SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OFProxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (AMENDMENT NO.(Amendment No. )
Filed by the Registrant [X]/X/
Filed by a Partyparty other than the Registrant [_]/ /
Check the appropriate box:
[_]/ / Preliminary Proxy Statement
[_]/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X]/X/ Definitive Proxy Statement
[_]/ / Definitive Additional Materials
[_]/ / Soliciting Material Pursuant to (S)Section 240.14a-11(c) or (S)Section
240.14a-12
INVESTORS FINANCIAL SERVICES CORP.
------------------------------------------------Investors Financial Services Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check(Check the appropriate box):
$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_]/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)(1)
and 0-11.0-11
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set(set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________------------------------------------------------------------------------
(5) Total fee paid:
________________________________________________________________________
[_]------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
[_]/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________------------------------------------------------------------------------
(3) Filing Party:
________________________________________________________________________------------------------------------------------------------------------
(4) Date Filed:
________________________________________________________________________------------------------------------------------------------------------
INVESTORS FINANCIAL SERVICES CORP.
89 SOUTH STREET
BOSTON,200 Clarendon Street
Boston, MA 02111
_______________02116
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
_______________----------
To the Stockholders of Investors Financial Services Corp.:
The Annual Meeting of Stockholders of Investors Financial Services Corp.
(the "Company"), a Delaware corporation, will be held on Tuesday, April 15, 199714,
1998 at 11:00 a.m., local time, at 125 Summer200 Clarendon Street, 5th17th Floor, Boston,
Massachusetts, for the following purposes:
1. To elect two (2)three (3) Class IIIII directors to serve for a three-year
term orand until their successor is elected and qualified.
2. To approve certain amendments to the Company's Amended and Restated 1995 Non-Employee
Director Stock Option Plan.
3. To approve the adoption of the Company's 1997 Employee Stock Purchase
Plan.
4. To ratify the selection of Deloitte & Touche, LLP as independent
auditors for the fiscal year ending December 31, 1997.
5.1998.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on February 17, 199716, 1998
are entitled to notice of and to vote at the meeting and any adjournments
thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if such stockholder has returned a proxy.
By Order of the Board of Directors
John E. Henry
Secretary
Boston, Massachusetts
March 5, 19971998
INVESTORS FINANCIAL SERVICES CORP.
89 SOUTH STREET
BOSTON,200 Clarendon Street
Boston, MA 02111
_________________02116
----------
PROXY STATEMENT
_________________
MARCH----------
March 5, 19971998
Proxies in the form enclosed with this proxy statement are solicited by
the Board of Directors of Investors Financial Services Corp., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders to
be held on Tuesday, April 15, 1997,14, 1998, at 11:00 a.m., local time, at 125 Summer200
Clarendon Street, 5th17th Floor, Boston, Massachusetts, or at any adjournments
thereof (the "Annual Meeting").
Only stockholders of record at the close of business on February 17, 199716, 1998
(the "Record Date") will be entitled to receive notice of and to vote at the
meetingAnnual Meeting and any adjournments thereof. As of that date, 6,101,6366,472,188
shares of the Company's Common Stock, $.01 par value per share (the "Common Stock"), and
342,676 shares of the Company's Class A Common Stock, $.01 par value per share
(the "Class A
Stock"), were issued and outstanding. The holders of Common Stock are
entitled to one vote per share on any proposal presented at the meeting and
the holders of the Class A Stock are entitled to ten votes per share on any
proposal presented at the meeting.Annual
Meeting. Stockholders may vote in person or by proxy. Execution of a proxy
will not in any way affect a stockholder's right to attend the meetingAnnual Meeting
and vote in person. Any stockholder giving a proxy has the right to revoke it
by written notice delivered to the Secretary of the Company at any time up to
and including the last business day before the day of the meetingAnnual Meeting or
to the Chairman of the meetingAnnual Meeting on the day of the meetingAnnual Meeting or any
adjournment thereof.
The representation in person or by proxy of at least a majority of the
voting power of the outstanding Common Stock and Class A Stock entitled to vote at the meeting as a single class is necessary to
constitute a quorum for the transaction of business. Votes withheld from any
director nominee, abstentions and broker "non-votes" are counted as present
or represented for purposes of determining the presence or absence of a
quorum for the meeting. A "non-vote" occurs when a nominee holding shares for
a beneficial owner votes on one proposal, but does not vote on another
proposal because, in respect of such other proposal, the nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
In the election of directors, the nominees receiving the highest number
of affirmative votes of the shares present or represented and entitled to
vote at the meeting shall be elected as directors. On all other matters being
submitted to stockholders, an affirmative vote of a majority of the voting power of the
shares
present or represented and voting on each such matter is required for
approval. An automated system administered by the Company's transfer agent
tabulates the votes. The vote on each matter submitted to stockholders is
tabulated separately. Abstentions are included in the number of shares present
or represented and voting on each matter. Shares voted to abstain, since they
are not affirmative votes for the matter, will have the same affect as votes
against the matter. Shares subject to broker "non-votes" are not considered
to have been voted for the particular matter and have the practical effect of
reducing the number of affirmative votes required to achieve a majority for
such matter by reducing the total number of shares from which the majority is
calculated.
In addition to the election of directors, the stockholders will consider
and vote upon proposals to (i) amendapprove the Company's Amended and Restated
1995 Non-Employee Director
Stock Option Plan (the "Director Plan");Plan; and (ii) adopt the Company's 1997 Employee
Stock Purchase Plan (the "1997 Purchase Plan"); and (iii) ratify the selection of auditors, each as further
described in this proxy statement. The persons named as attorneys-in-fact in
the proxies are officers of the Company. All properly executed proxies
returned in time to be counted at the meeting will be voted. Where a
-2-
choice
has been specified on the proxy with respect to the foregoing matters, the
shares represented by the proxy will be voted in accordance with the
specifications and will be voted FOR if no specification is indicated.
The Board of Directors knows of no other matters to be presented at the
meeting. If any other matter should be presented at the meeting upon which a
vote properly may be taken, shares represented by all proxies received by the
Board of Directors will be voted with respect thereto in accordance with the
judgment of the persons named as attorneys in the proxies.
An Annual Report to Stockholders, containing financial statements for the
fiscal year ended December 31, 1996,1997, is being mailed together with this proxy
statement to all stockholders entitled to vote. This proxy statement and the
form of proxy were first mailed to stockholders on or about March 5, 1997.1998.
2
-3-
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock and Class A Stock as of February 17,
1997:16, 1998: (i) by each
person who, to the knowledge of the Company, owned beneficially more than 5%
of the outstanding voting powershares of the CompanyCompany's Common Stock outstanding at such date; (ii) by
each director, nominee and executive officer identified in the Summary
Compensation Table set forth below under "Compensation and Other Information
Concerning Directors and Officers"; and (iii) by all officers, directors and
nominees as a group. Unless otherwise indicated below, each person listed
below maintains a business address c/o Investors Financial Services Corp.,
89 South200 Clarendon Street, Boston, MA 0211102116 and, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect
to their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law or as otherwise noted.
Name and Address Amount and Nature Percent
of Beneficial Owner of Ownership of Voting Power (1)
- ------------------- ----------------- -------------------
Landon T. Clay (2).................. 471,272 9.9%
c/o Eaton Vance Corp.
24 Federal Street
Boston, MA 02110
Name and Address Amount and Nature Percent
of Beneficial Owner of Ownership of Class
- ------------------- ----------------- --------
Entities associated with The Northwestern
Mutual Life Insurance Company (1).......... 487,700 7.5%
720 East Wisconsin Avenue
Milwaukee, WI 53202
Landon T. Clay (2)......................... 471,272 7.3%
c/o North American Management
Suite 300, Ten Post Office Square
Boston, MA 02108
Entities Associated with OppenheimerFunds,
Inc. (3).................................. 328,000 5.1%
Two World Trade Center, Suite 3400
New York, NY 10048
Frank B. Condon, Jr. (4)................... 11,619 *
Robert B. Fraser (5)....................... 2,665 *
Donald G. Friedl (6)....................... 4,621 *
Thomas P. McDermott (4).................... 6,322 *
James M. Oates (4)......................... 17,590 *
Phyllis S. Swersky (7)..................... 2,543 *
Kevin J. Sheehan (8)....................... 206,931 3.2%
Michael F. Rogers (9)...................... 110,793 1.7%
Edmund J. Maroney (10)..................... 28,805 *
Robert D. Mancuso (11)..................... 24,644 *
Karen C. Keenan (12)....................... 20,722 *
All officers and directors as a group
(14 persons) (13)...................... 451,482 6.8%
- ------------------------
* Less than 1%
3
(1) Includes (i) 209,300 shares of Common Stock held by The Northwestern
Mutual Life Insurance Company, (3)............... 567,700 6.0%
720 East Wisconsin Avenue
Milwaukee, WI 53202
Frank B. Condon, Jr. (4)............ 162,986 3.8%
Robert B. Fraser (5)................ 1,573 *
Donald G. Friedl (6)................ 2,209 *
Thomas P. McDermott (7)............. 3,859 *
James M. Oates (7).................. 12,159 *
Phyllis S. Swersky (8).............. 1,033 *
Kevin J. Sheehan (9)................ 183,269 3.1%
Michael F. Rogers (10).............. 91,445 1.2%
Edmund J. Maroney (11).............. 20,875 *
Robert D. Mancuso (12).............. 17,188 *
Karen C. Keenan (13)................ 14,703 *
All officers and directors as a
group (13 persons) (14) 528,340 9.2%
* Less than 1% of the outstanding voting power of the Company
(1) Includes beneficial ownership of the following amounts of the Company's
Class A Stock representing the following percentages of voting power;
Landon T. Clay, 52,276(ii) 63,000 shares of Class ACommon Stock 5.5%; Frank B. Condon, Jr.,
22,392held
by The Northwestern Mutual Life Insurance Company Group Annuity
Separate Account, (iii) 200,000 shares of Class ACommon Stock 2.4%; Thomas P. McDermott, 5held by the
Growth Stock Portfolio of The Northwestern Mutual Life Series Fund,
Inc., a wholly-owned subsidiary of The Northwestern Mutual Life
Insurance Company, and (iv) 2,400 shares held by the Asset Allocation
Fund and 13,000 shares held by the Aggressive Growth Stock Fund of
Class A Stock, less than 1%; Kevin J. Sheehan, 12,885 sharesMason Street Funds, Inc., an affiliate of Class A
Stock, 1.4%; Michael F. Rogers, 2,911 shares of Class A Stock, less than
1%; and Karen C. Keenan, 240 shares of Class A Stock, less than 1%.
-4-The Northwestern Mutual Life
Insurance Company.
(2) Landon T. Clay is a member of the board of directorsformer officer of Eaton Vance Corp.
("Eaton Vance"), the former
parent of the Company. Includes 699833 shares of Common Stock and 134 shares of Class A Stock owned by
family members of Mr. Clay, as to which Mr. Clay disclaims beneficial
ownership. Also includes 1,7782,120 shares of Common Stock and 342 shares of Class A Stock held by LTC Corp.
Profit Sharing Plan, of which Mr. Clay is a beneficiary and is deemed
to have sole voting power of such shares. Also includes 292348 shares of
Common Stock and 56 shares of Class A Stock owned by Flowers Antigua Profit Sharing Plan, of which Mr.
Clay's spouse, Lavinia Clay, is a beneficiary and is deemed to have
sole voting power of such shares. Excludes 133,333 shares of Common
Stock held by the Monadnock Charitable Lead Trust, an irrevocable
grantor trust, of which Mr. Clay was the grantor but is not a trustee
and over which Mr. Clay has no voting or dispositive power.
(3) Includes 311,100 shares of Common StockShares are held by The Northwestern Mutual
Life Insurance Company, 56,600 shares of Common Stock heldtwo investment companies managed by the
Northwestern Mutual Life Insurance Company Group Annuity Separate Account,
and 200,000 shares of Common Stock held by the Growth Stock Portfolio of
the Northwestern Mutual Life Series Fund,Oppenheimer
Advisers, Inc., a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company.OppenheimerFunds, Inc.
(4) Includes 131,518 shares of Common Stock and 21,912 shares of Class A Stock
which are held in a fiduciary capacity for its investment management
clients by Woodstock Corporation. Mr. Condon is Chairman and Chief
Executive Officer of Woodstock Corporation and disclaims any beneficial
interest in such shares. Also, includes 2,1264,589 shares of Common Stock which may be purchased within 60
days of February 17, 199716, 1998 (the "Record Date") upon the exercise of
stock options granted under the Company's 1995 Non-Employee Director
Plan.Stock Option Plan (the "Director Plan"). Excludes 3,7504,689 shares of
Common Stock issuable pursuant to options granted under the Director
Plan which are not exercisable within 60 days of the Record Date.
(5) Includes 5731,665 shares of Common Stock which may be purchased within 60
days of the Record Date upon the exercise of stock options granted
under the Director Plan. Excludes 1,9273,335 shares of Common Stock issuable
pursuant to options granted under the Director Plan which are not
exercisable within 60 days of the Record Date.
(6) Includes 1,7094,121 shares of Common Stock which may be purchased within 60
days of the Record Date upon the exercise of stock options granted
under the Director Plan. Excludes 4,1675,157 shares of Common Stock issuable
pursuant to options granted under the Director Plan which are not
exercisable within 60 days of the Record Date.
(7) Includes 2,1262,343 shares of Common Stock which may be purchased within 60
days of the Record Date upon the exercise of stock options granted
under the Director Plan. Excludes 3,7505,157 shares of Common Stock issuable
pursuant to options granted under the Director Plan which are not
exercisable within 60 days of the Record Date.
(8) Includes 83345,622 shares of Common Stock which may be purchased within 60
days of the Record Date upon the exercise of stock options granted
under the Director Plan.Company's 1995 Stock Plan (the "1995 Plan"). Excludes 4,16764,378
shares of Common Stock issuable pursuant to options granted under the
Director1995 Plan which are not exercisable within 60 days of the Record Date.
(9) Includes 22,50033,777 shares of Common Stock which may be purchased by Mr.
Sheehan within 60
days of the Record Date upon the exercise of stock options granted
under the Company's 1995 Stock Plan. Excludes 57,50053,023 shares of Common Stock issuable
pursuant to options granted to Mr. Sheehan
under the Company's 1995 Stock Plan which are not
exercisable within 60 days of the Record Date.
4
(10) Includes 18,12513,285 shares of Common Stock which may be purchased by Mr. Rogers within 60
days of the Record Date upon the exercise of stock options granted
under the Company's 1995 Stock Plan. Excludes 46,87525,315 shares of Common Stock issuable
pursuant to options granted to Mr. Rogers under the Company's 1995 Stock Plan which are not
exercisable within 60 days of the Record Date.
-5-
(11) Includes 6,87514,123 shares of Common Stock which may be purchased by Mr. Maroney within 60
days of the Record Date upon the exercise of stock options granted
under the Company's 1995 Stock Plan. Excludes 18,12524,377 shares of Common Stock issuable
pursuant to options granted to Mr. Maroney under the Company's 1995 Stock Plan which are not
exercisable within 60 days of the Record Date.
