ Dayi Liu

 

Title:

Director

 

7



 

 

Lloyds Bank plc

 

 

 

By:

/s/ Erin Walsh

 

Title:

Assistant Vice President, Transaction Execution

 

and

 

By:

/s/ Joel Slomko

 

Title:

Assistant Vice President, Transaction Execution

 

 

 

 

Raiffeisen Bank International AG

 

 

 

 

By:

/s/ Martina Soudek

 

Title:

Director

 

and

 

By:

/s/ Christina de Cicillia

 

Title:

Director

 

 

 

 

State Street Bank and Trust Company

 

 

 

 

By:

/s/ Andrei Bourdine

 

Title:

Vice President

 

 

 

 

THE BANK OF NEW YORK MELLON

 

 

 

 

By:

/s/ Thomas J. Tarasovich, Jr.

 

Title:

Vice President

 

 

 

 

THE NORTHERN TRUST COMPANY

 

 

 

 

By:

/s/ Sophia E. Love

 

Title:

Senior Vice President

 

8




Exhibit 10.5

 

JPMORGAN CHASE BANK, N.A.

383 Madison Avenue

New York, New York 10179

 

October 21, 2016

 

International Business Machines Corporation

One New Orchard Road

Armonk, New York 10504

 

Attention:  Heather Wilson

 

Ladies and Gentlemen:

 

Reference is made to (i) the Credit Agreement, dated as of November 10, 2011 (as amended or modified from time to time, the “ Credit Agreement ”) among International Business Machines Corporation., a New York corporation (“ IBM ”), each Subsidiary Borrower (as defined in the Credit Agreement), the Lenders (as defined in the Credit Agreement), JPMorgan Chase Bank, N.A., as administrative agent for the Lenders and the other agents named therein and (ii) the Extension Request, dated as of September 21, 2016 (the “ Extension Request ”), delivered by IBM to the Administrative Agent pursuant to Section 2.21(a) of the Credit Agreement.  Capitalized terms used but not defined herein are used with the meanings assigned to them in the Credit Agreement.

 

We hereby confirm that, prior to the Extension Request Deadline specified in the Extension Request, we have received executed consents to the extension of the Termination Date requested in the Extension Request from each of the Lenders listed on Schedule 1 hereto extending the Termination Date with respect to the Revolving Credit Commitments of such consenting Lenders to November 10, 2021. Also listed on Schedule 1 are each Lender’s respective Revolving Credit Commitment under the Credit Agreement as of the date hereof.

 

 

Very truly yours,

 

 

 

JPMORGAN CHASE BANK, N.A., as Administrative

 

Agent

 

 

 

 

 

By:

 /s/ Donatus Anusionwu

 

Name: Donatus Anusionwu

 

Title:Vice President

 



 

Schedule 1

 

Lender

 

Revolving Credit Commitment

 

JPMorgan Chase Bank, N.A.

 

$

575,000,000

 

BNP Paribas

 

$

575,000,000

 

Citibank, N.A.

 

$

575,000,000

 

Royal Bank of Canada

 

$

575,000,000

 

Mizuho Bank, Ltd.

 

$

525,000,000

 

Bank of America, N.A.

 

$

450,000,000

 

Barclays Bank PLC

 

$

450,000,000

 

Deutsche Bank AG New York Branch

 

$

450,000,000

 

HSBC Bank USA N.A.

 

$

450,000,000

 

Wells Fargo Bank, N.A.

 

$

450,000,000

 

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

 

$

315,000,000

 

Banco Santander, S.A.

 

$

300,000,000

 

Commerzbank AG, New York Branch

 

$

300,000,000

 

Credit Suisse, Cayman Islands Branch

 

$

300,000,000

 

Goldman Sachs Bank USA

 

$

300,000,000

 

ING Bank N.V., Dublin Branch

 

$

300,000,000

 

Societe Generale

 

$

300,000,000

 

U.S. Bank National Association

 

$

300,000,000

 

UniCredit Bank AG, New York Branch

 

$

300,000,000

 

Bank of China, New York Branch

 

$

250,000,000

 

Mitsubishi UFJ Trust and Banking Corporation

 

$

210,000,000

 

Australia and New Zealand Banking Group Limited

 

$

200,000,000

 

PNC Bank, National Association

 

$

200,000,000

 

Standard Chartered Bank

 

$

200,000,000

 

Sumitomo Mitsui Banking Corporation

 

$

200,000,000

 

