UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 27, 1999
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-2360 13-0871985
(State of Incorporation) (Commission (IRS employer
File Number) Identification No.)
Armonk, New York 10504
(Address of principal executive offices) (Zip Code)
914-499-1900
(Registrant's telephone number)
<PAGE>
Item 5. Other Events.
On April 27, 1999, the stockholders of the company approved amendments to
the Certificate of Incorporation to increase the number of authorized shares of
common stock from 1,875 million to 4,687.5 million and to effect a two-for-one
stock split approved by the company's Board of Directors on January 26, 1999. In
addition, the amendments served to reduce the par value of the common shares
from $.50 per share to $.20 per share.
Common stockholders of record at the close of business on May 10, 1999
will receive one additional share for each share held. Distribution of the
additional shares is expected to occur on May 26, 1999, and will be effected in
book-entry form, through the mailing of an account statement to each stockholder
of record as of the stock split record date, thereby crediting the additional
shares of common stock due as a result of the stock split stock split.
Item 7. Financial Statements, Pro-Forma Financial Information and
Exhibits.
(b) Pro-Forma Financial Information
The following is presented to reflect the two-for-one stock split on
a historical basis. (See attachments I through V of this Form 8-K.)
I Consolidated Statement of Earnings for the years ended
December 31, 1998, 1997 and 1996.
II Consolidated Statement of Financial Position at December 31,
1998 and 1997.
III Computation of Basic and Diluted Earnings Per Share for the
years ended December 31, 1998, 1997 and 1996.
IV Five-year Comparison of Selected Financial Data 1994 through
1998.
V Selected Quarterly Data for 1998 and 1997.
(c) Exhibits
(3)(i) Certificate of Incorporation as amended through April 28,
1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Registrant)
Date: April 28, 1999
By: Mark Loughridge
---------------------------------
(Mark Loughridge)
Vice President and Controller
<PAGE>
ATTACHMENT I
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions For the Year-Ended December 31:
except per share amounts) -------------------------------
1998 1997 1996
Revenue: ------- ------- -------
Hardware segments $35,419 $36,630 $36,634
Global Services segment 28,916 25,166 22,310
Software segment 11,863 11,164 11,426
Global Financing segment 2,877 2,806 3,045
Enterprise Investments
segment/Other 2,592 2,742 2,523
------- ------- -------
Total revenue 81,667 78,508 75,947
Cost:
Hardware segments 24,214 23,473 22,888
Global Services segment 21,125 18,464 16,270
Software segment 2,260 2,785 2,946
Global Financing segment 1,494 1,448 1,481
Enterprise Investments
segment/Other 1,702 1,729 1,823
------- ------- -------
Total cost 50,795 47,899 45,408
------- ------- -------
Gross profit 30,872 30,609 30,539
Operating expenses:
Selling, general and
administrative 16,662 16,634 16,854
Research, development and
engineering 5,046 4,877 5,089
------- ------- -------
Total operating expenses 21,708 21,511 21,943
Operating income 9,164 9,098 8,596
Other income, principally interest 589 657 707
Interest expense 713 728 716
------- ------- -------
Income before income taxes 9,040 9,027 8,587
Provision for income taxes 2,712 2,934 3,158
------- ------- -------
Net income 6,328 6,093 5,429
Preferred stock dividends 20 20 20
------- ------- -------
Net income applicable to
common shareholders $ 6,308 $ 6,073 $ 5,409
======= ======= =======
<PAGE>
ATTACHMENT I
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS - (CONTINUED)
(UNAUDITED)
(Dollars in millions For the Year-Ended December 31:
except per share amounts) -----------------------------------------------
1998 1997 1996
------- ------- -------
Earnings per share
of common stock - basic* $ 3.38 $ 3.09 $ 2.56
Earnings per share
of common stock -
assuming dilution* $ 3.29 $ 3.00 $ 2.50
Average number of common
shares outstanding:
Basic* 1,869,005,570 1,966,572,722 2,113,408,376
Assuming dilution* 1,920,130,470 2,021,869,884 2,159,417,808
* Restated to reflect the two-for-one stock split effective on May 10, 1999.