(12) Includes 6,6889,623 shares of Common Stock which may be purchased by Mr. Mancuso within 60
days of the Record Date upon the exercise of stock options granted
under the Company's 1995 Stock Plan. Excludes 16,81221,877 shares of Common Stock issuable
pursuant to options granted to Mr. Mancuso under the Company's 1995 Stock Plan which are not
exercisable within 60 days of the Record Date.
(13) Includes 4,688 shares of Common Stock which may be purchased by Ms. Keenan
within 60 days of the Record Date upon the exercise of stock options
granted under the Company's 1995 Stock Plan. Excludes 12,812 shares of
Common Stock issuable pursuant to options granted to Ms. Keenan under the
Company's 1995 Stock Plan which are not exercisable within 60 days of the
Record Date.
(14) Includes 64,251123,210 shares of Common Stock which may be purchased by
officers and directors within 60 days of the Record Date upon the
exercise of stock options granted under the Company's 1995 Stock Plan and 9,49321,896 shares
of Common Stock which may be purchased by directors within 60 days of
the Record Date upon the exercise of stock options granted under the
Director Plan. Excludes 167,249204,190 shares of Common Stock issuable
pursuant to options granted under the Company's 1995 Stock Plan which are not
exercisable within 60 days of the Record Date and 21,51127,716 shares of
Common Stock issuable pursuant to options granted under the Director
Plan which are not exercisable within 60 days of the date of the Record
Date.
5
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PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEESNominees
The Company's By-laws divide theprovide for a Board of Directors divided into three
classes. The members of each class of directors serve for staggered
three-year terms. Messrs. CondonSheehan, Oates and FraserMcDermott are Class IIIII
directors whose terms expire at the Annual Meeting of Stockholders. The Board
of Directors is also composed of (i)
three Class III directors (Messrs. Sheehan, Oates, and McDermott) whose terms
expire upon the election and qualification of directors at the Annual Meeting of
Stockholders to be held in 1998 and (ii) two Class I directors (Mr. Friedl and
Ms. Swersky) whose terms expire upon the election and qualification of
directors at the Annual Meeting of Stockholders to be held in 1999.1999 and (ii)
two Class II directors (Messrs. Condon and Fraser) whose terms expire upon
the election and qualification of directors at the Annual Meeting of
Stockholders to be held in 2000.
The Board of Directors has nominated and recommended that Mr. CondonMessrs.
Sheehan, Oates and Mr. FraserMcDermott be elected Class IIIII directors, to hold office
until the Annual Meeting of Stockholders to be held in the year 2000 or2001 and
until their successors have been duly elected and qualified or until their
earlier resignation or removal. The Board of Directors knows of no reason why
the nominees should be unable or unwilling to serve, but if any nominee
should for any reason be unable or unwilling to serve, the proxies will be
voted forin accordance with the electionjudgment of such other
person for the office of directorpersons named as the Board of Directors may recommendattorneys in
the place of such nominee.proxies. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the nominees named below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE NOMINEES LISTED BELOW.
The following table sets forth the nominees to be elected at the meetingAnnual
Meeting and, for each director whose term of office will extend beyond the
meeting,Annual Meeting, the year such nominee or director was first elected a
director, the positions currently held by the nominees and each director with
the Company, the year the nominee's or director's term will expire and class
of director of each nominee and each director:
NOMINEE'S OR DIRECTOR'S
NAME AND YEAR NOMINEE
OR DIRECTOR FIRST POSITION(S) WITH YEAR TERM CLASS OF
BECAME A DIRECTOR THE COMPANY WILL EXPIRE DIRECTOR
- ----------------- ----------- ----------- --------
NOMINEES:
Nominee's or Director's
Name and Year Nominee or Position(s) with Year Term Class of
Director First Became a Director the Company Will Expire Director
- -------------------------------- ------------------------ ----------- --------
Nominees:
- ---------
Kevin J. Sheehan (1990) Chairman, President, and 2001 III
Chief Executive Officer
James M. Oates (1995) Director 2001 III
Thomas P. McDermott (1995) Director 2001 III
Continuing Directors:
- ---------------------
Donald G. Friedl (1996) Director 1999 I
Phyllis S. Swersky (1996) Director 1999 I
Frank B. Condon, Jr. (1986) Director 2000 II
Robert B. Fraser (1996) Director 2000 II
CONTINUING DIRECTORS:
- ---------------------
Kevin J. Sheehan (1990) Chairman, President, and 1998 III
Chief Executive Officer
James M. Oates (1995) Director 1998 III
Thomas P. McDermott (1995) Director 1998 III
Donald G. Friedl (1996) Director 1999 I
Phyllis S. Swersky (1996) Director 1999 I
6
-7-
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and the executive officers
of the Company, their ages, and the positions currently held by each such
person with the Company.
NAME AGE POSITION
- ---- --- --------
Kevin J. Sheehan 45 Chairman of the Board, President and Chief
Executive Officer
Michael F. Rogers 39 Executive Vice President
Karen C. Keenan 34 Chief Financial Officer
Earl W. Zimmerman, Jr. 36 Treasurer
Robert D. Mancuso 36 Senior Vice President - Marketing and Client
Management
David F. Flynn 50 Senior Vice President - Lending
Edmund J. Maroney 40 Senior Vice President - Systems
James M. Oates 50
Name Age Position
- ---- --- --------
Kevin J. Sheehan 46 Chairman of the Board, President and
Chief Executive Officer
Michael F. Rogers 40 Executive Vice President
Karen C. Keenan 35 Senior Vice President, Chief Financial
Officer and Treasurer
Robert D. Mancuso 37 Senior Vice President--Marketing and
Client Services
David F. Flynn 51 Senior Vice President--Lending
Edmund J. Maroney 41 Senior Vice President--Technology
James M. Oates 51 Director
Thomas P. McDermott 62 Director
Robert B. Fraser 69 Director
Frank B. Condon, Jr. 62 Director
Donald G. Friedl 65 Director
Phyllis S. Swersky 46 Director
Thomas P. McDermott 61 Director
Robert B. Fraser 68 Director
Frank B. Condon, Jr. 61 Director
Donald G. Friedl 64 Director
Phyllis S. Swersky 45 Director
Mr. Sheehan is Chairman of the Executive Committee of which Messrs. Oates
and Condon are also members. Mr. Oates is Chairman of the Compensation
Committee of which Messrs. Condon and McDermott are also members. Mr.
McDermott is Chairman of the Audit Committee of which Mr. Friedl and Ms.
Swersky are also members. The Company was organized in June 1995 to serve as
the holding company for Investors Bank & Trust Company (the "Bank") and for
periods prior to that date, references to the Company mean the Bank. The
board of directors and executive officers of the Bank are identical to the
board of directors and executive officers of the Company.
Mr. Sheehan has served as a director since 1990 and as President since
June 1992. He has been Chief Executive Officer and Chairman of the Board of
Directors since June 1995. Prior to joining the Company in May 1990 with the
Company's acquisition of the Financial Products Services Division of the Bank
of New England, Mr. Sheehan was a Senior Vice President at the Bank of New
England. He holds a Bachelor of Science in Accounting from the University of
Massachusetts.
Mr. Rogers has been Executive Vice President since January 1997, was
Executive Managing Director from September 1993, until January 1997, and
has had responsibility for all operating areas since 1990. Prior to joining
the Company in May 1990 with the Company's acquisition of the Financial
Products Services Division of Bank of New England, Mr. Rogers was Vice
President at the Bank of New England. Mr. Rogers graduated from Boston
College with a degree in Economics and received his Master of Business
Administration from the College of William and Mary.
Ms. Keenan has been Treasurer since September 1997 and Senior Vice
President and Chief Financial Officer since June 1995. Ms. Keenan has served
as Vice President of the Company since September 1992. She joined the Company
in August 1989 as an Operations Manager in the mutual fund group, and became
Senior Audit Officer in May 1990. She was Treasurer of the Company from July
1991 to May 1994. Prior to joining the Company, Ms. Keenan worked for Arthur
Andersen & Co., a public accounting firm. She is a Certified Public
Accountant and holds a Master of Business Administration from Babson College
and a Bachelor of Science in Accountancy from Bentley College.
Mr. Zimmerman has been Treasurer since joining the Company in May 1994.
Prior to joining the Company, he was employed from June 1987 in the financial
services division of Ernst & Young, a public accounting firm. He is a Certified
Public Accountant and holds a Bachelor of Science in Accountancy from Suffolk
University.
-8-
Mr. Mancuso has been Senior Vice President - MarketingPresident--Marketing and Client
Management since January 1997 and was Managing Director - Marketing and Client
Management from September 1993. He joined the Company in September 1992.
Prior to joining the Company, Mr. Mancuso was Eastern Region Director of
Sales for PRJ Associates, a software development firm from January 1989. Mr.
Mancuso holds a Master of Business Administration and a Bachelor of Science
from Boston College.
7
Mr. Flynn has been Senior Vice President - LendingPresident--Lending since February 1997, was
Managing Director - Lending from April 1992, and
served as Director of Marketing prior to April 1992. Prior to joining the
Company in May 1990 with the Company's acquisition of the Financial Products
Services Division of Bank of New England, he was Vice President of the Bank
of New England. Mr. Flynn is a Certified Public Accountant and holds a Master
of Business Administration from Babson College and a Bachelor of Science in
Accountancy from Suffolk University.
Mr. Maroney has been Senior Vice President - SystemsPresident--Technology since January 1997 and
was Managing Director - Systems from July 1991.
Mr. Maroney served as a Systems Manager in the custody department prior to
becoming Managing Director - Systems.Senior Vice President. Prior to joining the Company in May 1990 with
the Company's acquisition of the Financial Products Services Division of the
Bank of New England, he was Vice President of Bank of New England. Mr.
Maroney holds a Bachelor of Science from The University of Notre Dame and a
Master of Science in Finance from the University of California-Los Angeles.
Mr. Oates has been a director of the Company since June 1995. Mr. Oates
has been Chairman of IBEX Capital Markets, LLC since 1996 and has been the
managing director of the Wydown Group, a consulting firm specializing in
start-ups, turn-
aroundsturn-arounds and defining growth strategies since 1994. Mr. Oates
served as President and Chief Executive Officer of Neworld Bancorp
Incorporated from 1984 to 1994. Mr. Oates is also a director of Blue Cross
and Blue Shield of New Hampshire, Stifel Financial Corporation, Phoenix, Duff
& Phelps, Plymouth Rubber Company and Command Systems, as well as twenty-five
Phoenix Mutual Funds and six AIB Govett Worldwide Opportunity Funds.
Mr. McDermott has been a director of the Company since June 1995. He has
been Managing Director of TPM Associates, a consulting firm, since January
1994. He served as managing partner,Managing Partner, New England AreasArea of Ernst & Young from
1989 to 1993. Mr. McDermott is also a director of ACCION International Escuela Agricola
Panamericcana and
the American CollegePioneer Institute of Greece.Public Policy Research.
Mr. Fraser has been a director of the Company since June 1996. Mr. Fraser
has beenwas Chairman of the Boston law firm of Goodwin, Procter & Hoar sinceLLP from 1984
to 1997 and serves as a director of several charitable organizations.
Mr. Condon has been a director of the Company since April 1986. From July
1982 to July 1993, he was Chief Executive Officer and President, and from
July 1993 to April 1997 he has beenwas Chief Executive Officer and Chairman of
Woodstock Corporation, a Boston-based investment management firm and of its
wholly owned subsidiary, Woodstock Service Corporation, a provider of
financial services. Mr. Condon also serves as a Director of Big Sandy
Management Company.
Mr. Friedl has been a director of the Company since February 1996. Mr.
Friedl has been Managing Director of AquaBio Products Sciences, Inc., a
marine biotechnology company, since 1997. He was the Chairman, President and
Chief Executive Officer of All Seasons Services, Inc., a commercial food and
vending company, from 1986 until January 1997. Mr. Friedl also serves on the
Advisory Board of Internet Commerce Services Corp.
Ms. Swersky has been a director of the Company since February 1996. She
has been the President of The Net Collaborative, Inc., an Internet systems
integration company, since 1996. She served as President of The Meltech Group, a consulting firm specializing in
business advisory services for high-growth potential businesses, since 1995.
She was the President of The Net Collaborative, Inc., an Internet systems
integration company, from 1996 to 1997. She served as President of
Work/Family Directions, Inc., a provider of employee benefits programs, from
1992 through 1995. Prior to 1992, she was Executive Vice President and Chief
Financial Officer of AICorp, Inc., a computer software company.
A director may be removed for cause, which is generally defined under
Delaware law as an event of a substantial nature which directly affects the
rights and interests of a company's stockholders, such as disclosing trade
secrets of the company or embezzling corporate funds, by a vote of at least a
majority of the shares of the
-9-
Company's capital stock entitled to elect such
director. A director may be removed without cause by a vote of at least
seventy-five percent (75%) of the shares of capital stock entitled to elect
such director.
8
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met fourteentwelve times twice telephonically, during the fiscal year ended
December 31, 1996.1997. The Audit Committee of the Board of Directors, of which
Messrs. McDermott and Friedl and Ms. Swersky are currently members, reviews with
the independent accountants and management the annual financial statements and
independent auditors' opinion, reviews the results of the examination of the
Company's financial statements by the independent auditors, recommends the
retention of the independent auditors to the Board of Directors and periodically
reviews the Company's accounting policies and internal accounting and financial
controls. The Audit Committee met fivefour times during the fiscal year ended
December 31,1996.31,1997. The Compensation Committee, whose members currently are
Messrs. Oates, McDermott and Condon, is responsible for administering the
Company's stock plans and for reviewing and approving compensation matters
concerning the executive officers and key employees of the Company. The
Compensation Committee met two times during the fiscal year ended December 31,
1996.1997. The Nominating Committee, whose members currently are Messrs. Condon,
McDermott and Oates, is responsible for recommending to the Board of Directors
persons to be nominated for election or appointment as directors of the Company.
The Nominating Committee met three timesone time during the fiscal year ended December 31,
1996.
-10-1997. During 1997, no director attended fewer than 75% of (i) the total number
of meetings of the Board of Directors (held during the period for which he or
she has been a director) and (ii) the total number of meetings held by all
committees of the Board on which he or she served (during the period that he or
she served).