Toronto Dominion (New York) LLC

 

$

200,000,000

 

Banco Bilbao Vizcaya Argentaria, S.A., New York Branch

 

$

100,000,000

 

Banco Bradesco S.A., New York Branch

 

$

100,000,000

 

Canadian Imperial Bank of Commerce, New York Branch

 

$

100,000,000

 

Danske Bank A/S

 

$

100,000,000

 

Industrial and Commercial Bank of China Limited New York Branch

 

$

100,000,000

 

Lloyds Bank plc

 

$

100,000,000

 

Raiffeisen Bank International AG

 

$

100,000,000

 

State Street Bank and Trust Company

 

$

100,000,000

 

The Bank of New York Mellon

 

$

100,000,000

 

The Northern Trust Company

 

$

100,000,000

 

Total:

 

$

10,250,000,000

 

 




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EXHIBIT 12

COMPUTATION OF RATIO OF INCOME FROM CONTINUING OPERATIONS
TO FIXED CHARGES
(Unaudited)

 
  Years Ended December 31:  
(Dollars in millions)
  2016   2015   2014   2013   2012  

Income from continuing operations before income taxes(1)

  $ 12,332   $ 15,953   $ 19,993   $ 20,252   $ 22,544  

Add:

                               

Fixed charges, excluding capitalized interest

    1,709     1,500     1,556     1,575     1,593  

Income as adjusted before income taxes

  $ 14,041   $ 17,453   $ 21,549   $ 21,827   $ 24,137  

Fixed charges:

                               

Interest expense

    1,206   $ 1,009   $ 1,025   $ 989   $ 1,004  

Capitalized interest

    2     0     4     22     18  

Portion of rental expense representative of interest

    503     491     531     586     589  

Total fixed charges

  $ 1,711   $ 1,500   $ 1,560   $ 1,597   $ 1,611  

Ratio of income from continuing operations to fixed charges

    8.2     11.6     13.8     13.7     15.0  

(1)
Income from continuing operations before income taxes excludes (a) amortization of capitalized interest and (b) the company's share in the income and losses of less-than-fifty percent owned affiliates.



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COMPUTATION OF RATIO OF INCOME FROM CONTINUING OPERATIONS TO FIXED CHARGES (Unaudited)

Exhibit 13

 

Report of Financials

International Business Machines Corporation and Subsidiary Companies

 

MANAGEMENT DISCUSSION

 

Overview

26

Forward-Looking and Cautionary Statements

27

Management Discussion Snapshot

27

Description of Business

30

Year in Review

36

Prior Year in Review

56

Other Information

67

Looking Forward

67

Liquidity and Capital Resources

68

Critical Accounting Estimates

71

Currency Rate Fluctuations

74

Market Risk

74

Cybersecurity

75

Employees and Related Workforce

76

Global Financing

76

 

 

Report of Management

82

 

 

Report of Independent Registered Public Accounting Firm

83

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

Earnings

84

Comprehensive Income

85

Financial Position

86

Cash Flows

87

Changes in Equity

88

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

A Significant Accounting Policies

90

B Accounting Changes

99

C Acquisitions/Divestitures

101

D Financial Instruments

107

E Inventories

114

F Financing Receivables

114

G Property, Plant and Equipment

118

H Investments and Sundry Assets

119

I Intangible Assets Including Goodwill

119

J Borrowings

120

K Other Liabilities

123

L Equity Activity

123

M Contingencies and Commitments

127

N Taxes

129

O Research, Development and Engineering

132

P Earnings Per Share of Common Stock

132

Q Rental Expense and Lease Commitments

133

R Stock-Based Compensation

133

S Retirement-Related Benefits

136

T Segment Information

150

U Subsequent Events

154

 

 

Five-Year Comparison of Selected Financial Data

155

 

 

Selected Quarterly Data

156

 

 

Performance Graph

157

 

 

Board of Directors and Senior Leadership

158

 

 

Stockholder Information

159

 

25



 

Management Discussion

International Business Machines Corporation and Subsidiary Companies

 

OVERVIEW

 

The financial section of the International Business Machines Corporation (IBM or the company) 2016 Annual Report includes the Management Discussion, the Consolidated Financial Statements and the Notes to Consolidated Financial Statements. This Overview is designed to provide the reader with some perspective regarding the information contained in the financial section.