<PAGE>
ATTACHMENT II
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
ASSETS
(Dollars in millions) At December 31 At December 31
1998 1997
Current assets: -------------- --------------
Cash and cash equivalents $ 5,375 $ 7,106
Marketable securities 393 447
Notes and accounts receivable - trade,
net of allowances 18,958 16,850
Sales-type leases receivable 6,510 5,720
Other accounts receivable 1,313 1,256
Inventories 5,200 5,139
Prepaid expenses and other current assets 4,611 3,900
-------- --------
Total current assets 42,360 40,418
Plant, rental machines and other property 44,870 42,133
Less: Accumulated depreciation 25,239 23,786
-------- --------
Plant, rental machines and other property - net 19,631 18,347
Software, less accumulated
amortization (1998, $12,516; 1997, $12,610) 599 819
Investments and sundry assets 23,510 21,915
-------- --------
Total assets $ 86,100 $ 81,499
======== ========
<PAGE>
ATTACHMENT II
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in millions) At December 31 At December 31
1998 1997
--------------- --------------
Current liabilities:
Taxes $ 3,125 $ 2,381
Short-term debt 13,905 13,230
Accounts payable 6,252 5,215
Compensation and benefits 3,530 3,043
Deferred income 4,115 3,445
Other accrued expenses and liabilities 5,900 6,193
-------- --------
Total current liabilities 36,827 33,507
Long-term debt 15,508 13,696
Other liabilities 12,818 12,993
Deferred income taxes 1,514 1,487
-------- --------
Total liabilities 66,667 61,683
Contingencies
Stockholders' equity:
Preferred stock - par value $.01 per share 247 252
Shares authorized: 150,000,000
Shares issued: 1998 - 2,546,011
1997 - 2,597,261
Common stock - par value $.20* per share 10,121 8,601
Shares authorized: 4,687,500,000*
Shares issued: 1998 - 1,853,738,104*
1997 - 1,938,030,702*
Retained earnings 10,141 11,010
Treasury stock, at cost (133) (86)
Shares: 1998 - 1,924,292*
1997 - 1,847,910*
Employee benefits trust (1,854) (860)
Shares: 1998 - 20,000,000*
1997 - 20,000,000*
Accumulated gains and losses not affecting
retained earnings 911 899
-------- --------
Total stockholders' equity 19,433 19,816
-------- --------
Total liabilities and stockholders' equity $ 86,100 $ 81,499
======== ========
* Restated to reflect the two-for-one stock split effective on May 10, 1999.
<PAGE>
ATTACHMENT III
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(UNAUDITED)
For the year ended December 31
---------------------------------------------------
1998 1997 1996
------------- ------------- -------------
Number of shares
on which basic
earnings per share
is calculated:
Average outstanding
during year* 1,869,005,570 1,966,572,722 2,113,408,376
Add--Incremental
shares under stock
compensation plans* 51,124,900 55,297,162 46,009,432
------------- ------------- -------------
Number of shares on
which diluted
earnings per share
are calculated* 1,920,130,470 2,021,869,884 2,159,417,808
============= ============= ============
Net income (millions) $ 6,328 $ 6,093 $ 5,429
Less - Preferred stock
dividends (millions) 20 20 20
------------- ------------- -------------
Net income on which
basic and diluted
earnings per share
are calculated (millions) $ 6,308 $ 6,073 $ 5,409
============= ============ ============
Basic earnings
per share* $ 3.38 $ 3.09 $ 2.56
Diluted earnings
per share* $ 3.29 $ 3.00 $ 2.50
Stock options to purchase 4,124,730* shares in 1998, 331,666* shares in 1997 and
1,568,282* shares in 1996 were outstanding, but were not included in the
calculation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares, and therefore,
the effect would be anti-dilutive. In addition, 5,131,038* restricted stock
units in 1998 relating to the company's Long-Term Performance Plan were not
included in the computation of diluted earnings as their effect would be
anti-dilutive.
* Restated to reflect the two-for-one stock split of May 10, 1999.
<PAGE>
ATTACHMENT IV
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
(UNAUDITED)
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
(Dollars in millions
except per share amounts)
<TABLE>
<CAPTION>
For the year: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenue $ 81,667 $ 78,508 $ 75,947 $ 71,940 $ 64,052
Net income 6,328 6,093 5,429 4,178 3,021
Per share of common stock -
Basic* 3.38 3.09 2.56 1.81 1.26
Assuming dilution* 3.29 3.00 2.50 1.76 1.24
Cash dividends paid on common stock 814 763 686 572 585
Per share of common stock* .43 .3875 .325 .25 .25
Investment in plant, rental machines
and other property 6,520 6,793 5,883 4,744 3,078
Return on stockholders' equity 32.6% 29.7% 24.8% 18.5% 14.3%
At end of year:
Total assets $ 86,100 $ 81,499 $ 81,132 $ 80,292 $ 81,091
Net investment in plant, rental
machines and other property 19,631 18,347 17,407 16,579 16,664
Working capital 5,533 6,911 6,695 9,043 12,112
Total debt 29,413 26,926 22,829 21,629 22,118
Stockholders' equity 19,433 19,816 21,628 22,423 23,413
</TABLE>
* Restated to reflect the two-for-one stock split effective on May 10, 1999
<PAGE>
ATTACHMENT V
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
(UNAUDITED)
SELECTED QUARTERLY DATA
(Dollars in millions except
per share and stock prices)
<TABLE>
<CAPTION>
Per Share Commom Stock
--------------------------------------------------
Earnings-
Gross Net Earnings- Assuming Stock Prices#
Revenue Profit Income Basic* Dilution* Dividends* High* Low*
1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter $ 17,618 $ 6,450 $ 1,036 $ .54 $ .53 $ .10 $ 54.19 $ 47.81
Second quarter 18,823 7,146 1,452 .77 .75 .11 64.66 51.66
Third quarter 20,095 7,467 1,494 .80 .78 .11 69.06 55.38
Fourth quarter 25,131 9,809 2,346 1.27 1.24 .11 94.97 58.41
-------- -------- ------- ------- -------- ------
Total $ 81,667 $ 30,872 $ 6,328 $ 3.38 $ 3.29** $ .43
======== ======== ======= ======= ======== ======
1997
First quarter $ 17,308 $ 6,592 $ 1,195 $ .59 $ .58 $.0875 $ 42.53 $ 32.50
Second quarter 18,872 7,401 1,446 .73 .71 .1000 46.88 31.78
Third quarter 18,605 7,098 1,359 .69 .67 .1000 54.72 45.06
Fourth quarter 23,723 9,518 2,093 1.08 1.05 .1000 56.75 44.31
-------- -------- ------- ------- -------- ------
Total $ 78,508 $ 30,609 $ 6,093 $ 3.09 $ 3.00** $.3875*
======== ======== ======= ======= ======== ======
</TABLE>
* Restated to reflect the two-for-one stock split effective on May 10, 1999.