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth summary information concerning the
compensation paid or earned for services rendered to the Company in all
capacities during the years ended December 31, 1997, 1996 1995 and 19941995 to (i) the
Company's Chief Executive Officer and (ii) each of the other four most highly
compensated executive officers of the Company who received total annual salary
and bonus in excess of $100,000 in fiscal 19961997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------------------- -----------------------
OTHER--------------------------------------- -------------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS(#) OPTIONS(#) ($)(2)
- ----------------------------------------------------------------------- ---- -------- ------- ----------------------- --------- ---------- ---------- ------------
Kevin J. Sheehan....................Sheehan................... 1997 350,000 437,500 -- 30,000 39,520
President; Chief Executive 1996 300,000 411,000 -- -- 30,000 29,971
President; Chief ExecutiveOfficer; Chairman 1995 222,950 595,000 -- 40,000 50,000 15,559
Officer; Chairman 1994 192,950 690,000 - -- -- 13,042
Michael F. Rogers...................Rogers.................. 1997 275,000 275,000 -- 25,000 15,421
Executive Vice President 1996 250,000 312,500 -- -- 25,000 9,964
Executive Vice President
1995 175,225 250,000 -- 30,000 40,000 2,722
1994 150,225 300,000 -- -- -- 747
Edmund J. Maroney...................Maroney.................. 1997 200,000 200,000 -- 15,000 4,635
Senior Vice 1996 175,000 218,750 -- -- 10,000 2,732
Senior Vice President - SystemsPresident--Technology 1995 145,000 125,000 -- 10,000 15,000 694
1994 120,000 175,000 -- -- 694
Robert D. Mancuso...................Mancuso.................. 1997 180,000 210,326(3) -- 15,000 751
Senior Vice President--Marketing 1996 155,000 -- 162,000(3) -- 8,500 706
Senior Vice President - Marketingand Client Management 1995 125,000 -- 67,208(3) 10,000 15,000 670
and Client Management 1994 105,000 -- 23,598(3) -- 646
Karen C. Keenan.....................Keenan.................... 1997 140,000 70,000 -- 15,000 700
Senior Vice President, Chief 1996 122,000 68,320 -- -- 7,500 666
Chief Financial Officer and Treasurer 1995 91,900 25,000 -- 7,500 10,000 656
1994 86,900 20,000 -- -- 646
__________- ------------------------
9
(1) Does not include non-cash compensation that in the aggregate does not exceed
the lesser of $50,000 or 10% of such named individual's cash compensation.
(2) The amount shown for each named executive officer for 1997, 1996 1995 and 19941995
includes the dollar value ($520) of matching contributions made pursuant to
the Company's 401(k) plan, a qualified employee benefit defined contribution
plan. Also included are net premiums paid by the Company for term life
insurance for the benefit of Messrs. Sheehan ($240, $268449, $240 and $266)$268), Rogers
($240, $210353, $240 and $211)$210), Maroney ($210, $174257, $210 and $174), Mancuso ($186, $150231, $186
and $126)$150) and Ms. Keenan ($146, $136180, $146 and $126)$136) in 1997, 1996 1995
and 1994,1995,
respectively. Finally, the amounts shown include contributions to a non-qualifiednon-
qualified supplemental retirement plan for Mr. Sheehan ($29,211,
$14,77138,551, $29,211 and
$12,256)$14,771), Mr. Rogers ($9,204, $1,99214,548, $9,204 and $16)$1,992) and Mr. Maroney ($2,002, $03,858,
$2,002 and $0) in 1997, 1996 1995 and 1994,1995, respectively.
(3) Amounts shown represent commission payments made during 1997, 1996 1995 and 1994,1995,
some of which payments relate to revenues generated in1995,in 1996, 1995 and 1994,
and
1993, respectively.
-11-
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options to
purchase Common Stock granted during 19961997 by the Company to the Named Executive
Officers.
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------------------------------ POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENTAGE RATES OF
NUMBER OF % OF TOTAL PERCENTAGE RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------------------------------------
NAME GRANTED (1) FISCAL YEAR ($/SHARE) (2) DATE 5% ($) 10% ($)
- --------------------------------------------- ----------- ------------ -------------- ------------------------- --------------- ----------- ----------- -----------
Kevin J. Sheehan........Sheehan......................... 30,000 24.05% 26.12517.95% 43.25 11/12/01 219,450 478,08818/07 815,991 2,067,881
Michael F. Rogers.......Rogers........................ 25,000 20.04% 26.12514.96% 43.25 11/12/01 182,875 398,40618/07 679,992 1,723,234
Edmund J. Maroney....... 10,000 8.02% 26.125Maroney........................ 15,000 8.97% 43.25 11/12/01 73,150 159,36318/07 407,995 1,033,940
Robert D Mancuso........ 8,500 6.81% 26.125Mancuso......................... 15,000 8.97% 43.25 11/12/01 62,178 135,45818/07 407,995 1,033,940
Karen C. Keenan......... 7,500 6.01% 26.125Keenan.......................... 15,000 8.97% 43.25 11/12/01 54,863 119,522
- ---------------18/07 407,995 1,033,940
(1) Grants become exercisable in 48 equal monthly installments beginning on
November 12, 1996.18, 1997.
(2) The exercise price per share of each option was determined by the
Compensation Committee to be equal to the fair market value per share of the
Common Stock on the date of grant.
(3) Amounts shown represent hypothetical gains that could be achieved for the
respective options exercised at the end of the option term. These gains are
based on assumed rates of appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date.
The gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise of the
options or sale of the underlying shares. The actual gains, if any, on the
stock option exercises will depend on the future performance of the Common
Stock, the optionholder's continued employment through the option period,
and the date on which the options are exercised. The potential realizable
value does not represent the Company's prediction of its future stock price
performance.
10
-12-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUESAggregated Option Exercises In Last Fiscal Year
and Fiscal Year-End Option Values
The following table sets forth certain information regarding the stock options
held as of December 31, 1996exercises by the Named Executive Officers. NoOfficers and the number and value of the Named
Executive Officers' unexercised stock options were exercised in 1996 by such individuals.
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT DECEMBERat December 31, 1996(#) DECEMBER 31, 19961997.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, OPTIONS AT
1997(#) DECEMBER 31, 1997 ($)(1)
-------------------------- --------------------------
VALUE
SHARES ACQUIRED REALIZED
NAME ON EXERCISE (#) ($)(1)
------------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------------- ----------- ----------- ------------- ----------- -------------
Kevin J. Sheehan.................... -- -- 37,080 72,920 976,240 1,177,510
Michael F. Rogers................... 3,200 102,400 26,798 60,002 692,518 958,707
Edmund J. Maroney................... 1,400 43,225 10,264 28,336 258,030 383,171
Robert D. Mancuso................... -- -- 11,227 27,273 290,644 362,043
Karen C. Keenan..................... 1,000 30,500 7,227 24,273 175,455 280,358
- ---- ----------- ------------- ----------- -------------
Kevin J. Sheehan 22,500 57,500 217,031 394,219
Michael F. Rogers 18,125 46,875 173,828 316,797
Edmund J. Maroney 6,875 18,125 65,313 119,688
Robert D. Mancuso 6,688 16,812 65,009 117,554
Karen C. Keenan 4,688 12,812 43,712 80,976
- ---------------------------------------
(1) Value is based on the difference between the option exercise price and the
fair market value of the Company's Common Stock on December 31, 19961997 ($27.7546.00
per share, the last reported sales price of the Company's Common Stock on
the Nasdaq National Market System on December 31, 1996)1997) multiplied by the number of
shares underlying the option.
STOCK PLANS
The Company currently has twothree stock ownership plans: the 1995 Stock Plan,
and the 1995 Non-Employee Director Stock Option Plan and the 1997 Employee Stock
Purchase Plan.
Amended and Restated 1995 Stock Plan
---------------
The Company's 1995 Stock Plan (the "1995 Plan") was approved by the
Company's Board of Directors (the "Board") and sole stockholder in August 1995.
The 1995 Plan provides for the issuance of a maximum of 560,000 shares of Common
Stock pursuant to the grant to employees of incentive stock options ("ISOs")
within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the grant of non-qualified stock options, stock awards
or opportunities to make direct purchases of stock in the Company to directors,
officers, employees and consultants of the Company.
The Compensation Committee of the Board, which consists solely of
disinterested directors, is currently the Plan Administrator. SuFbject to the
terms of the 1995 Plan, the Plan Administrator determines the terms and
conditions of options granted under the 1995 Plan, including the exercise price.
The 1995 Plan provides that the Plan Administrator must establish an exercise
price for ISOs that is not less than the fair market value per share at the date
of grant. Each ISO must expire within five years of the date of grant. IF ISOs
are granted to persons owning more than 10% of the voting stock of the Company,
however, the 195 Plan provides that the exercise price must not be less than
110% of the fair market value per share at the date of grant. Options granted
under the 1995 Plan vest according to a schedule determined by the Plan
Administrator. To the extent not already exercisable, upon mergers or
reorganizations the options may be converted into options to purchase shares in
the acquiring or surviving corporation.
A total of 560,000 shares of the Company's Common Stock are reserved for
issuance under the 1995 Plan. As of the Record Date, options to purchase
321,250 shares of Common Stock were outstanding under the 1995 Plan. In 1996,
the Company granted options exercisable for an aggregate of 84,000 shares of
Common Stock to Messrs. Sheehan, Rogers, Maroney, Mancuso, Zimmerman and Ms.
Keenan which become exercisable in forty-eight equal monthly installments
beginning on the date of grant. An additional 4,000 shares granted in 1996
-13-
under the 1995 plan become exercisable in forty-eight equal monthly installments
beginning on the date of grant, while the remainder of the option grants made in
1996 under the 1995 Plan become exercisable in four equal annual installments
beginning one year from the date of grant.
1995 Non-Employee Director Stock Option Plan
--------------------------------------------
A description of the Company's Amended and Restated 1995 Non-Employee Director Stock Option Plan is
included under Proposal 2 below. A complete copy of the plan is attached as
Appendix A hereto.
BONUSES
The Company from time to time awards certain key employees bonuses based on
both individual and Company performance. The Company's 1996 Bonus Plan was put
in place in December 1995 and expired on December 31, 1996. The plan
established a target level for 1996 net income and cash bonus pools for
executive officers based on achieving target levels. Bonuses were allocated by
management based on contributions to operating results. Payments to Named
Executive Officers in 1996 were made in the following amounts: Mr. Sheehan
$411,000; Mr. Rogers $312,500; Mr. Maroney $218,750; Ms. Keenan $68,320; and all
executive officers as a group $1,114,970.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Kevin Sheehan, Michael
Rogers, Robert Mancuso, Edmund Maroney and Karen Keenan on October 11, 1995,
each with a term of three years subject to earlier termination.
Messrs. Sheehan's and Rogers' agreements provide that the Company will
employ Messrs. Sheehan and Rogers as President and Chief Executive Officer, and
Executive Vice President respectively, and will pay them an annual salary
determined by the Company's Board of Directors, as well as an annual bonus under
the Company's then applicable bonus plans, if any. Under their employment
agreements, the Company may terminate their employment for cause defined as (i)
a finding by the majority of the Board of Directors that the employee has
performed his duties inadequately, (ii) action or inaction by the employee which
results in a material breach of the agreement or in the employee unfairly
competing with the Company, (iii) the commission of a felony which shall
adversely affect the employee's ability to perform his duties, or (iv) the
commission of an act of fraud, dishonesty, gross negligence or deliberate
disregard for the rules and policies of the Company. Termination for cause
results in no liability to the Company beyond the payment of wages to the date
of discharge, except in the case of a termination solely pursuant to a finding
by the majority of the Board of Directors that they have performed their duties
inadequately, in which case the agreements provide for a lump sum payment equal
to nine months of their annual salary at their then current rate, as well as
nine months of continuing medical coverage paid for by the Company. Should
their employment be terminated by the Company without cause, by death or
disability, or by Mr. Sheehan or Mr. Rogers for good reason, which good reason
includes (i) a material change by the Company of either of their authority,
functions or duties which results in a reduction in their respective position's
scope, importance or responsibilities, (ii) a failure by the Company to comply
with the terms of the employment agreements, and (iii) with respect to Mr.
Sheehan only, a failure by the shareholders to re-elect him as a director of the
Company, the agreements provide for a lump sum payment equal to the greater of
twice their current annual salary or the salary due to be paid under the
remaining term of the agreement, plus a bonus payment equal to twice the average
of their last two annual bonuses. The agreements also provide for continuation
of medical coverage for the longer of two years or the remaining term of the
agreement. Should the employment of Messrs. Sheehan or Rogers be terminated
within three months before and twelve months after a change in control of the
Company, defined to be a consolidation, merger, reorganization or sale or
transfer of all or substantially all of the assets of the Company, a change in
the majority of the Board of Directors, or the acquisition by any person of 20%
or more of the voting securities of the Company, the agreements provide for a
lump sum severance payment equal to three times their most recent annual salary
plus a payment equal to three times the average of their two most recent annual
bonuses as well as continuing medical coverage for three years.
-14-
The employment agreements with Messrs. Mancuso and Maroney and Ms. Keenan
provide that the Company will employ them as Senior Vice President - Marketing
and Client Management, Senior Vice President - Systems and Chief Financial
Officer, respectively, and will pay them an annual salary determined by Mr.
Sheehan, as President of the Company, subject to approval by the Board of
Directors, and an annual bonus in accordance with the Company's then applicable
bonus policy. The provisions regarding termination for cause under their
employment agreements are identical to those contained in the employment
agreements of Messrs. Sheehan and Rogers. Should the employment of Messrs.
Mancuso or Maroney or Ms. Keenan be terminated by the Company without cause, by
death or disability, or by Mr. Mancuso, Mr. Maroney or Ms. Keenan for good
reason, which good reason is the same as described above in the employment
agreements of Messrs. Sheehan and Rogers, the agreements provide for a lump sum
payment equal to the greater of the current annual salary of Messrs. Mancuso or
Maroney or Ms. Keenan or the salary due to be paid under the remaining term of
the agreement, plus a bonus payment equal to the average of their last two
annual bonuses. The agreements also provide for continuation of medical
coverage for the longer of one year or the remaining term of the agreement.
Should the employment of Messrs. Mancuso or Maroney or Ms. Keenan be terminated
within three months before and twelve months after a change in control of the
Company, as described above in the employment agreements of Messrs. Sheehan and
Rogers, the agreements provide for a lump sum severance payment equal to two
times the most recent annual salary of Messrs. Mancuso or Maroney or Ms. Keenan,
as applicable, plus a payment equal to two times the average of their two most
recent annual bonuses as well as continuing medical coverage for two years.
PENSION PLAN
In 1971, the Company adopted the Investors Bank & Trust Pension Plan, as
amended (the "Pension Plan"), covering all employees who are at least 21 years
of age. In 1996, the Company amended the Pension Plan to freeze the admission
of new entrants after December 31, 1996. Benefits under the Pension Plan are
based on an employee's years of service and his or her final average monthly
compensation. A participant's monthly benefit at normal retirement (i.e., at or
after attaining the age of 65 years) payable as a life annuity equals a
percentage of the participant's final average monthly compensation multiplied by
years of service. The percentage varies depending on years of service and the
level of final average monthly compensation. Early retirement benefits are
available to participants who have attained age 55 and have at least 10 years of
service. Benefits are payable at retirement in the form of a monthly annuity or
a single lump sum.
A participant's final average monthly compensation is the average of his
total eligible compensation (i.e., salary, annual bonus and other cash earnings)
in his highest paid five consecutive full calendar years of employment in his
last 10 consecutive full calendar years of employment, subject to certain limits
on eligible compensation set by Federal law. For 1996, such limit was $150,000.
The Pension Plan's benefit formula described above became effective in 1991, but
applies to all periods of benefit service.
The following table shows the estimated annual benefits payable upon
retirement in specified compensation and years of service classifications.
Years of Service
------------------------------------------------------------
Remuneration 10 15 20 25 30 35
- ------------ ------- ------- -------- -------- -------- --------
$50,000 $ 8,000 $12,000 $ 16,000 $ 20,000 $ 21,875 $ 23,750
$100,000 $18,134 $27,201 $ 36,268 $ 45,335 $ 49,085 $ 52,835
$150,000 $28,884 $43,326 $ 57,768 $ 72,210 $ 77,835 $ 83,460
$200,000 $39,634 $59,451 $ 79,268 $ 99,085 $106,585 $114,085
$250,000 $50,384 $75,576 $100,768 $125,960 $135,335 $144,710
$300,000 $61,134 $91,701 $122,268 $152,835 $164,085 $175,335
The Named Executive Officers have the following credited years of service
under the Pension Plan: Mr. Sheehan, 23 years; Mr. Rogers, 15 years; Mr.