 

Organization of Information

 

·           The Management Discussion is designed to provide readers with an overview of the business and a narrative on the company’s financial results and certain factors that may affect its future prospects from the perspective of the company’s management. The “Management Discussion Snapshot,” beginning on page 27, presents an overview of the key performance drivers in 2016.

 

·           Beginning with the “Year in Review” on page 36, the Management Discussion contains the results of operations for each reportable segment of the business and a discussion of the company’s financial position and cash flows. Other key sections within the Management Discussion include: “Looking Forward” on page 67, and “Liquidity and Capital Resources” on page 68, which includes a description of management’s definition and use of free cash flow.

 

·           Global Financing is a reportable segment that is measured as a stand-alone entity. A separate “Global Financing” section is included in the Management Discussion beginning on page 76.

 

·           The Consolidated Financial Statements are presented on pages 84 through 89. These statements provide an overview of the company’s income and cash flow performance and its financial position.

 

·           Subsequent to the company’s press release and Form 8-K filing on January 19, 2017, announcing 2016 fourth-quarter and full-year financial results, the company revised the classification of certain financing receivables on a full-year basis increasing net cash provided by operating activities and net cash used in investing activities in the amount of $441 million. As adjusted, net cash provided by operating activities for the three months and twelve months ended December 31, 2016 is $3,968 million and $16,958 million, respectively, and, net cash used in investing activities is $3,687 million and $10,976 million for the same periods. There was no impact to total GAAP cash flows or free cash flow.

 

·           The Notes follow the Consolidated Financial Statements. Among other items, the Notes contain the company’s accounting policies (pages 90 to 99), acquisitions and divestitures (pages 101 to 106), detailed information on specific items within the financial statements, certain contingencies and commitments (pages 127 to 129) and retirement-related plans information (pages 136 to 150).

 

·           The Consolidated Financial Statements and the Notes have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).

 

·           In October 2014, the company announced a definitive agreement to divest its Microelectronics business. The assets and liabilities of the Microelectronics business were reported as held for sale at December 31, 2014 and the operating results of the Microelectronics business have been reported as discontinued operations. The transaction closed on July 1, 2015.

 

·           In January 2016, the company made a number of changes to its organizational structure and management system. These changes impacted the company’s reportable segments, but did not impact the company’s Consolidated Financial Statements. Refer to Note T, “Segment Information,” on pages 150 to 154 for additional information on the changes in reportable segments. The company’s reportable segments are: Cognitive Solutions, Global Business Services, Technology Services & Cloud Platforms, Systems, and Global Financing. The company filed a recast 2015 Annual Report in a Form 8-K on June 13, 2016 to recast its historical segment information to reflect these changes.

 

·           The references to “adjusted for currency” or “at constant currency” in the Management Discussion do not include operational impacts that could result from fluctuations in foreign currency rates. When the company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. See “Currency Rate Fluctuations” on page 74 for additional information.

 

·           Within the financial statements and tables in this Annual Report, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages reported are calculated from the underlying whole-dollar numbers.

 

Operating (non-GAAP) Earnings

 

In an effort to provide better transparency into the operational results of the business, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, retirement-related costs, discontinued operations and related tax impacts. For acquisitions, operating earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable restructuring and related expenses and tax charges related to acquisition integration. These charges are excluded as they may be inconsistent in amount and timing from period to period and are dependent on the size, type and

 

26



 

Management Discussion

International Business Machines Corporation and Subsidiary Companies

 

frequency of the company’s acquisitions. For retirement-related costs, the company characterizes certain items as operating and others as non-operating. The company includes defined benefit plan and nonpension postretirement benefit plan service cost, amortization of prior service cost and the cost of defined contribution plans in operating earnings. Non-operating retirement-related cost includes defined benefit plan and nonpension postretirement benefit plan interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and multi-employer plan costs, pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and the company considers these costs to be outside of the operational performance of the business.

 

Overall, the company believes that providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The company’s reportable segment financial results reflect operating earnings from continuing operations, consistent with the company’s management and measurement system.

 

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

 

Certain statements contained in this Annual Report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any forward-looking statement in this Annual Report speaks only as of the date on which it is made; the company assumes no obligation to update or revise any such statements. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance; these statements, by their nature, address matters that are uncertain to different degrees. Forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to be materially different, as discussed more fully elsewhere in this Annual Report and in the company’s filings with the Securities and Exchange Commission (SEC), including the company’s 2016 Form 10-K filed on February 28, 2017.

 

MANAGEMENT DISCUSSION SNAPSHOT

 

($ and shares in millions except per share amounts)