** The sum of the quarters' earnings per share does not equal the year-
to-date earnings per share due to changes in average share calculations.
This in accordance with prescribed reporting requirements.
1
<PAGE>
# The stock prices reflect the high and low prices for IBM's common stock on
the New York Stock Exchange composite tape for the last two years.
2
CERTIFICATE OF INCORPORATION
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Restated April 27, 1992
As Amended through April 28, 1999
<PAGE>
TABLE OF CONTENTS
Page
Article One
Name 1
Article Two
Purposes & Powers 1
Article Three
Capital 1
Article Four
Shares 1
Article Five
Office 9
Article Six
Directors 9
Article Seven
Committees, Account Books,
Dividends, Qualification of
Directors, Payment of Directors 9
Article Eight
Contracts, Ratification 10
Article Nine
Agent for Service 10
Article Ten
Preemptive Rights 10
Article Eleven
Liability of Directors 11
<PAGE>
Certificate of Incorporation
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
ONE: The name of the corporation (hereinafter called "the Corporation") is
International Business Machines Corporation.
TWO: The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized and to exercise powers granted under the
Business Corporation Law of the State of New York, provided that the Corporation
shall not engage in any act or activity requiring the consent or approval of any
state official, department, board, agency, or other body without such consent or
approval first being obtained.
THREE: The aggregate number of shares that the Corporation shall have authority
to issue is 4,837,500,000 shares, consisting of 4,687,500,000 shares of the par
value of $0.20 per share, which shall be designated "capital stock," and
150,000,000 shares of the par value of $.01 per share, which shall be designated
"preferred stock."
FOUR: (1) Subject to the provisions of the By-laws, as from time to time
amended, with respect to the closing of the transfer books and the fixing of a
record date, each share of the capital stock of the Corporation shall be
entitled to one vote on all matters requiring a vote of the stockholders and,
subject to the rights of the holders of any outstanding shares of preferred
stock issued under this Article FOUR, shall be entitled to receive such
dividends, in cash, securities, or property, as may from time to time be
declared by the Board of Directors. In the event of any liquidation,
dissolution, or winding up of the Corporation, either voluntary or involuntary,
after payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled under this Article FOUR, the holders of
capital stock shall be entitled, to the exclusion of the holders of the
preferred stock of any series, to share ratably, according to the number of
shares held by them, in all remaining assets of the Corporation available for
distribution.
(2) The Board of Directors is authorized, at any time or from time to time, to
issue preferred stock and (i) to divide the shares of preferred stock into
series; (ii) to determine the designation for any such series by number, letter,
or title that shall distinguish such series from any other series of preferred
stock; (iii) to determine the number of shares in any such series (including a
determination that such series shall consist of a single share); and (iv) to
determine with respect to the shares of any series of preferred stock:
(a) whether the holders thereof shall be entitled to cumulative, noncumulative,
or partially cumulative dividends and, with respect to shares entitled to
dividends, the dividend rate or rates, including without limitation the methods
and procedures for determining such rate or rates, and any other terms and
conditions relating to such dividends;
<PAGE>
(b) whether, and if so to what extent and upon what terms and conditions, the
holders thereof shall be entitled to rights upon the liquidation of, or upon any
distribution of the assets of, the Corporation;
(c) whether, and if so upon what terms and conditions, such shares shall be
convertible into, or exchangeable for, other securities or property;
(d) whether, and if so upon what terms and conditions, such shares shall be
redeemable;
(e) whether the shares shall be subject to any sinking fund provided for the
purchase or redemption of such shares and, if so, the terms of such fund;
(f) whether the holders thereof shall be entitled to voting rights and, if so,
the terms and conditions for the exercise thereof, provided that the holders of
shares of preferred stock (i) will not be entitled to more than the lesser of
(x) one vote per $100 of liquidation value or (y) one vote per share, when
voting as a class with the holders of shares of capital stock, and (ii) will not
be entitled to vote on any matter separately as a class, except, to the extent
specified with respect to each series, (x) with respect to any amendment or
alteration of the provisions of this Certificate of Incorporation that would
adversely affect the powers, preferences, or special rights of the applicable
series of preferred stock or (y) in the event the Corporation fails to pay
dividends on any series of preferred stock in full for any six quarterly
dividend payment periods, whether or not consecutive, in which event the number
of directors may be increased by two and the holders of outstanding shares of
preferred stock then similarly entitled shall be entitled to elect the two
additional directors until full accumulated dividends on all such shares of
preferred stock shall have been paid; and
(g) whether the holders thereof shall be entitled to other preferences or rights
and, if so, the qualifications, limitations, or restrictions of such preferences
or rights.