Maroney, 11 years; Ms. Keenan, 8 years; and Mr. Mancuso, 4 years.
-15-
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the three
member Compensation Committee of the Board of Directors (the "Compensation
Committee"). The three members of the Compensation Committee are non-employee
Directors. Pursuant to the authority delegated by the Board of Directors, the
Compensation Committee establishes each year the compensation of the Chief
Executive Officer, and together with the Chief Executive Officer, establishes
the compensation of the other executive officers of the Company.
The Company's compensation policy for executive officers is designed to
achieve the following objectives:
. To enhance profitability of the Company and increase stockholder value.
. To reward executives in accordance with the Company's annual and long-
term performance goals.
. To recognize individual initiative and achievement.
. To provide competitive compensation that will attract and retain
qualified executives.
The compensation program for executive officers consists of three elements:
(1) base salary, which is determined on an annual basis and is primarily
dependent on external market data; (2) annual incentive compensation in the form
of cash bonuses which are based on the achievement of both pre-determined
financial objectives of the Company and individual objectives; and (3) long-term
incentive compensation, in the form of stock options, granted periodically with
the objective of aligning the executive officers' long-term interests with those
of the stockholders, encouraging superior results over an extended period and
retaining key executive officers.
Base salary is intended to be competitive with base salary offered for
similar executive positions at other local companies in the same or similar
industries. The Company utilizes the services of industry experts such as Towers
Perrin and Price Waterhouse LLP to perform periodic reviews of executive
compensation. The base salary for the Company's executive officers for 1996
reflected a mid-range level of competitive compensation in order to attract and
retain key executive officers. In addition to external market data, the
Committee also reviews the Company's financial performance and individual
performances when adjusting base salary annually.
In November 1996, the Compensation Committee set the terms for the 1997
Bonus Plan, which is to be reviewed and updated annually. This plan established
a target level for net income for 1997 and cash bonus pools for executive
officers based on achieving target levels. If 1997 net income equals the target,
executive officers will receive bonuses ranging from 50% to 125% of their
salary, depending on their position and individual performance, with the Chief
Executive Officer receiving 125% of his salary. If 1997 net income exceeds the
target level, additional bonus amounts are available. No bonuses will be payable
to executive officers if 1997 net income is less than or equal to 1996 net
income.
Long-term incentive compensation, in the form of stock options, aligns
executive officers' interests with those of stockholders. In addition, the
Compensation Committee believes that equity ownership by executive officers
helps to balance the short term focus of annual incentive compensation with an
emphasis on long-term financial results and may help to retain key executive
officers.
When establishing stock option grant levels, the Compensation Committee
considers existing levels of stock ownership, previous grants of stock options,
vesting schedules and exercise price of outstanding options and the current
stock price. Stock options granted under the Company's 1995 Stock Plan have had
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant and generally vest over a four-year period.
The 1996 base salary for Mr. Sheehan, the Company's Chief Executive Officer
and President, was established by the Board of Directors in December 1995.
Under the terms of the 1996 Bonus Plan, Mr. Sheehan received a bonus in the
amount of $411,000. Accordingly, approximately 58% of his 1996 cash
compensation was based on corporate performance, specifically, the Company's net
income. Also, the Compensation Committee
-16-
granted Mr. Sheehan options to purchase 30,000 shares of Common Stock. The Board
of Directors believes that Mr. Sheehan has led the Company toward achieving its
goals of growth in the revenue and client base and expansion in the breadth of
services provided.
The Company does not believe Section 162(m) of the Code, which generally
disallows a tax deduction for compensation in excess of $1 million paid to any
of the executive officers appearing in the Summary Compensation Table above,
will have an effect on the Company. The Compensation Committee has considered
the requirements of Section 162(m) of the Code and the related regulations. It
is the Compensation Committee's present intention that, so long as it is
consistent with its overall compensation objectives, substantially all executive
compensation will be deductible for Federal income tax purposes.
The Compensation Committee is satisfied that the executive officers of the
Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute towards achieving this goal.
RESPECTFULLY SUBMITTED BY
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
James M. Oates
Frank B. Condon, Jr.
Thomas P. McDermott
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has established a Compensation Committee
currently consisting of Messrs. Oates, Condon and McDermott. No executive
officer of the Company served as a member of the Compensation Committee of
another entity (or other committee of the Board of Directors performing
equivalent functions or, in the absence of any such committee, the entire Board
of Directors), one of whose executive officers served as a director of the
Company.
COMPENSATION OF DIRECTORS
Employee directors do not receive cash compensation for their service as
members of the Board of Directors. Non-employee directors receive an annual fee
of $10,000 and an additional $1,000 for each meeting of the Board of Directors
that they attend. Non-employee directors are also eligible for participation in
the 1995 Non-Employee Director Stock Option Plan pursuant to which each non-
employee director receives automatic grants of options and is eligible to
receive their annual fee in the form of stock options. See "1995 Non-Employee
Director Stock Option Plan."
-17-
STOCK PERFORMANCE
The following graph compares the change in the cumulative total stockholder
return on the Company's Common Stock during the period from the Company's
initial public offering on November 8, 1995 through December 31, 1996, with the
cumulative total return on the Center for Research in Securities Prices Index
for the Nasdaq Stock Market ("Nasdaq Stock Market Index") and the Center for
Research in Securities Prices Index for Nasdaq financial stocks ("Nasdaq
Financial Stocks Index"). The comparison assumes $100 was invested on November
8, 1995 in the Company's Common Stock at the $16.50 initial offering price and
in each of the foregoing indices and assumes reinvestment of dividends, if any.
Comparison of Five Year/1/ Cumulative Total Return Among
Investors Financial Services Corp., Nasdaq Stock Market Index
and Nasdaq Financial Stocks Index
11/8/95 12/29/95 12/31/96
------- -------- --------
Investors Financial Services Corp. 100 125.76 168.36
Nasdaq Stock Market Index 100 100.58 123.72
Nasdaq Financial Stocks Index 100 105.04 134.67
____________
(1) Prior to November 8, 1995 the Company's Common Stock was not publicly
traded.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Landon T. Clay, a principal stockholder of the Company, is an officer of
Eaton Vance, the former parent of the Company. The Company provides custody and
fund accounting services to mutual funds for which Eaton Vance is the investment
advisor and administrator and, in some cases, the sponsor and distributor. The
Company also provides custody and accounting services for Eaton Vance's
separately managed accounts. Various mutual funds for which Eaton Vance serves
as a financial advisor presently maintain deposits at the Company in connection
with these funds' custody accounts. The Company maintains, and serves as trustee
for, a common trust fund consisting of several funds for which Eaton Vance is
the investment advisor. The Company also serves as the directed trustee for a
collective investment trust sponsored and managed by Eaton Vance.
Eaton Vance accounted for 10% of the Company's net operating revenues for
the year ended December 31, 1996. Additionally, the Company leases office space
from Eaton Vance at 24 Federal Street, Boston, Massachusetts. Fees paid to Eaton
Vance in connection with the occupancy of this space totaled $93,432 in 1996.
-18-
The Company has entered into loan agreements with certain officers of Eaton
Vance. These loans are made in the ordinary course of business and on the same
terms and conditions prevailing at the time for comparable transactions. As of
December 31, 1996, the Company had outstanding an aggregate of $1,200,000 in
principal amount of loans to Mr. Clay.
The Company has adopted a policy whereby all transactions between the
Company and its officers, directors and affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by a majority of the disinterested members of the Company's
Board of Directors. The reported transactions with Eaton Vance and its officers
were conducted on an arms-length basis, on terms the Company believes were no
less favorable to the Company than could have been obtained from unrelated third
parties. The Company did not obtain independent third party valuations of the
terms of these transactions.
PROPOSAL 2
AMENDMENT OF THE 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The 1995 Non-Employee Director Stock Option Plan (the "Director Plan") was
adopted by the Board of Directors and approved by the Company's sole stockholder
in October 1995. The Director Plan currently provides for the grant of options
to purchase a maximum of 40,000 shares of Common Stock to non-employee directors
of the Company. Currently, 8,996 shares remain eligible for grant under the
Director Plan. The Board of Directors has approved and recommended to the
stockholders that they approve an amendment to increase the number of shares of
Common Stock available for issuance under the Director Plan to 100,000 shares.
The Company relies on stock options as an essential part of the
compensation package necessary for the Company to attract and retain qualified
and experienced non-employee members of its Board of Directors. Under the
Director Plan, each non-employee director receive a grant of an option to
purchase 2,500 shares of Common Stock upon such non-employee director's initial
election to the Board and upon each annual anniversary of such election. All
options have an exercise price equal to the fair market value of the Common
Stock on the date of grant. Non-employee directors also receive an annual cash
retainer of $10,000. In addition, under the terms of the Director Plan, non-
employee directors may elect to receive options to acquire shares of Common
Stock in lieu of his or her cash retainer.
Description of the Director Plan
--------------------------------
The complete text of the 1995 Non-Employee Director Stock Option Plan
containing the proposed amendments (the "Director Plan") is attached hereto as
Appendix A and the following discussion is qualified in its entirety by the full
- ----------
text of the Director Plan.
The Director Plan is administered by the Board or by a committee appointed
by the Board. The Board or the appointed committee, subject to the provisions of
the Director Plan, has the power to construe the Director Plan, to determine all
questions thereunder, and to adopt and amend such rules and regulations for the
administration of the Director Plan as it may deem desirable. The Director
Plan currently authorizes the grant of options for up to
40,000 shares of Common Stock. If amended as proposed, the Director Plan will
authorize the grant of options exercisable for up to 100,000 shares of Common Stock.
As of the Record Date, options to purchase 31,00449,612 shares of Common Stock were
outstanding under the Director Plan. Outstanding options under the Director Plan
are subject to adjustment for capital changes. If any options granted under the
Director Plan are surrendered before exercise or lapse without exercise, in
whole or in part, the shares reserved therefor shall continue to be available
under the Director Plan.
The Director Plan authorizes the grant to each director who is not an
employee of the Company and who is first elected as a director after the date of
the Company's initial public offering, an option to purchase 2,500 shares of
Common Stock on the date of such director's first election to the Board. Each
non-employee director will
-19-
also receive, on each one-year anniversary of such
director's first election to the Board, an option to purchase 2,500 shares of
Common Stock, provided that such director has continuously served on the Board
during such one-year period.
11
In addition to the automatic grant of options described above, the
Director Plan also provides that each non-employee director may make a
written election (an "Election") to receive, in lieu of his or her cash
retainer, options to acquire shares of Common Stock. Any Election must be
received by the Company no less than six-months prior to the scheduled
payment of the cash retainer which the Election is scheduled to replace. Each
non-employee director who elects to receive options in lieu of his or her
cash retainer shall be granted an option to purchase shares on the first day
of each calendar quarter. The total number of shares of stock to be covered
by the option is equal to the quotient obtained by dividing the cash retainer
scheduled to be paid on such date by the value of an option on the date of
grant as determined using the Black-Scholes model. An Election may only be
revoked by a written revocation, which revocation shall take effect six
months after receipt of such revocation by the Company.
The exercise price per share of options granted under the Director Plan is
100% of the fair market value of the Company's Common Stock on the date the
option is granted. The exercise price is subject to adjustment for changes in
capitalization. The Director Plan requires that options granted thereunder will
expire on the date which is five years from the date of grant. Each option
granted pursuant to the automatic grant provisions of the Director Plan becomes
exercisable in forty-eight equal monthly installments. Options granted in lieu
of a cash retainer vest immediately.
Subject to the terms and conditions of the Director1997 Employee Stock Purchase Plan an option granted
under the Director Plan shall be exercisable in whole or in part by giving
written notice to the Company at its principal executive offices. The notice
must state the number of shares as to which the option is being exercised and
must be accompanied by payment in full for such shares, either by cash or by
check or, consistent with applicable law, through the delivery of an assignment
to the Company of a sufficient amount of the proceeds from the sale of the
Common Stock acquired upon exercise of the option and an authorization to the
broker or selling agent to pay that amount to the Company.
If an optionee ceases to be a member of the Board for any reason other than
death or permanent disability, any unexercised portion of an option to the
extent vested may be exercised only within the following 90 days. In the event
that an optionee ceases to be a member of the Board by reason of his or her
death or permanent disability, any option granted to such optionee shall be
immediately and automatically accelerated and become fully vested and all
unexercised options shall be exercisable by the optionee (or by the optionee's
personal representative, heir or legatee, in the event of death) until the
scheduled expiration date of the option.
No option granted pursuant to the Director Plan is assignable or
transferable other than by will or by the laws of descent and distribution and
is exercisable during the optionee's lifetime only by him or her. Option holders
and the Company are protected against dilution in the event of a stock dividend,
recapitalization, stock split, merger or similar transaction. Upon the happening
of any of the foregoing events, the class and aggregate number of shares
reserved for issuance upon the exercise of options under the Director Plan shall
be appropriately adjusted to reflect the events.
Options may not be granted under the Director Plan after October 1, 2005,
and the Director Plan will terminate when all options granted or to be granted
thereunder are no longer outstanding. The Board may from time to time adopt
amendments, certain of which are subject to shareholder approval, and may
terminate the Director Plan at any time, although such action shall not affect
options previously granted under the Director Plan.
The following general rules are applicable under current federal income tax
law to options under the Director Plan.
1. Options granted under the Director Plan do not qualify as
''Incentive Stock Options'' under Section 422 of the Code.
-20-
2. A Director will not recognize any taxable income upon the grant of
an option under the Director Plan (provided that the option does not have a
readily ascertainable fair market value), but will generally recognize
ordinary income at the time of exercise of the option in an amount equal to
the excess, if any, of the fair market value of the shares on the date of
exercise over the exercise price.
3. When a director sells the Common Stock acquired upon exercise of an
option, he or she generally will recognize a capital gain or loss equal to
the difference between the amount realized upon sale of the stock and his
or her basis in the stock (in the case of a cash exercise, the exercise
price plus the amount, if any, taxed to the director as income as a result
of his or her exercise of the option). If the director's holding period for
the stock exceeds 1 year, such gain or loss will be long-term capital gain
or loss.
4. Generally, upon any grant or exercise of an option in which a
director does not recognize ordinary income, no tax deduction will be
allowed to the Company. When a director recognizes ordinary income as a
result of the exercise of an option under the Director Plan, the Company
generally will be entitled to a corresponding deduction for income tax
purposes.
5. Special rules apply if the Common Stock acquired through the
exercise of an option is subject to vesting or resale restrictions under
federal securities laws applicable to directors.
Approval of the proposed amendment to the Director Plan will require an
affirmative vote of a majority of the outstanding shares of Common Stock and
Class A Stock of the Company voting together as a class represented in person or
by proxy at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE PROPOSAL TO AMEND THE DIRECTOR PLAN.
PROPOSAL 3
ADOPTION OF THE COMPANY'S 1997 EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan") was adopted
by the Board of Directors on January 14, 1997 subject to shareholder
approval. The complete text ofand approved by the 1997 Purchase Plan is attached hereto as
Appendix B.
