IBM Confidential1 Passport Advantage Entitlement Slope Change September 9, 2005 WW Business Partner Communication

IBM Confidential2 Price Action Overview Structural Change Highlights: Effective Tuesday, October 11, Formal Channel Announcement is September 13, This price action, in general, affects most products. Several products, however, will not experience an entitled price change. No other passport program modifications have been made. Effective September 13, new products will be priced using the new slope. Effective October 11, existing products will be priced using the new slope. Business Partner Opportunity: Business partners will improve their margin by continuing to sell on value. Passport Advantage Entitled Discounts

IBM Confidential3 Discussion Points: Why are the Passport Advantage Entitled Discounts Changing? Improved functionality, security, stability, and new product releases have been provided across IBM’s entire software portfolio (see “Portfolio Product Improvements” chart). Service support and development costs continue to increase, on average ~5% per year. The entitled increases are consistent with competition and IBM prices remain very comparable. Major competitors have recently raised prices, such as a 25% increase in Microsoft’s SQL Server, and Oracle’s 4% annual increase embedded in maintenance agreements. Improvements have been made to Passport Advantage Online for customers: –Allocate Entitlement tool available to eligible customers to help manage their enterprise’s central software purchasing with distributed deployment strategy. –Improved software download capabilities: primary and back-up contact can pull a report of who is ordering media and how many times they are downloading the software. –Media ordering from the Internet. –Implemented a multi-year maintenance agreement. –Improved the entitlement process and linkages of changed products for asset management. New pricing flexibility has been announced (sub-capacity, dual core x86, entry pricing), offering better price performance to customers. No SRP/List Price changes are occurring. Cost of acquiring new versions is still less expensive than the new license.

IBM Confidential4 Concluding Comments Key Opportunity: This announcement can be used to motivate the remaining 3 rd quarter business prospects to purchase before the pending price increase. Additional information is available: –FAQ document –A list of recent product improvements for each software brand

IBM Confidential5 Portfolio Product Improvements IBM continues to deliver product improvements across the entire portfolio.