(3) Provisions relating to the Series A 7-1/2% Preferred Stock.
(a) Designation, Number, and Liquidation Preference. A series of preferred stock
is hereby designated "Series A 7-1/2% Preferred Stock". The number of Shares
constituting the Series A 7-1/2% Preferred Stock is 12,000,000. Shares of the
Series A 7-1/2% Preferred Stock shall have a par value of $.01 and a liquidation
preference of $100 per share. The number of authorized shares of the Series A 7-
1/2% Preferred Stock may be increased or decreased, in the discretion of the
Board of Directors, by amending this paragraph.
(b) Dividend Rate.
(i) Shares of the Series A 7-1/2% Preferred Stock shall be entitled to receive
dividends at a fixed annual rate of $7.50 per share. Such dividends shall be
cumulative from the date of original issue of such shares and shall be payable,
when and as declared by the Board of Directors, quarterly for each of the
quarters ending March, June, September and December of each year, in arrears on
the first business day of each April, July, October and January, commencing July
1, 1993. Each such dividend shall be paid to the holders of record of shares of
the Series A 7-1/2%
<PAGE>
Preferred Stock as they appear on the stock register on the applicable record
date, which shall be the 15th day prior to the payment date thereof. Dividends
on account of arrears for any past dividend periods may be declared and paid at
any time, without reference to any regular dividend payment date, to holders of
record on such date as may be fixed by the Board of Directors which shall not
exceed 30 days preceding such dividend payment date thereof.
(ii) No dividends shall be declared or paid or set apart for payment on any
shares of any class or classes of stock of the Corporation or any series thereof
ranking, as to dividends, on a parity with or junior to the Series A 7-1/2%
Preferred Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series A 7-1/2% Preferred
Stock for all dividend payment periods terminating on or prior to the date of
payment of such full cumulative dividends. When dividends are not paid in full,
as aforesaid, upon the shares of the Series A 7-1/2% Preferred Stock and any
other shares of any class or classes of stock or series thereof ranking on a
parity as to dividends with the Series A 7-1/2% Preferred Stock, all dividends
declared upon shares of the Series A 7-1/2% Preferred Stock and any other shares
of such class or classes or series thereof ranking on a parity as to dividends
with the Series A 7-1/2% Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share on the Series A 7-1/2% Preferred Stock
and such other shares shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of the Series A 7-1/2% Preferred Stock
and such other shares bear to each other. Holders of shares of the Series A
7-1/2% Preferred Stock shall not be entitled to any dividend, whether payable in
cash, property or stock, in excess of full cumulative dividends, as herein
provided, on the Series A 7-1/2% Preferred Stock. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series A 7-1/2% Preferred Stock which may be in arrears.
(iii) So long as any shares of the Series A 7-1/2% Preferred Stock are
outstanding, no dividend (other than a dividend in capital stock or in any other
shares ranking junior to the Series A 7-1/2% Preferred Stock as to dividends and
upon Liquidation (as defined in subsection (f)(i) and other than as provided in
paragraph (ii) of this subsection (b)) shall be declared or paid or set aside
for payment or other distribution declared or made upon the shares of capital
stock or upon any other shares ranking junior to or on a parity with the Series
A 7-1/2% Preferred Stock as to dividends or upon Liquidation, nor shall any of
the shares of capital stock or any other shares of the Corporation ranking
junior to or on a parity with the Series A 7-1/2% Preferred Stock as to
dividends or upon Liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Corporation (except by conversion
into or exchange for shares of the Corporation ranking junior to the Series A
7-1/2% Preferred Stock as to dividends and upon Liquidation) unless, in each
case, the full cumulative dividends on all outstanding shares of the Series A 7-
1/2% Preferred Stock shall have been or contemporaneously are declared and paid,
or declared and a sum sufficient for payment thereof is set apart for payment,
for all past dividend payment periods.