- ----------
The 1997 Purchase Plan is intended to provide an incentive to, and to
encourage stock ownership by, all eligible employees of the Company and
participating subsidiaries so that they may share in the growth of the Company
by acquiring or increasing their proprietary interest in the Company. The 1997
Purchase Plan is designed to encourage eligible employees to remain in the
employ of the Company.Company's
stockholders on April 15, 1997. Under the 1997 Purchase Plan, payroll deductions
are used to purchase the Company's Common Stock for eligible, participating
employees through the exercise of stock options. It is intended that the 1997
Purchase Plan will constitute an "employee stock purchase plan" within the meaning of
Section 423(b) of the Code.
The 1997 Purchase Plan is administered by the Board of Directors of the
Company or a committee thereof. The Board of Directors, subject to the
provisions of the 1997 Purchase Plan, has the power to construe the 1997
Purchase Plan, to determine all questions thereunder, and to adopt and amend
such rules and regulations for administration of the 1997 Purchase Plan as it
may deem appropriate. The Board of Directors may from time to time adopt
amendments to the 1997 Purchase Plan provided that, without the approval of the
Company's shareholders, no amendment may increase the number of shares that may
be issued under the 1997 Purchase Plan
-21-
or change the class of the employees eligible to receive options under the 1997
Purchase Plan or cause Rule 16b-3 under the Exchange Act to be inapplicable to
the 1997 Purchase Plan.
The 1997 Purchase Plan may be terminated at any time by the Company's Board
of Directors but such termination will not affect options then outstanding under
the 1997 Purchase Plan. If at any time shares of Common Stock reserved for the
purposes of the 1997 Purchase Plan remain available for purchase but not in
sufficient number to satisfy all then unfilled purchase requirements, the
available shares will be apportioned among participants in proportion to the
amount of payroll deductions accumulated on behalf of each participant that
would otherwise be used to purchase stock, and the 1997 Purchase Plan will
terminate. Upon termination of the 1997 Purchase Plan, all payroll deductions
not used to purchase Common Stock will be refunded to 1997 Purchase Plan
participants without interest.
The 1997 Purchase Plan authorizes the issuance
of up to 140,000 shares of Common Stock (subject to adjustment for capital
changes) pursuant to the exercise of nontransferable options granted to
participating employees. The
Common Stock subject to the options under the 1997 Purchase Plan includes shares
of the Company's authorized but unissued Common Stock and shares of Common Stock
reacquired by the Company, including shares purchased in the open market. Option holders are generally protected against dilution
in the event of certain capital changes such as a recapitalization, stock split,
merger, consolidation, reorganization, combination, liquidation, stock dividend
or similar transaction.
An employee electing to participate in the 1997 Purchase Plan must authorize
an amount (a whole percentage not less than 1% nor more than 15% of the
employee's base salary compensation actually paid during the Payment Period,
excluding without limitation any benefits, bonuses or commissions) to be
deducted by the Company from the employee's pay and applied toward the purchase
of Common Stock under the 1997 Purchase Plan. Payroll deductions will be
accumulated under the 1997 Purchase Plan during the six-month periods January 1
through June 30 and July 1 through December 31 (the "Payment Periods"). On the
first business day of each Payment Period, the Company will grant to each 1997
Purchase Plan participant an option to purchase shares of Common Stock of the
Company. On the last day of the Payment Period, the employee will be deemed to
have exercised this option to the extent of such employee's accumulated payroll
deductions. In no event, however, may the employee exercise an option granted
under the 1997 Purchase Plan for more than 1,000 shares during a Payment Period.
If the amount of the accumulated payroll deductions exceeds the aggregate option
price of 1,000 shares, the excess deductions will be promptly refunded to the
employee without interest. Furthermore, no employee may be granted an option
which permits the employee's right to purchase shares of Common Stock under the
1997 Purchase Plan and all other Section 423 plans of the Company and any
subsidiary companies, to accrue at a rate which exceeds $25,000 of fair market
value of such stock (determined on the respective date(s) of grant) for each
calendar year in which the option is outstanding. Any excess accumulation of
payroll deductions will be promptly refunded to the employee without interest.
Under the terms of the 1997 Purchase Plan, the option price is an amount equal
to the lesser of (i) 90% of the average market valuelast reported sale price of the Common Stock on
the Nasdaq National Market on the first business day of the Payment Period, and
(ii) 90% of the average market
valuelast reported sale price of the Common Stock on the Nasdaq
National Market on the last business day of the Payment Period. The Company will
12
accumulate and hold for the employee's account the amounts deducted from his
pay. No interest will be paid on these amounts.
For purposes of the 1997 Purchase Plan, the term "average market value" on
any date means (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq Stock Market, if the Common Stock is not then traded on a
national securities exchange, or (iii) the average of the closing bid and asked
prices last quoted (on that date) by an established quotation service for over-
the-counter securities, if the Common Stock is not reported on the Nasdaq Stock
Market; or (iv) if the Common Stock is not publicly traded, the fair market
value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length. An employee may enter the 1997
Purchase Plan by delivering to the Company, at least 10 days before the
beginning date of the next succeeding Payment Period, an authorization
-22-
stating the initial percentage to be deducted from the employee's pay and
authorizing the purchase of shares of Common Stock for the employee in each
Payment Period in accordance with the terms of the 1997 Purchase Plan.
Employees of the Company (and participating subsidiaries) who have completed
six months of employment with the Company or any of its subsidiaries on or
before the first day of any Payment Period are eligible to participate in the
1997 Purchase Plan. An employee may not be granted an option under the 1997
Purchase Plan if, after the granting of the option, such employee would be
treated as owning 5% or more of the total combined voting power or value of all
classes of stock of the Company or its subsidiaries. An employee may change the amountThe Company sold 11,248
shares of his or her payroll deduction at any
time, and such change shall be effective at the beginning of the next Payment
Period, provided that such change was received by the Company at least ten (21)
days priorCommon Stock to the beginning of such Payment Period. An employee may withdraw
from the 1997 Purchase Plan, in whole but not in part, at any time prior to the
last business day of each Payment Period by delivering a withdrawal notice to
the Company, in which event the Company will refund the entire balance of the
employee's deductions not previously used to purchase stockemployees under the 1997 Purchase Plan without interest.
If an employee is noton
December 31, 1997, including the following number of shares to the Named
Executive Officers: Mr. Sheehan, 540 shares; Mr. Rogers, 496 shares; Mr.
Maroney, 120 shares; Mr. Mancuso, 21 shares; and Ms. Keenan, 84 shares.
Bonuses
The Company from time to time awards certain key employees bonuses based
on both individual and Company performance. The Company's 1997 Bonus Plan was
put in place in December 1996 and expired on December 31, 1997. The plan
established a participanttarget level for 1997 net income and cash bonus pools for
executive officers based on achieving target levels. Bonuses were allocated
by management based on contributions to operating results. Payments to Named
Executive Officers in 1997 were made in the following amounts: Mr. Sheehan
$437,500; Mr. Rogers $275,000; Mr. Maroney $200,000; Ms. Keenan $70,000; and
all executive officers as a group $982,500.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Kevin Sheehan, Michael
Rogers, Robert Mancuso, Edmund Maroney and Karen Keenan on October 11, 1995,
each with a term of three years subject to annual renewal and earlier
termination.
Messrs. Sheehan's and Rogers' agreements provide that the Company will
employ Messrs. Sheehan and Rogers as President and Chief Executive Officer, and
Executive Vice President respectively, and will pay them an annual salary
determined by the Company's Board of Directors, as well as an annual bonus under
the Company's then applicable bonus plans, if any. Under their employment
agreements, the Company may terminate their employment for cause defined as (i)
a finding by the majority of the Board of Directors that the employee has
performed his duties inadequately, (ii) action or inaction by the employee which
results in a material breach of the agreement or in the employee unfairly
competing with the Company, (iii) the commission of a felony which shall
adversely affect the employee's ability to perform his duties, or (iv) the
commission of an act of fraud, dishonesty, gross negligence or deliberate
disregard for the rules and policies of the Company. Termination for cause
results in no liability to the Company beyond the payment of wages to the date
of discharge, except in the case of a termination solely pursuant to a finding
by the majority of the Board of Directors that they have performed their duties
inadequately, in which case the agreements provide for a lump sum payment equal
to nine months of their annual salary at their then current rate, as well as
nine months of continuing medical coverage paid for by the Company. Should their
employment be terminated by the Company without cause, by disability, or by Mr.
Sheehan or Mr. Rogers for good reason, which good reason includes (i) a material
change by the Company of either of their authority, functions or duties which
results in a reduction in their respective position's scope, importance or
responsibilities, (ii) a failure by the Company to comply with the terms of the
employment agreements, and (iii) with respect to Mr. Sheehan only, a failure by
the shareholders to re-elect him as a director of the Company, the agreements
provide for a lump sum payment equal to the greater of twice their current
annual salary or the salary due to be paid under the remaining term of the
agreement, plus a bonus payment equal to twice the average of their last two
annual bonuses. The agreements also provide for continuation of medical coverage
for the longer of two years or the remaining term of the agreement. The
agreements also provide that the Company shall pay to Messrs. Sheehan and Rogers
an amount sufficient to fund a life insurance policy payable to the
beneficiaries of their choice in a face amount equal to same amount as that they
would receive upon termination of their employment by the Company without cause.
Should the employment of Messrs. Sheehan or Rogers be terminated within three
months before and twelve months after a change in control of the Company,
defined to be a consolidation, merger, reorganization or sale or transfer of all
or substantially all of the assets of the Company, a
13
change in the majority of the Board of Directors, or the acquisition by any
person of 20% or more of the voting securities of the Company, the agreements
provide for a lump sum severance payment equal to three times their most
recent annual salary plus a payment equal to three times the average of their
two most recent annual bonuses as well as continuing medical coverage for
three years.
The employment agreements with Messrs. Mancuso and Maroney and Ms. Keenan
provide that the Company will employ them as Senior Vice President--Marketing
and Client Management, Senior Vice President--Systems and Chief Financial
Officer, respectively, and will pay them an annual salary determined by Mr.
Sheehan, as President of the Company, subject to approval by the Board of
Directors, and an annual bonus in accordance with the Company's then applicable
bonus policy. The provisions regarding termination for cause under their
employment agreements are identical to those contained in the employment
agreements of Messrs. Sheehan and Rogers. Should the employment of Messrs.
Mancuso or Maroney or Ms. Keenan be terminated by the Company without cause, by
disability, or by Mr. Mancuso, Mr. Maroney or Ms. Keenan for good reason, which
good reason is the same as described above in the employment agreements of
Messrs. Sheehan and Rogers, the agreements provide for a lump sum payment equal
to the greater of the current annual salary of Messrs. Mancuso or Maroney or Ms.
Keenan or the salary due to be paid under the remaining term of the agreement,
plus a bonus payment equal to the average of their last two annual bonuses.
Should Ms. Keenan's employment be terminated by death, her agreement provides
for a lump sum payment in the same amount as that she would receive upon
termination of her employment by the Company without cause. The agreements of
Messrs. Maroney and Mancuso provide that the Company shall pay to Messrs.
Maroney and Mancuso an amount sufficient to fund a life insurance policy payable
to the beneficiaries of their choice in a face amount equal to the same amount
as that they would receive upon termination of their employment by the Company
without cause. The agreements also provide for continuation of medical coverage
for the longer of one year or the remaining term of the agreement. Should the
employment of Messrs. Mancuso or Maroney or Ms. Keenan be terminated within
three months before and twelve months after a change in control of the Company,
as described above in the employment agreements of Messrs. Sheehan and Rogers,
the agreements provide for a lump sum severance payment equal to two times the
most recent annual salary of Messrs. Mancuso or Maroney or Ms. Keenan, as
applicable, plus a payment equal to two times the average of their two most
recent annual bonuses as well as continuing medical coverage for two years.
PENSION PLAN
In 1971, the Company adopted the Investors Bank & Trust Pension Plan, as
amended (the "Pension Plan"), covering all employees who are at least 21 years
of age. In 1996, the Company amended the Pension Plan to freeze the admission of
new entrants after December 31, 1996. Benefits under the Pension Plan are based
on an employee's years of service and his or her final average monthly
compensation. A participant's monthly benefit at normal retirement (i.e., at or
after attaining the age of 65 years) payable as a life annuity equals a
percentage of the participant's final average monthly compensation multiplied by
years of service. The percentage varies depending on years of service and the
level of final average monthly compensation. Early retirement benefits are
available to participants who have attained age 55 and have at least 10 years of
service. Benefits are payable at retirement in the form of a monthly annuity or
a single lump sum.
A participant's final average monthly compensation is the average of his
total eligible compensation (i.e., salary, annual bonus and other cash earnings)
in his highest paid five consecutive full calendar years of employment in his
last 10 consecutive full calendar years of employment, subject to certain limits
on eligible compensation set by Federal law. For 1997, Purchase Plansuch limit was $160,000.
The Pension Plan's benefit formula described above became effective in 1991, but
applies to all periods of benefit service.
14
The following table shows the estimated annual benefits payable upon
retirement in specified compensation and years of service classifications.
YEARS OF SERVICE
--------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------- --------- --------- ---------- ---------- ---------- ----------
$ 50,000 $ 8,000 $ 12,000 $ 16,000 $ 20,000 $ 21,875 $ 23,750
$ 100,000 $ 18,134 $ 27,201 $ 36,268 $ 45,335 $ 49,085 $ 52,835
$ 150,000 $ 28,884 $ 43,326 $ 57,768 $ 72,210 $ 77,835 $ 83,460
$ 200,000 $ 39,634 $ 59,451 $ 79,268 $ 99,085 $ 106,585 $ 114,085
$ 250,000 $ 50,384 $ 75,576 $ 100,768 $ 125,960 $ 135,335 $ 144,710
$ 300,000 $ 61,134 $ 91,701 $ 122,268 $ 152,835 $ 164,085 $ 175,335
The Named Executive Officers have the following credited years of service
under the Pension Plan: Mr. Sheehan, 24 years; Mr. Rogers, 16 years; Mr.
Maroney, 12 years; Ms. Keenan, 9 years; and Mr. Mancuso, 5 years.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the three
member Compensation Committee of the Board of Directors (the "Compensation
Committee"). The three members of the Compensation Committee are non-employee
Directors. Pursuant to the authority delegated by the Board of Directors, the
Compensation Committee establishes each year the compensation of the Chief
Executive Officer, and together with the Chief Executive Officer, establishes
the compensation of the other executive officers of the Company.
The Company's compensation policy for executive officers is designed to
achieve the following objectives:
- To enhance profitability of the Company and increase stockholder value.
- To reward executives in accordance with the Company's annual and long-term
performance goals.
- To recognize individual initiative and achievement.
- To provide competitive compensation that will attract and retain qualified
executives.
The compensation program for executive officers consists of three elements:
(1) base salary, which is determined on an annual basis and is primarily
dependent on external market data; (2) annual incentive compensation in the form
of cash bonuses which are based on the last
dayachievement of both pre-determined
financial objectives of the Payment Period,Company and individual objectives; and (3) long-term
incentive compensation, in the employee generallyform of stock options, granted periodically with
the objective of aligning the executive officers' long-term interests with those
of the stockholders, encouraging superior results over an extended period and
retaining key executive officers.