<PAGE>
(iv) Dividends payable on the Series A 7-1/2% Preferred Stock for any period
less than a full quarterly dividend period, and for the dividend period
beginning on the date of issuance of the shares of the Series A 7-1/2% Preferred
Stock, shall be computed on the basis of a 360-day year consisting of 12 30-day
months. The amount of dividends payable on shares of the Series A 7-1/2%
Preferred Stock for each full quarterly dividend period shall be computed by
dividing by 4 the annual rate per share set forth above in subsection (b)(i).
(c)Redemption.
(i) The shares of the Series A 7-1/2% Preferred Stock shall not be redeemable
prior to July 1, 2001. On and after July 1, 2001, the Corporation, at its
option, may redeem shares of the Series A 7-1/2% Preferred Stock, as a whole or
in part, at any time or from time to time, at a redemption price per share of
$100 plus, in each case, accrued and unpaid dividends thereon to the date fixed
for redemption.
(ii) In the event that fewer than all the outstanding shares of the Series A
7-1/2% Preferred Stock are to be redeemed, the number of shares to be redeemed
shall be determined by the Board of Directors and the shares to be redeemed
shall be determined by lot or pro rata as may be determined by the Board of
Directors or by any other method as may be determined by the Board of Directors
in its sole discretion to be equitable.
(iii) In the event the Corporation shall redeem shares of the Series A 7-1/2%
Preferred Stock, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not less than 35 nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed, at such
holder's address as the same appears on the stock register of the Depositary (as
provided in subsection (j)(iii) below). Each such mailed notice shall state: (v)
the redemption date; (w) the number of shares of the Series A 7-1/2% Preferred
Stock to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (x)
the redemption price; (y) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price; and (z) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date. No defect in the notice of redemption or in the mailing thereof shall
affect the validity of the redemption proceedings, and the failure to give
notice to any holder of shares of the Series A 7-1/2% Preferred Stock to be so
redeemed shall not affect the validity of the notice given to the other holders
of shares of the Series A 7-1/2% Preferred Stock to be so redeemed.
(iv) Notice having been mailed as aforesaid, then, notwithstanding that the
certificates evidencing the shares of the Series A 7-1/2% Preferred Stock shall
not have been surrendered, from and after the redemption date (unless default
shall be made by the Corporation in providing money for the payment of the
redemption price) dividends on the shares of the Series A 7-1/2% Preferred Stock
so called for redemption shall cease to accrue, and said shares shall no longer
be deemed to be outstanding, and all rights of the holders thereof as
stockholders (including dividend and voting rights) of the Corporation (except
the right to receive from the Corporation the redemption price) shall cease.
Upon surrender in accordance with said notice of the certificates for any shares
so redeemed (properly endorsed or assigned for
<PAGE>
transfer, if the Board of Directors shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the redemption price
aforesaid. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
(v) Any shares of the Series A 7-1/2% Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of authorized
but unissued shares of preferred stock, without designation as to series until
such shares are once more designated as part of a particular series by the Board
of Directors.
(vi) Notwithstanding the foregoing provisions of this subsection (c), if any
dividends on the Series A 7-1/2% Preferred Stock are in arrears, no shares of
the Series A 7-1/2% Preferred Stock shall be redeemed unless all outstanding
shares of the Series A 7-1/2% Preferred Stock are simultaneously redeemed, and
the Corporation shall not purchase or otherwise acquire any shares of the Series
A 7-1/2% Preferred Stock; provided, however, that the foregoing shall not
prevent the purchase or acquisition of shares of the Series A 7-1/2% Preferred
Stock pursuant to a purchase or exchange offer made on the same terms to holders
of all outstanding shares of the Series A 7-1/2% Preferred Stock.
(d) Conversion. The holders of shares of the Series A 7-1/2% Preferred Stock
shall not have any rights herein to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of stock of the Corporation.