Base salary is not entitledintended to be competitive with base salary offered for
similar executive positions at other local companies in the same or similar
industries. The Company utilizes the services of industry experts such as Towers
Perrin and Price Waterhouse LLP to perform periodic reviews of executive
compensation. The base salary for the Company's executive officers for 1997
reflected a mid-range level of competitive compensation in order to attract and
retain key executive officers. In addition to external market data, the
Committee also reviews the Company's financial performance and individual
performances when adjusting base salary annually.
In November 1997, the Compensation Committee set the terms for the 1998
Bonus Plan, which is to be reviewed and updated annually. This plan
established a target level for net income for 1998 and cash bonus pools for
executive officers based on achieving target levels. If 1998 net income
equals the target, executive officers will receive bonuses ranging from 50%
to 125% of their salary, depending on their position and individual
performance, with the Chief Executive Officer receiving 125% of his salary.
If 1998 net income exceeds the target level, additional bonus amounts are
available. No bonuses will be payable to executive officers if 1998 net
income is less than or equal to 1997 net income.
15
Long-term incentive compensation, in the form of stock options, also aligns
executive officers' interests with those of stockholders. In addition, the
Compensation Committee believes that equity ownership by executive officers
helps to balance the short term focus of annual incentive compensation with an
emphasis on long-term financial results and may help to retain key executive
officers.
When establishing stock option grant levels, the Compensation Committee
considers existing levels of stock ownership, previous grants of stock options,
vesting schedules and exercise his option. An employee's rightsprice of outstanding options and the current
stock price. Stock options granted under the Company's 1995 Stock Plan have had
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant and generally vest over a four-year period.
The 1997 Purchase Plan generally
terminate upon his voluntary withdrawal frombase salary for Mr. Sheehan, the Company's Chief Executive Officer
and President, was established by the Board of Directors in December 1996. Under
the terms of the 1997 PurchaseBonus Plan, Mr. Sheehan's bonus eligibility was set forth
on a matrix under which Mr. Sheehan would receive no bonus if 1997 earnings per
share did not exceed 1996 earnings per share. Mr. Sheehan's bonus eligibility
increased incrementally with each $.05 per share by which 1997 earnings exceeded
1996 earnings. In accordance with the terms of the 1997 Bonus Plan, at the
Company's earnings level of $1.75 per share for 1997, Mr. Sheehan was eligible
for a bonus equal to 125% of his 1997 salary, or $437,500. Accordingly,
approximately 56% of his $787,500 in 1997 cash compensation was based on
corporate performance, specifically, the Company's earnings per share. Also, the
Compensation Committee granted Mr. Sheehan options to purchase 30,000 shares of
Common Stock. The Board of Directors believes that Mr. Sheehan has led the
Company toward achieving its goals of growth in the revenue and client base and
expansion in the breadth of services provided.
The Company does not believe Section 162(m) of the Code, which generally
disallows a tax deduction for compensation in excess of $1 million paid to any
time,
or when he ceases employment because of retirement, resignation, discharge,
death or any other reason, exceptthe executive officers appearing in the Summary Compensation Table above,
will have an effect on the Company. The Compensation Committee has considered
the requirements of Section 162(m) of the Code and the related regulations. It
is the Compensation Committee's present intention that, employment shall be treated as continuing
intact while an employee is on military leave, sick leave or other bona fide
leave of absence, for up to 90 days, or for so long as it is
consistent with its overall compensation objectives, substantially all executive
compensation will be deductible for Federal income tax purposes.
The Compensation Committee is satisfied that the employee's rightexecutive officers of the
Company are dedicated to reemployment is guaranteed either by statute or by contract, if longer.
An employee's rights underachieving significant improvements in the 1997 Purchase Plan arelong-term
financial performance of the employee's aloneCompany and may not be transferredthat the compensation policies and
programs implemented and administered have contributed and will continue to
assigned to, or availed of by any other person.
Any option granted to an employee may be exercised, during the employee's
lifetime, onlycontribute towards achieving this goal.
Respectfully submitted by
the employee.Compensation Committee
of the Board of Directors
James M. Oates
Frank B. Condon, Jr.
Thomas P. McDermott
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The proceeds received byCompany's Board of Directors has established a Compensation Committee
currently consisting of Messrs. Oates, Condon and McDermott. No executive
officer of the Company fromserved as a member of the saleCompensation Committee of
Commonanother entity (or other committee of the Board of Directors performing
equivalent functions or, in the absence of any such committee, the entire Board
of Directors), one of whose executive officers served as a director of the
Company.
16
COMPENSATION OF DIRECTORS
Employee directors do not receive cash compensation for their service as
members of the Board of Directors. Non-employee directors receive an annual fee
of $10,000 and an additional $1,000 for each meeting of the Board of Directors
that they attend. Non-employee directors are also eligible for participation in
the 1995 Non-Employee Director Stock Option Plan, pursuant to the 1997 Purchase Plan will be used for general corporate purposes. The
Company's obligation to deliver shares of Common Stock is subject to the
approval of any governmental authority required in connection with the sale or
issuance of such shares. The date of commencement of the first Payment Period
shall be July 1, 1997.
The following general rules are currently applicable for United States
federal income tax purposes to employees who receivewhich each non-
employee director receives automatic grants of options forand is eligible to
receive their annual fee in the form of stock options. See "1995 Non-Employee
Director Stock Option Plan."
STOCK PERFORMANCE
The following graph compares the change in the cumulative total stockholder
return on the Company's Common Stock during the period from the Company's
initial public offering on November 8, 1995 through December 31, 1997, with the
cumulative total return on the Center for Research in Securities Prices Index
for the Nasdaq Stock Market ("Nasdaq Stock Market Index") and the Center for
Research in Securities Prices Index for Nasdaq financial stocks ("Nasdaq
Financial Stocks Index"). The comparison assumes $100 was invested on November
8, 1995 in the Company's Common Stock at the $16.50 initial offering price and
in each of the foregoing indices and assumes reinvestment of dividends, if any.
Comparison of Five Year1 Cumulative Total Return Among
Investors Financial Services Corp., Nasdaq Stock Market Index
and Nasdaq Financial Stocks Index
11/8/95 12/29/95 12/31/96 12/31/97
------- -------- -------- --------
Investors Financial Services Corp. ......... 100 125.76 168.36 279.45
Nasdaq Stock Market Index .................. 100 100.58 123.71 151.80
Nasdaq Financial Stocks Index .............. 100 105.02 134.63 206.62
(1) Prior to November 8, 1995 the Company's Common Stock was not publicly
traded.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The company has entered into loan agreements with Landon T. Clay, a
principal stockholder of the Company. These loans are made in the ordinary
course of business and on the same terms and conditions prevailing at the time
for comparable transactions. As of December 31, 1997, the Company had
outstanding an aggregate of $1,200,000 in principal amount of loans to Mr. Clay.
The Company has adopted a policy whereby all transactions between the
Company and its officers, directors and affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by a majority of the disinterested members of the Company's
Board of Directors. The reported transactions with Eaton Vance and its officers
were conducted on an arms-length basis, on terms the Company believes were no
less favorable to the Company than could have been obtained from unrelated third
parties. The Company did not obtain independent third party valuations of the
terms of these transactions.
PROPOSAL 2
APPROVAL OF THE AMENDED AND RESTATED 1995 STOCK PLAN
The Company's 1995 Stock Plan provides for the grant of options to purchase
shares of Common Stock pursuant to the 1997 Purchase
Plan:
1. The amounts deducted from an employee's pay undergrant to employees of incentive stock
options ("ISOs") within the 1997 Purchase
Plan will be includedmeaning of Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the grant of non-qualified stock
options, stock awards or opportunities to make direct purchases of stock in the
employee's compensation subjectCompany to federal income
tax. Other than this amount, no additional income will be recognized bydirectors, officers, employees and consultants of the employee either at the time options are granted pursuantCompany. The
Board of Directors has approved and recommended to the 1997 Purchasestockholders that they
approve The Amended and Restated 1995 Stock Plan or at(the "1995 Plan") which
increases the time the employee purchases shares pursuant to the 1997 Purchase
Plan.
2. If the employee disposesnumber of shares of Common Stock available for issuance under the
1995 Plan from 560,000 shares to 1,160,000 shares.
Since August 1995, when the 1995 Stock Plan was originally approved, the
number of employees at the Company has increased from approximately 675 to
approximately 1,000. The Company has never before sought an increase in the
number of shares available for grant under the 1995 plan. The Company relies
on stock options as an essential part of the compensation package necessary
for the Company to attract and retain qualified and experienced key
employees. The Board of Directors believes that the proposed increase in the
number of shares available under the 1995 Plan is essential to permit the
Company to continue to provide long-term, equity based incentives to present
and future key employees.
DESCRIPTION OF THE PLAN
The complete text of the 1995 Plan is attached hereto as Appendix A and the
following discussion is qualified in its entirety by the full text of the 1995
Plan. The 1995 Plan was originally approved by the Company's Board of Directors
(the "Board") and sole stockholder in August 1995. The purpose of the 1995 Plan
is to provide incentives to directors, officers, employees and consultants of
the Company by providing them with opportunities to purchase Common Stock of the
Company.
Under the 1995 Plan, employees of the Company may be awarded options which
qualify as ISOs, as defined in Section 422(b) of the Code, and directors,
officers, employees and consultants of the Company may be granted options which
do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options").
Under the 1995 Plan, directors, officers, employees and consultants of the
Corporation may also be granted awards of Common Stock and the opportunity to
purchase Common Stock. ISOs and Non-Qualified Options are sometimes collectively
referred to as "Options." Options, awards of Common Stock and opportunity to
purchase Common Stock are sometimes collectively referred to as "Stock Rights."
The 1995 Plan is administered by the Compensation Committee (the
"Committee") of the Board. Subject to the terms of the 1995 Plan, the Committee
has the authority to determine the persons to whom Stock Rights are granted, the
number of shares covered by each Stock Right, the exercise price per share and
other terms and provisions governing Stock Rights, including restrictions, if
any, applicable to the shares of Common Stock issuable through such Stock Right.
18
However, no employee may be granted Options treated as ISOs to the extent
that ISOs become exercisable for the first time by such optionee during any
calendar year with respect to stock of the Company having a fair market value
(determined at the time the ISOs were granted) in excess of $100,000, and no
employee may be granted Options to acquire, in the aggregate, more than
two years
after448,000 shares of Common Stock under the first business dayPlan. The interpretation and
construction by the Committee of any provision of the Payment Period1995 Plan or of any
Stock Right granted under the 1995 Plan is final unless otherwise determined
by the Board of Directors.
Stock Rights may be granted under the 1995 Plan at any time prior to August
1, 2005. The exercise price per share of ISOs cannot be less than the fair
market value of the Common Stock on the date of grant (or, in the case of ISOs
granted to employees holding more than 10% of the voting stock of the Company,
110% of the fair market value of the Common Stock on the date of grant). The
exercise price for Non-Qualified Options and the purchase price per share of
Common Stock granted pursuant to an award of Common Stock or grant of an
opportunity to purchase Common Stock cannot be less than the minimum legal
consideration required under the laws of any jurisdiction in which the Company
may be organized. Options granted under the 1995 Plan will vest according to a
schedule to be determined by the Committee. The Committee shall have the right
to accelerate the date of exercise of any installment of any Option (subject to
the $100,000 per year limitation on the fair market value of stock subject to
ISOs granted to any employee which become exercisable in any calendar year). The
1995 Plan provides that each Option shall expire on the date specified in the
option agreement, but not more than ten years from its date of grant.
Payment of the exercise price of an Option granted under the 1995 Plan may
be made in cash or by check, or, if authorized by the Committee, in full or in
part by a personal recourse, interest bearing note, by tendering Common Stock of
the Company or by assignment to the Company of the proceeds from the sale of the
Common Stock acquired upon exercise of the Option and an authorization of the
broker or selling agent to pay that amount to the Company. Only the grantee may
exercise a Stock Right; no assignment or transfers are permitted except by will
or by the laws of descent and distribution.
If an ISO optionee ceases to be employed by the Company other than by reason
of death or disability, no further installments of his or her ISOs will become
exercisable, and the ISOs shall terminate after the passage of thirty days after
the date of termination of employment (but no later than their specified
expiration dates). If an ISO optionee ceases to be employed by the Company by
reason of death or permanent disability, no further installments of his or her
options will become exercisable and the ISO's shall terminate after the passage
of one year from the date of termination of employment (but no later than their
specified expiration dates). Non-Qualified Options are subject to such
termination and cancellation provisions as may be determined by the Committee.
Option holders are protected against dilution in the event of a stock
dividend, recapitalization, stock split, merger or similar transaction. The
Board may from time to time adopt amendments to the 1995 Plan, certain of which
are subject to stockholder approval, and the Board may terminate the 1995 Plan
at any time (although such action shall not affect Stock Rights previously
granted). Any shares subject to a Stock Right granted under the 1995 Plan, which
Stock Right for any reason expires or terminates unexercised, may again be
available for future grants. Unless terminated sooner, the 1995 Plan will
terminate on August 1, 2005.
A total of 560,000 shares of the Company's Common Stock are currently
reserved for issuance under the 1995 Plan. As of the Record Date, options to
purchase 605,900 shares of Common Stock were granted under the 1995 Plan. Of
these grants, options to purchase 45,900 shares were made contingent upon
stockholder approval of the increase in the number of shares authorized. In
1997, the Company granted options exercisable for an aggregate of 100,000 shares
of Common Stock to Messrs. Sheehan, Rogers, Maroney and Mancuso and Ms. Keenan
which become exercisable in forty-eight equal monthly installments beginning on
the date of grant. An additional 9,500 options granted in 1997 become
exercisable in forty-eight equal installments beginning on the date of grant,
500 options granted in 1997 became exercisable immediately upon grant, and the
remainder of option grants made in 1997 under the 1995 Plan become exercisable
in four equal annual installments beginning one year from the date of grant.
19
The following general rules are applicable under current federal income tax
law to ISOs under the 1995 Plan:
1. In general, no taxable income results to the optionee upon the grant
of an ISO or upon the issuance of shares to him or her upon the exercise of
the ISO, and no tax deduction is allowed to the Company upon either grant or
exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of
within (i) two years following the date the ISO was granted or (ii) one year
following the date the shares are issued to the optionee pursuant to the ISO
exercise (the "Holding Periods"), the difference between the amount realized
on any subsequent disposition of the shares and the exercise price will
generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of before
the expiration of one or both of the requisite Holding Periods (a
"Disqualifying Disposition"), then in most cases the lesser of (i) any
excess of the fair market value of the shares at the time of exercise of the
ISO over the exercise price or (ii) the actual gain on disposition will be
treated as compensation to the optionee and will be taxed as ordinary income
in the year of such disposition.
4. In any year that an optionee recognizes compensation income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the
Company generally should be entitled to a corresponding deduction for income
tax purposes.
5. Any excess of the amount realized by the optionee as the result of a
Disqualifying Disposition over the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules will be
treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares will be
long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year. An optionee may be entitled to a reduced long-term
capital gain rate if the holding period for the shares exceeds 18 months.