(e) Voting. The shares of the Series A 7-1/2% Preferred Stock shall not have any
voting powers either general or special, except as required by law and except
that:
(i) So long as any of the shares of the Series A 7-1/2% Preferred Stock are
outstanding, the consent of the holders of at least two-thirds of all the shares
of the Series A 7-1/2% Preferred Stock at the time outstanding, given in person
or by proxy, either in writing or by a vote at a meeting called for the purpose
at which the holders of shares of the Series A 7-1/2% Preferred Stock shall vote
together as a separate class, shall be necessary for authorizing, effecting or
validating the amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation or of any certificate amendatory thereof or
supplemental thereto (including any certificate of amendment or any similar
document relating to any series of preferred stock) which would adversely affect
the powers, preferences or special rights of the Series A 7-1/2% Preferred
Stock, including the creation or authorization of any class of stock that ranks
senior to the Preferred Stock with respect to dividends or upon Liquidation. Any
amendment or any resolution or action of the Board of Directors which would
create or issue any series of preferred stock out of the authorized shares of
preferred stock, or which would authorize, create or issue any shares or class
of stock (whether or not already authorized), ranking junior to or on a parity
with the Series A 7-1/2% Preferred Stock with respect to the payment of
dividends and distributions and distributions upon any Liquidation, shall not be
considered to affect adversely the powers, preferences or special rights of the
outstanding shares of the Series A 7-1/2% Preferred Stock;
<PAGE>
(ii) In the event that the Corporation shall have failed to declare and pay or
set apart for payment in full the dividends accumulated on the outstanding
shares of the Series A 7-1/2% Preferred Stock for any six quarterly dividend
payment periods, whether or not consecutive, and all such preferred dividends
remain unpaid (a "Preferred Dividend Default"), the number of directors of the
Corporation shall be increased by two and the holders of outstanding shares of
the Series A 7-1/2% Preferred Stock, voting together as a class with all other
series of preferred stock then entitled to vote on the election of such
directors, shall be entitled to elect such two additional directors until the
full dividends accumulated on all outstanding shares of the Series A 7-1/2%
Preferred Stock have been declared and paid in full. Upon the occurrence of a
Preferred Dividend Default, the Board of Directors shall within 10 business days
(any day other than a day which is a Saturday, Sunday or legal holiday on which
banks are open for business in New York, New York) of such default call a
special meeting of the holders of shares of the Series A 7-1/2% Preferred Stock
and all other holders of a series of preferred stock who are then entitled to
participate in the election of such directors for the purpose of electing the
additional directors provided by the foregoing provisions; provided that, in
lieu of holding such meeting, the holders of record of a majority of the
outstanding shares of the Series A 7-1/2% Preferred Stock and all other series
of preferred stock who are then entitled to participate in the election of such
directors may, by action taken by written consent as permitted by law and this
Certificate of Incorporation and the Bylaws of the Corporation, elect such
additional directors. If and when all accumulated dividends on the shares of the
Series A 7-1/2% Preferred Stock have been declared and paid or set aside for
payment in full, the holders of shares of the Series A 7- 1/2% Preferred Stock
shall be divested of the special voting rights provided by this paragraph,
subject to revesting in the event of each and every subsequent Preferred
Dividend Default. Upon termination of such special voting rights attributable to
all holders of shares of the Series A 7-1/2% Preferred Stock and any other
series of preferred stock, the term of office of each director elected by the
holders of shares of the Series A 7-1/2% Preferred Stock and such parity stock
(hereinafter referred to as a "Preferred Stock Director") pursuant to such
special voting rights shall forthwith terminate and the number of directors of
the Company shall, without further action, be reduced by two, subject always to
the increase in the number of directors pursuant to the foregoing provisions in
case of a future Preferred Dividend Default. Any Preferred Stock Director may be
removed at any time with or without cause by, and shall not be removed otherwise
than by, the vote of the holders of record of a majority of the outstanding
shares of the Series A 7-1/2% Preferred Stock and all other series of preferred
stock who were entitled to participate in such Preferred Stock Director's
election, voting as a separate class, at a meeting called for such purpose or by
written consent as permitted by law and this Certificate of Incorporation and
the By-laws of the Corporation. So long as a Preferred Dividend Default shall
continue, any vacancy in the office of a Preferred Stock Director may be filled
by written consent of the Preferred Stock Director remaining in office or, if
none remains in office, by vote of the holders of record of a majority of the
outstanding shares of the Series A 7-1/2% Preferred Stock and all other series
of preferred stock who are then entitled to participate in the election of such
Preferred Stock Directors as provided above. As long as a Preferred Dividend
Default shall continue, holders of shares of the Series A 7-1/2% Preferred Stock
shall not, as such stockholders, be entitled to vote on the election or removal
of directors other than Preferred Stock
<PAGE>
Directors, but shall not be divested of any other voting rights provided to such
stockholders by law with respect to any other matter to be acted upon by the
stockholders of the Corporation. The Preferred Stock Directors shall each be
entitled to one vote per director on any matter.
(f) Liquidation Rights.
(i) Upon the dissolution, liquidation or winding up of the affairs of the
Corporation, whether voluntary or involuntary (collectively, a "Liquidation"),
after payment or provision for payment has been made of the debts and other
liabilities of the Corporation and payment or provision for payment has been
made on all amounts required to be paid in respect of all outstanding shares of
any class or classes of stock of the Corporation or series thereof ranking
senior to the shares of the Series A 7-1/2% Preferred Stock, the holders of the
shares of the Series A 7-1/2% Preferred Stock shall be entitled, subject to
paragraph (iv) of this subsection (f), to receive out of the assets of the
Corporation, before any payment or distribution shall be made on capital stock
or on any other class of stock ranking junior to preferred stock upon
Liquidation, the amount of $100 per share, plus a sum equal to all dividends
(whether or not earned or declared) on such shares accrued and unpaid thereon to
the date of final distribution.
(ii) Neither the sale, transfer or lease of all or any part of the property or
business of the Corporation, nor the merger or consolidation of the Corporation
into or with any other corporation or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a Liquidation
for the purposes of this subsection (f).