7. An optionee may be entitled to exercise an ISO by delivering shares
of the Company's Common Stock to the Company in payment of the exercise
price, if the optionee's ISO agreement so provides. If an optionee exercises
an ISO in such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of
ISOs may result in a further "minimum tax" under the Code. The Code provides
that an "alternative minimum tax" (at a maximum rate of 28%) will be applied
against a taxable base which is equal to "alternative minimum taxable
income," reduced by a statutory exemption. In general, the amount by which
the value of the Common Stock received upon exercise of the ISO exceeds the
exercise price is included in the optionee's alternative minimum taxable
income. A taxpayer is required to pay the higher of his regular tax
liability or the alternative minimum tax. A taxpayer who pays alternative
minimum tax attributable to the exercise of an ISO may be entitled to a tax
credit against his or her regular tax liability in later years.
9. Special rules apply if the Common Stock acquired through the
exercise of an ISO is subject to vesting, or is subject to certain
restrictions on resale under federal securities laws applicable to
directors, officers or 10% stockholders.
The following general rules are applicable under current federal income tax
law to Non-Qualified Options under the 1995 Plan:
1. The optionee generally does not realize any taxable income upon the
grant of a Non-Qualified Option, and the Company is not allowed a business
expense deduction by reason of such disposition the employeegrant.
20
2. The optionee generally will recognize ordinary compensation income
at the time of exercise of the Non-Qualified Option in an amount equal to the lesser of:
(a)
the excess, if any, of the fair market value of the shares on the date of
dispositionexercise over the amountexercise price. The Company may be required to withhold
income tax on this amount.
3. When the employee paid foroptionee sells the shares acquired through the exercise of
a Non-Qualified Option, he or (b) the excess of the fair market value of the shares on the first
business day of the Payment Period over the option price.
In addition, the employeeshe generally will recognize capital gain or
loss in an amount equal to the difference between the amount realized upon the
sale of shares and the employee's basis in the shares (i.e., the
-23-
amount the employee paid for the shares plus the amount, if any, taxed as
ordinary compensation income). If the employee's holding period for the shares
exceeds one year, such gain or loss will be long-term capital gain or loss.
3. If the employee disposes of shares of Common Stock within two years
after the first business day of the Payment Period in which the employee
acquired the shares, then upon disposition the employee will recognize ordinary
income in an amount equal to the excess of the fair market value of the shares
on the last business day of the applicable Payment Period over the amount the
employee paid for the shares.
In addition, the employee generally will recognizea capital gain or
loss in an amount equal to the difference between the amount realized upon
the sale of the shares and the employee'shis or her basis in the shares (i.e.,stock (generally, the
amount the
employee paid for the sharesexercise price plus the amount if any, taxed to the employeeoptionee as
ordinary compensation
income). If the employee'soptionee's holding period for the shares is more thanexceeds one year,
such gain or loss will be a long-term capital gain or loss. 4. If the two-year holding period is satisfied, the Company will not be
entitled to any federal income tax deduction with respect to the options granted
to acquire such shares. If this two-year holding period is not satisfied, the
Company generally willAn optionee may
be entitled to a reduced long-term capital gain rate if the holding period
for the shares exceeds 18 months.
4. The Company generally should be entitled to a tax deduction when
compensation income is recognized by the optionee.
5. An optionee may be entitled to exercise a Non-Qualified Option by
delivering shares of the Company's Common Stock to the Company in payment of
the exercise price. If an amountoptionee exercises a Non-Qualified Option in such
fashion, special rules will apply.
6. Special rules apply if the Common Stock acquired through the
exercise of a Non-Qualified Option is subject to vesting, or is subject to
certain restrictions on resale under federal securities laws applicable to
directors, officers or 10% stockholders.
Under current federal income tax law, persons receiving Common Stock
under the 1995 Plan pursuant to an award of Common Stock or a grant of an
opportunity to purchase Common Stock generally recognize ordinary
compensation income equal to the amount whichfair market value of the shares received,
reduced by any purchase price paid. The Company generally should be entitled
to a corresponding tax deduction. When such stock is treated as ordinary incomesold, the seller
generally will recognize capital gain or loss. Special rules apply if the
stock acquired is subject to the employee.vesting, or is subject to certain restrictions
on resale under federal securities laws applicable to directors, officers or
10% stockholders.
Approval of the 1997 PurchaseAmended and Restated 1995 Stock Plan will require an
affirmative vote of a majority of the outstanding shares of Common Stock and Class A Stock of the
Company voting together as a class represented in person or by proxy at the Annual Meeting and entitled to vote.voting on
this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE ADOPTION OF THE 1997 PURCHASE PLANAMENDED AND RESTATED 1995 STOCK PLAN.
PROPOSAL 43
APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
selected the firm of Deloitte & Touche LLP ("Deloitte & Touche"), independent
certified public accountants, to serve as auditors for the fiscal year ending
December 31, 1997.1998. Deloitte & Touche has served as the Company's accountants
since the fiscal year ended October 31, 1989. It is expected that a member of
Deloitte & Touche will be present at the meeting with the opportunity to make a
statement if so desired and will be available to respond to appropriate
questions. Ratification of the selection of auditors is not required under the
laws of the State of Delaware but will be considered by the Board of Directors
in selecting auditors for future years.
21
Ratification of the selection of Deloitte and Touche to serve as auditors
for the fiscal year ending December 31, 1997 will require an affirmative vote of
a majority of the outstanding shares of Common Stock of the Company represented
in person or by proxy at the Annual Meeting and voting on this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE RATIFICATION OF THIS SELECTION.
SECTION 16 REPORTING
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Such persons are required by regulations of the Commission to furnish the
Company with copies of all such filings. Based on its review of the copies of
such filings received by it with respect to the period ended December 31, 1996,1997,
the Company believes that all Reporting Persons complied with all Section 16(a)
filing requirements in the period ended December 31, 1996.
-24-1997 except as noted below.
Earl W. Zimmerman, former Treasurer of the Company, filed late one Form 4 with
respect to one transaction. Messrs. Sheehan, Rogers, Mancuso and Maroney and Ms.
Keenan filed late one Form 4 related to one purchase of shares under the
Company's 1997 Employee Stock Purchase Plan.
STOCKHOLDER PROPOSALS
Proposals of Stockholdersstockholders intended for inclusion in the proxy statement to
be furnished to all Stockholdersstockholders entitled to vote at the next Annual Meeting of
Stockholders of the Company must be received at the Company's principal
executive offices not later than October 31, 1997.1998. In order to curtail
controversy as to the date on which a proposal was received by the Company, it
is suggested that proponents submit their proposals by Certified Mail, Return
Receipt Requested to Investors Financial Services Corp., P.O. Box 9130, Boston,
MA 02117-9130, Attention: Secretary.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and in
addition to soliciting Stockholdersstockholders by mail through its regular employees, the
Company may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company registered
in the names of a nominee and, if so, will reimburse such banks, brokers and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company may also be made of
some Stockholdersstockholders in person or by mail, telephone or telegraph following the
original solicitation.
22
Appendix A
----------
INVESTORS FINANCIAL SERVICES CORP.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDED AND RESTATED AS OF FEBRUARY 13, 1996
(as further amended January 14, 1997)1995 STOCK PLAN
1. Purpose. This Non-QualifiedThe purpose of the Investors Financial Services Corp. 1995 Stock
Option Plan to be known as the 1995
-------
Non-Employee Director Stock Option Plan (hereinafter, this(the "Plan") is intended
to promote the interestsencourage key employees of Investors Financial Services
Corp. (hereinafter, the(the "Company") by providing an inducement to obtain and retain the services of qualified persons who are not employeesany present or officersfuture parent or subsidiary of the
Company (collectively, "Related Corporations") and other individuals who render
services to serve as
members of its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par value
----------------
$.01 per share,the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Common Stock""Code") for;
(b) the grant of options which options may be
granted under this Plan shalldo not exceed 100,000 shares, subjectqualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to adjustmentmake
direct purchases of stock in accordance with paragraph 10the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of thisthe
Code.
2. Administration of the Plan.
Shares subject to this Plan are
authorized but unissued sharesA. Board or shares that were once issued and subsequently
reacquired by the Company. If any options granted under this Plan are
surrendered before exercise or lapse without exercise, in whole or in part, the
shares reserved therefor shall continue to be available under this Plan.
3.Committee Administration. ThisThe Plan shall be administered
by the Board of Directors of the Company (the "Board") or by a
-------------- committee
appointed by the Board (the "Committee"). In; provided that the eventPlan shall be
administered: (i) to the extent required by applicable regulations under
Section 162(m) of the Code, by two or more "outside directors" (as
defined in applicable regulations thereunder) and (ii) to the extent
required by Rule 16b-3 promulgated under the Securities Exchange Act of
1934 or any successor provision ("Rule 16b-3"), by a disinterested
administrator or administrators within the meaning of Rule 16b-3.
Hereinafter, all references in this Plan to the "Committee" shall mean
the Board failsif no Committee has been appointed. Subject to appointratification of
the grant or refrains from appointing a Committee,authorization of each Stock Right by the Board (if so
required by applicable state law), and subject to the terms of the Plan,
the Committee shall have all power andthe authority to administer this Plan. In such event,(i) determine to whom (from
among the word
"Committee" wherever used hereinclass of employees eligible under paragraph 3 to receive ISOs)
ISOs shall be deemedgranted, and to meanwhom (from among the class of individuals
and entities eligible under paragraph 3 to receive Non-Qualified Options
and Awards and to make Purchases) Non-Qualified Options, Awards and
authorizations to make Purchases may be granted; (ii) determine the time
or times at which Options or Awards shall be granted or Purchases made;
(iii) determine the purchase price of shares subject to each Option or
Purchase, which prices shall not be less than the minimum price specified
in paragraph 6; (iv) determine whether each Option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the
time or times when each Option shall become exercisable and the duration
of the exercise period; (vi) extend the period during which outstanding
Options may be exercised; (vii) determine whether restrictions such as
repurchase options are to be imposed on shares subject to Options, Awards
and Purchases and the nature of such restrictions, if any, and (viii)
interpret the Plan and prescribe and rescind rules and regulations
relating to it. If the Committee determines to issue a Non-Qualified
Option, it shall take whatever actions it deems necessary, under Section
422 of the Code and the regulations promulgated thereunder, to ensure
that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any
Stock Right granted under it shall be final unless otherwise determined
by the Board. The Committee shall, subjectmay from time to the provisions of the Plan, have the power to
construe this Plan, to determine all questions hereunder, and totime adopt and amend such rules and
regulations for carrying out the administration of this Plan as it may deem desirable.advisable. No member
of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to thisthe Plan or any optionStock
Right granted under it.
4. AutomaticB. Committee Actions. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts
of a majority of the members of the Committee at a meeting at which a
quorum is present,
or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid
acts of the Committee. From time to time the Board may increase the size
of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. Grant of Options.Stock Rights to Board Members. Subject to the availabilityprovisions
of shares under
--------------------------
this Plan, (a) each person who is or becomes a memberthe first sentence of paragraph 2(A) above, if applicable, Stock
Rights may be granted to members of the Board. All grants of Stock Rights
to members of the Board and who is
not an employee or officer of the Company (a "Non-Employee Director") shall in all other respects be automatically granted on the later of (i) the date such person is first elected
to the Board or (ii) the date of pricing of the Company's initial public
offering of shares of Common Stock (the "Approval Date") (such later date being
referred to herein as the "Grant Date"), without further action by the Board, an
option to purchase 2,500 shares of the Common Stock, and (b) each person
receiving an option pursuant to clause (a) above who is a Non-Employee Director
shall be, on each successive one-year anniversary of such person's Grant Date
during the term of this Plan, automatically granted on each such date an option
to purchase 2,500 shares of the Common Stock
5. Election to Receive Stock Options. In addition to the automatic grant of
---------------------------------
options under Section 4, subject to the availability of shares under this Plan,
each Non-Employee Director may make an election (the "Election") to receive, in
lieu of his or her cash retainer, options to acquire shares of Common Stock.
The Election must be in writing and must be delivered to the Secretary of the
Company at least six months prior to the scheduled payment date of the cash
retainer which it is intended to replace.
(a) Any Election shall be irrevocable for six months and may only be revoked
after such six-month period by a written revocation which shall take effect six
months after receipt of such revocation by the Company.
-2-
(b) Each Non-Employee Director who elects to receive options in lieu of his
or her cash retainer shall be granted an option to purchase shares on the first
day of each calendar quarter provided that at least six months has lapsed since
the Election. The total number of shares of stock to be covered by the option
shall be equal to the quotient obtained by dividing the cash retainer by the
value of an option on the date of grant as determined using the Black-Scholes
model.
6. Option Price. The purchase price of the stock covered by an option
------------
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustmentmade in accordance
with the provisions of this Plan applicable to other eligible persons.
Consistent with the provisions of the first sentence of Paragraph 2(A)
above, members of the Board who either (i) are eligible to receive grants
of Stock Rights pursuant to the Plan or (ii) have been granted Stock
Rights may vote on any matters affecting the administration of the Plan
or the grant of any Stock Rights pursuant to the Plan, except that no
such member shall act upon the granting to himself or herself of Stock
Rights, but any such member may be counted in determining the existence
of a quorum at any meeting of the Board during which action is taken with
respect to the granting to such member of Stock Rights.
3. Eligible Employees and Others. ISOs may be granted only to employees of
the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but unissued
shares of Common Stock of the Company, par value $.01 per share (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan is
1,160,000, subject to adjustment as provided in paragraph 1013. If any Stock Right
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the shares of thisCommon Stock
subject to such Stock Right shall again be available for grants of Stock Rights
under the Plan.
No employee of the Company or any Related Corporation may be granted Options
to acquire, in the aggregate, more than 448,000 of shares of Common Stock under
the Plan. If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part or shall be repurchased by the Company, the
shares subject to such Option shall be included in the determination of the
aggregate number of shares of Common Stock deemed to have been granted to such
employee under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at
any time on or after August 15, 1995 and prior to August 1, 2005. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. Options granted under the Plan are intended to qualify as
performance-based compensation to the extent required under Proposed Treasury
Regulation Section 1.162-27.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options, Awards and Purchases. The exercise
price per share specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock granted in any
Award or authorized as a Purchase, under the Plan shall in no event be
less than
2
the minimum legal consideration required therefor under the laws of any
jurisdiction in which the Company or its successors in interest may be
organized.
B. Price for ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant. For purposes of determining
stock ownership under this paragraph, the rules of Section 424(d) of the
Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting. Each eligible employee
may be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan if,and all incentive stock option plans of the
Company and any Related Corporation, ISOs do not become exercisable for
the first time by such employee during any calendar year with respect to
stock having a fair market value (determined at the time the ISOs were
granted) in excess of $100,000. The Company intends to designate any
Options granted in excess of such limitation as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an optionOption is
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if
the prices or quotes discussed in this sentence are unavailable for such
date, the last business day for which such prices or quotes are available
prior to the date of grant and shall mean (i) the average (on that date)
of the high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service
for over-the-counter securities, if the Common Stock is not reported on
the Nasdaq National Market List. Notwithstanding, the purchase
price of the stock underlying the options granted upon the pricing of the
Company's initial public offering pursuant to Section 4(a)(ii) above shall be
the initial public offering price of the Company's Common Stock. However, ifMarket. If the Common Stock is not publicly traded at
the time an optionOption is granted under the Plan, "fair market value" shall
be deemed to bemean the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arm's length.