(iii) After the payment to the holders of the shares of the Series A 7-1/2%
Preferred Stock of the full preferential amounts provided for in this subsection
(f), the holders of the Series A 7-1/2% Preferred Stock as such shall have no
right or claim to any of the remaining assets of the Corporation and the shares
of the Series A 7-1/2% Preferred Stock shall no longer be deemed to be
outstanding or be entitled to any other powers, preferences, rights or
privileges, including voting rights, and such shares shall be surrendered for
cancellation to the Corporation.
(iv) In the event the assets of the Corporation available for distribution to
the holders of shares of the Series A 7-1/2% Preferred Stock upon any
Liquidation shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to paragraph (i) of this subsection (f), no such
distribution shall be made on account of any shares of any series of preferred
stock ranking on a parity with the shares of the Series A 7-1/2% Preferred Stock
upon such Liquidation unless proportionate distributive amounts shall be paid on
account of the shares of the Series A 7-1/2% Preferred Stock, ratably, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such Liquidation.
(g) Priority. Any shares of any class or classes of the Corporation or series
thereof shall be deemed to rank:
(i) prior to the shares of the Series A 7-1/2% Preferred Stock, either as to
dividends or upon Liquidation, if the holders of such class or classes shall be
entitled to the
<PAGE>
receipt of dividends or of amounts distributable upon Liquidation of the
Corporation, in preference or priority to the holder of shares of the Series A
7-1/2% Preferred Stock;
(ii) on a parity with shares of the Series A 7-1/2% Preferred Stock, either as
to dividends or upon Liquidation, whether or not the dividend rates, dividend
payment dates or redemption or Liquidation prices per share or sinking fund
provisions, if any, be different from those of the Series A 7-1/2% Preferred
Stock, if the holders of such shares shall be entitled to the receipt of
dividends or of amounts distributable upon Liquidation of the Corporation, in
proportion to their respective dividend rates or Liquidation prices, without
preference or priority, one over the other, as between the holders of such
shares and the holders of shares of the Series A 7-1/2% Preferred Stock; and
(iii) junior to shares of the Series A 7-1/2% Preferred Stock, either as to
dividends or upon Liquidation, if such class is capital stock or if the holders
of shares of the Series A 7-1/2% Preferred Stock shall be entitled to receipt of
dividends or of amounts distributable upon Liquidation of the Corporation, in
preference or priority to the holders of shares of such class or classes.
(h) Sinking or Retirement Fund. The shares of the Series A 7-1/2% Preferred
Stock shall not be entitled to the benefit of a sinking or retirement fund to be
applied to the purchase or redemption of such shares.
(i) Distribution to Capital Stock Holders. Distribution of any of the Series A
7-1/2% Preferred Stock or any other series of preferred stock may, in the
discretion of the Board of Directors, be made to the holders of shares of
capital stock.
(j) Miscellaneous.
(i) Subject to paragraph (iii) of subsection (c) above, all notices referred to
herein shall be in writing, and all notices hereunder shall be deemed to have
been given upon the earlier of receipt thereof or three business days after the
mailing thereof if sent by registered mail (unless first-class mail shall be
specifically permitted for such notice under the terms of this Certificate of
Incorporation) with postage prepaid, addressed: if to the Corporation, to its
offices at New Orchard Road, Armonk, New York 10504 (Attention: Secretary), if
to the Depositary (as defined in paragraph (iii) below), to such holder at the
address of such holder as listed in the stock book (which may include the
records of the Depositary if appropriate); or to such other address as the
Corporation or holder, as the case may be, shall have designated by notice
similarly given.
(ii) In the event a holder of shares of the Series A 7-1/2% Preferred Stock
shall not by written notice designate the name to whom payment upon redemption
of any shares of the Series A 7-1/2% Preferred Stock should be made or the
address to which the certificate or certificates representing such shares, or
such payment, should be sent, the Corporation shall be entitled to register such
shares, and make such payment, in the name of the holder of such shares as shown
on the records of the Corporation and to send the certificate or certificates
representing such shares,
<PAGE>
or such payment, to the address of such holder shown on the records of the
Corporation.
(iii) First Chicago Trust Company of New York shall be appointed the depositary
(the "Depositary") for the shares of the Series A 7-1/2% Preferred Stock. The
Depositary shall act as transfer agent, registrar and dividend disbursing agent
for the shares of the Series A 7-1/2% Preferred Stock.
FIVE: The town and county within the State of New York in which the office of
the Corporation is to be located is the Town of North Castle, County of
Westchester.
SIX: The number of directors of the Corporation shall be provided in its By-
laws, but not less than 9 nor more than 25.
SEVEN: The Board of Directors may designate from their number an executive
committee and one or more other committees, each of which shall consist of three
or more directors. All such committees, in the intervals between meetings of the
Board of Directors and to the extent provided in the By-laws or the resolution
of the Board of Directors establishing such a committee, shall have all the
authority and may exercise all the powers of the Board of Directors in the
management of the business and affairs of the Corporation to the extent lawful
under the Business Corporation Law of the State of New York.
The Board of Directors shall from time to time decide whether and to what extent
and at what times and under what conditions and requirements the accounts and
books of the Corporation, or any of them, except the stock book, shall be open
to the inspection of the stockholders, and no stockholder shall have any right
to inspect any books or documents of the Corporation except as conferred by
statute of the State of New York or authorized by the Board of Directors.
The Board of Directors may from time to time fix, determine, and vary the amount
of the working capital of the Corporation; may determine what part, if any, of
surplus shall be declared in dividends and paid to the stockholders; may
determine the time or times for the declaration and payment of dividends, the
amount thereof, and whether they are to be in cash, securities, or properties;
may direct and determine the use and disposition of any surplus or net profits
over and above the capital, and in its discretion may use or apply any such
surplus or accumulated profits in the purchase or acquisition of bonds or other
pecuniary obligations of the Corporation to such extent, and in such manner and
upon such terms as the Board of Directors may deem expedient.
Directors shall be stockholders, subject to the power of the Board of Directors
from time to time to prescribe a reasonable time after qualification within
which newly elected directors must become stockholders.
Each director, in consideration of serving as such, shall be entitled to receive
from the Corporation such amount per annum or such fees for attendance at
meetings of the stockholders or of the Board of Directors or of committees of
the Board of Directors, or both, as the Board of Directors shall from time to
time determine, together with reimbursement for the reasonable expenses incurred
in connection with the performance of duties. Nothing herein contained shall
preclude any director
<PAGE>
from serving the Corporation or its subsidiaries in any other capacity and
receiving compensation therefor.
EIGHT: In the absence of fraud, any director of the Corporation individually, or
any firm or association of which any director is a member, or any corporation of
which any director is an officer, director, stockholder, or employee, or in
which such director is pecuniarily or otherwise interested, may be a party to,
or may be pecuniarily or otherwise interested in, any contract, transaction, or
act of the Corporation, and
(1) Such contract, transaction, or act shall not be in any way invalidated or
otherwise affected by that fact,
(2) Any such director of the Corporation may be counted in determining the
existence of a quorum at any meeting of the Board of Directors or of any
committee thereof that shall authorize any such contract, transaction, or act,
but may not vote thereon, and
(3) No director of the Corporation shall be liable to account to the Corporation
for any profit realized by such director from or through any such contract,
transaction, or act; provided, however, that if any such director of the
Corporation is so interested either individually or as a member of a firm or
association, or as the holder of a majority of the stock of any class of a
corporation, the contract, transaction, or act shall be duly authorized or
ratified by a majority of the Board of Directors who are not so interested and
who know of such director's interest therein.
To the extent permitted by law, any contract, transaction, or act of the
Corporation or of the Board of Directors or of any committee thereof that shall
be ratified, whether before or after judgment rendered in a suit with respect to
such contract, transaction, or act, by the holders of a majority of the stock of
the Corporation having voting power at any annual meeting or at any special
meeting called for such purpose, shall be as valid and as binding as though
ratified by every stockholder of the Corporation and shall constitute a complete
bar to any such suit or to any claim of execution in respect of any such
judgment; provided, however, that any failure of the stockholders to approve or
ratify such contract, transaction, or act, when and if submitted, shall not be
deemed in any way to invalidate the same or to deprive the Corporation, its
directors, officers, or employees of its or their right to proceed with such
contract, transaction, or act.
NINE: The Secretary of State of the State of New York is designated as the agent
of the Corporation upon whom process in any action or proceeding against it may
be served, and the address within the State to which the Secretary of State
shall mail a copy of process in any action or proceeding against the Corporation
that may be served upon the Secretary of State is Armonk, New York 10504.
TEN: The holders of shares of the Corporation shall have no preemptive or
preferential right to subscribe for or purchase any shares of the Corporation or
any rights or options to purchase shares of the Corporation or any shares or
other securities convertible into or carrying rights or options to purchase
shares of the Corporation.
<PAGE>
ELEVEN: Pursuant to Section 402(b) of the Business Corporation Law of the State
of New York, the liability of the Corporation's directors to the Corporation or
its stockholders for damages for breach of duty as a director shall be
eliminated to the fullest extent permitted by the Business Corporation Law of
the State of New York, as it exists on the date hereof or as it may hereafter be
amended. No amendment to or repeal of this Article shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
----------------------------------------------------
INTERNATIONAL BUSINESS MACHINES CORPORATION
The undersigned does hereby certify that the foregoing is a true and complete
copy of the Certificate of Incorporation of International Business Machines
Corporation, as amended through April 28, 1999, and it remains in full force and
effect on this date.
IN WITNESS WHEREOF, I have signed my name and affixed the seal of
International Business Machines Corporation this day of , 19 .
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