7. Period of Option. Unless sooner terminatedOption Duration. Subject to earlier termination as provided in accordance withparagraphs
9 and 10 or in the ----------------
provisions of paragraph 9 of this Plan, an option granted hereunderagreement relating to such Option, each Option shall expire
on the date which is five (5)specified by the Committee, but not more than (i) ten years after the date of grant of the option.
8. (a) Vesting of Shares and Non-Transferability of Options. Options
----------------------------------------------------
granted under this Plan shall not be exercisable until they become vested.
Options granted under Section 4 of this Plan shall vest in the optionee and thus
become exercisable in 48 equal monthly installments beginning one month from the
date of grant provided thatin the optionee has continuously served as a membercase of Options generally and (ii) five years from the date
of grant in the case of ISOs granted to an employee owning stock possessing more
than ten percent (10%) of the Boardtotal combined voting power of all classes of
stock of the Company or any Related Corporation, as determined under paragraph
6(B). Subject to earlier termination as provided in paragraphs 9 and 10, the
term of each ISO shall be the term set forth in the original instrument granting
such ISO, except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through such vesting date. Options12,
each Option granted under Section 5 of thisthe Plan shall vest in the optionee and thus becomebe exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date
of grant.
The number of shares as to which options may be exercised shall be
cumulative, so that once the optiongrant or shall become exercisable thereafter in such installments as
to any sharesthe Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
exercisable it shall continue to beremain exercisable as to said shares, until expiration or termination
of the optionOption, unless otherwise specified by the Committee.
3
C. Partial Exercise. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent
of an optionee, accelerate the permitted exercise date of any installment
of any Option granted to any employee as provided in this Plan.
(b) Non-transferability. Any option grantedan ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph 16) if such
acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in paragraph 6(C).
9. Termination of Employment. Unless otherwise specified in the agreement
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate on the earlier of (a) thirty
(30) days after the date of termination of his or her employment, or (b) their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. For purposes of this paragraph 9, employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the Committee shall not
be considered an interruption of employment under this paragraph 9, provided
that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period
of absence. ISOs granted under the Plan shall -------------------
not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any Related Corporation.
Nothing in the Plan shall be deemed to give any grantee of any Stock Right the
right to be retained in employment or other service by the Company or any
Related Corporation for any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his or her death, any ISO owned by
such optionee may be exercised, to the extent otherwise exercisable on
the date of death, by the estate, personal representative or beneficiary
who has acquired the ISO by will or by the laws of descent and
distribution, until the earlier of (i) the specified expiration date of
the ISO or (ii) one year from the date of the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his or her disability, such
optionee shall have the right to exercise any ISO held by him or her on
the date of termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the earlier of (i)
the specified expiration date of the ISO or (ii) one year from the date
of the termination of the optionee's employment. For the purposes of the
plan, the term "disability" shall mean "permanent and total disability"
as defined in Section 22(e)(3) of the Code or any successor statute.
11. Assignability. No Stock Right shall be assignable or transferable other thanby the
grantee except by will, orby the laws of descent and distribution or, in the case
of Non-Qualified Options only, pursuant to a valid domestic relations order andorder.
Except as set forth in the previous sentence, during the lifetime of a grantee
each Stock Right shall be exercisable during the optionee's lifetime only by him or her.
9. Terminationsuch grantee.
12. Terms and Conditions of Option Rights.
----------------------------
(a) In the event an optionee ceases to be a member of the Board for any
reason other than death or permanent disability, any then unexercised portion of
options granted to such optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
optionee within 90 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 90 days have expired.
-3-
(b) In the event that an optionee ceases to be a member of the Board by
reason of his or her death or permanent disability, any option granted to such
optioneeOptions. Options shall be immediately and automatically accelerated and become fully
vested and all unexercised optionsevidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall be exercisable by the optionee (or by
the optionee's personal representative, heir or legatee, in the event of death)
until the scheduled expiration date of the option.
10. Exercise of Option. Subjectconform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the
4
Committee deems advisable which are not inconsistent with the Plan, including
restrictions applicable to shares of this Plan
------------------
and the option agreements, an option granted hereunderCommon Stock issuable upon exercise of
Options. The Committee may specify that any Non-Qualified Option shall be
subject to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to the Company, at its principal
executive offices, stating the number of sharesrestrictions set forth herein with respect to whichISOs, or to such
other termination and cancellation provisions as the option
is being exercised, accompanied by payment in full for such shares. PaymentCommittee may be (a) in United States dollars in cashdetermine.
The Committee may from time to time confer authority and responsibility on
one or by check more of its own members and/or (b) consistent with
applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon exercise of the option and an authorization to the brokerone or selling agent
to pay that amount to the Company, which sale shall be at the participant's
direction at the time of exercise. There shall be no such exercise at any one
time as to fewer than one hundred (100) shares or all of the remaining shares
then purchasable by the person or persons exercising the option, if fewer than
one hundred (100) shares. The Company's transfer agent shall, on behalfmore officers of the Company prepare a certificate or certificates representingto
execute and deliver such shares acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares on the booksinstruments. The proper officers of the Company are
authorized and shall causedirected to take any and all action necessary or advisable
from time to time to carry out the fully executed
certificate(s) representingterms of such shares to be delivered to the optionee as soon
as practicable after payment of the option price in full. The holder of an
option shall not have any rights of a stockholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise of the
option.
11. Adjustments Upon Changes in Capitalization and Other Events.instruments.
13. Adjustments. Upon the
----------------------------------------------------------- occurrence of any of the following events, an
optionee's rights with respect to optionsOptions granted to him or hersuch optionee hereunder
shall be adjusted as hereinafter provided:
(a)provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the number of shares of
Common Stock deliverable upon the exercise of optionsOptions shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
(b) Recapitalization Adjustments.B. Consolidations or Mergers. If the Company is to be consolidated
----------------------------
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise each option granted under this Plan
which is outstanding but unvested as(an
"Acquisition"), the Committee or the board of directors of any entity
assuming the obligations of the effectiveCompany hereunder (the "Successor
Board"), shall, as to outstanding Options, either (i) make appropriate
provision for the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options either (a)
the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition, (b) shares of stock of
the surviving corporation or (c) such other securities as the Successor
Board deems appropriate, the fair market value of which shall not
materially exceed the fair market value of the shares of Common Stock
subject to such Options immediately preceding the Acquisition; or (ii)
upon written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable, within a specified number of
days of the date of such eventnotice, at the end of which period the Options
shall become exercisableterminate; or (iii) terminate all Options in full 15 days priorexchange for a cash
payment equal to the effective dateexcess of the fair market value of the shares
subject to such event.Options (to the extent then exercisable) over the
exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
reorganization, recapitalization merger,
consolidation, or any other change in the corporate structure or sharesreorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the extent permitted by Rule 16b-3 under the Securities
Exchange Actoutstanding shares of 1934, adjustments in the number and kind of shares authorized
by this Plan and in the number and kind of shares covered by, and in the
option price of outstanding options under this Plan necessary to maintain the
proportionate interest of theCommon Stock, an optionee and preserve, without exceeding, the
value of such option,upon
exercising an Option shall be made.entitled to receive for the purchase price
paid upon such exercise the securities he or she would have received if
he or she had exercised such Option prior to such recapitalization or
reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, no such
adjustmentany
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made whichonly after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would within the meaningconstitute a
"modification" of any applicable
provisionssuch ISOs (as that term is defined in Section 424 of
the Internal Revenue CodeCode) or would cause any adverse tax consequences for the holders of
1986, as amended,such ISOs. If the Committee determines that such adjustments made with
respect to ISOs would constitute a modification extensionof such ISOs or renewal of any Option or a grant of additional
benefitswould
cause adverse tax consequences to the holderholders, it may refrain from making
such adjustments.
E. Dissolution or Liquidation. In the event of an Option.
(c)the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
5
F. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price
-4-
of shares subject to options.Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
(d)G. Fractional Shares. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the foregoing events described in
subparagraphs A, B or C above, the
----------- class and aggregate number of shares
set forth in paragraphs 2,4 and 5 of
this Planparagraph 4 hereof that are subject to optionsStock Rights which
previously have been or subsequently may be granted under thisthe Plan shall
also be appropriately adjusted to reflect the events described in such
events.subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 1113 and, subject to
paragraph 2, its determination shall be conclusive.
12. Restrictions on Issuance14. Means of Shares. NotwithstandingExercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the provisions of
----------------------------------
paragraphs 4, 5 and 10 of this Plan,Company at its
principal office address, or to such transfer agent as the Company shall
havedesignate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no obligationless than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to deliver any certificate or certificatesthe Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an option until oneauthorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the following conditionsCommittee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be satisfied:
(i) The issuance of shares with respect to which the option has been
exercised isin writing at
the time of the issuegrant of such shares effectively registered
under applicable Federal and state securities laws as nowthe ISO in force or
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion that the
issuance of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company has
complied with all applicable laws and regulations with respect thereto,
including without limitation all regulations required by any stock exchange
upon which the Company's outstanding Common Stock is then listed.
12. Legend on Certificates.question. The certificates representing shares issued
----------------------
pursuant to the exerciseholder of an option granted hereunderOption shall carry such
appropriate legend, and such written instructions shall be given tonot
have the Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
13. Representation of Optionee. If requested by the Company, the optionee
--------------------------
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
14. Option Agreement. Each option granted under the provisions of this Plan
----------------
shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions
and conditions not inconsistent with this Plan as may be determined by the
officer executing it.
15. Termination and Amendment of Plan. Options may no longer be granted
---------------------------------
under this Plan after October 1, 2005, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
-------- -------
without approval by the affirmative vote of the holdersrights of a majority of the
shares of Common Stock present in person or by proxy and voting on such matter
at a meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the
Securities Exchange Act (or any successor or amended provision thereof) to
become inapplicable to this Plan; and provided further that the provisions of
-------- -------
this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended
provision thereof) under the Securities Exchange Act of 1934 (including without
limitation, provisions as to eligibility, amount, price and timing of awards)
may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue
-5-
Code, the Employee Retirement Income Security Act, or the rules thereunder.
Termination or any modification or amendment of this Plan shall not, without
consent of a participant, affect his or her rights under an option previously
granted to him or her.
16. Withholding of Income Taxes. Upon the exercise of an option, the
---------------------------
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.
17. Compliance with Regulations. It is the Company's intent that the Plan
---------------------------
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended provision thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of this Plan
is deemed not to be in compliance with Rule 16b-3, the provision shall be null
and void.
18. Governing Law. The validity and construction of this Plan and the
-------------
instruments evidencing options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
Appendix B
----------
INVESTORS FINANCIAL SERVICES CORP.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
-------
This 1997 Employee Stock Purchase Plan (the "Plan") is intended to
encourage stock ownership by all eligible employees of Investors Financial
Services Corp., a Delaware corporation (the "Company"), and its participating
subsidiaries (as defined in Article 17) so that they may share in the growth of
the Company by acquiring or increasing their proprietary interest in the
Company. The Plan is designed to encourage eligible employees to remain in the
employ of the Company and its participating subsidiaries. It is intended that
options issued pursuant to this Plan will constitute options issued pursuant to
an "employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Administration of the Plan.
--------------------------
The Plan may be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board of Directors. The Committee may select one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.
3. Eligible Employees.
------------------
All employees who have completed six months of employment with the Company
or any of its participating subsidiaries and whose customary employment is more
than twenty (20) hours per week and for more than five (5) months in any
calendar year shall be eligible to receive options under this Plan to purchase
the Company's Common Stock, and all eligible employees shall have the same
rights and privileges hereunder. Persons who are eligible employees on the first
business day of any Payment Period (as defined in Article 5) shall receive their
options as of such day. Persons who become eligible employees after any date on
which options are granted under this Plan shall be granted options on the first
day of the next succeeding Payment Period on which options are granted to
eligible employees. In no event may an employee be granted an option if such
employee, immediately after the option is granted, owns stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of its parent corporation or subsidiary corporations,
as the terms "parent corporation" and "subsidiary corporation" are defined in
Section 424(e) and (f) of the Code. For purposes of determining stock ownership
under this paragraph, the rules of Section 424(d) of the Code shall apply, and
stock which the employee may purchase under outstanding options shall be treated
as stock owned by the employee.
-2-
4. Stock Subject to the Plan.
-------------------------
The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued Common Stock, par value $.01 per share, or
shares of such Common Stock reacquired by the Company, including shares
purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is 140,000, subject to adjustment as provided in
Article 12. In the event any option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject thereto shall again be available under the Plan.
5. Payment Period and Stock Options.
--------------------------------
The six-month periods January 1 through June 30, and July 1 through
December 31, are Payment Periods during which payroll deductions will be
accumulated under the Plan. The first Payment Period under the Plan will
commence on July 1, 1997 and expire on December 31, 1997.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, a maximum of 1,000 shares, on condition that
such employee remains eligible to participate in the Plan throughout such
Payment Period. The participant shall be entitled to exercise such option so
granted only to the extent of the participant's accumulated payroll deductions
on the last day of such Payment Period. In the event that the participant's
accumulated payroll deductions on the last day of the Payment Period would
enable the participant to purchase more than 1,000 shares except for the 1,000-
share limitation, the excess of the amount of the accumulated payroll deductions
over the aggregate purchase price of the 1,000 shares shall be promptly refunded
to the participant by the Company, without interest. The Option Price for each
Payment Period shall be the lesser of (i) 90% of the average market price of the
Company's Common Stock on the first business day of the Payment Period or (ii)
90% of the average market price of the Company's Common Stock on the last
business day of the Payment Period, in either event rounded up to avoid
fractions of a dollar other than 1/4, 1/2 and 3/4. The foregoing limitation on
the number of shares which may be granted in any Payment Period and the Option
Price per share shall be subject to adjustment as provided in Article 12.
For purposes of this Plan, the term "average market price" on any date
means (i) the average (on that date) of the high and low prices of the Company's
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market List, if the Common Stock is not then traded
on a national securities exchange; or (iii) the average of the closing bid and
asked prices last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market List. If the Company's Common Stock is not publicly traded at
the time an option is granted under this Plan, "average market price" shall mean
the fair market value of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
For purposes of this Plan, the term "business day" means a day on which
there is trading on the Nasdaq National Market System or on the aforementioned
national securities exchange, whichever is applicable pursuant to the preceding
paragraph.
No employee shall be granted an option which permits the employee's right
to purchase Common Stock under this Plan, and under all other Section 423(b)
employee stock purchase plans of the Company or any parent or subsidiary
corporations, to accrue at a rate which exceeds $25,000 of fair market value of
such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time. The purpose of the
limitation in the preceding sentence is to comply with Section 423(b)(8) of the
Code. If an eligible employee's accumulated payroll deductions on the last day
of the Payment Period would otherwise enable such employee to purchase Common
Stock in excess of the Section 423(b)(8) limitation described in this paragraph,
the
-3-
excess of the amount of the accumulated payroll deductions over the aggregate
purchase price of the shares actually purchased shall be promptly refunded to
the employee by the Company, without interest.
6. Exercise of Option.
------------------
Each eligible employee who continues to be a participant in the Plan on the
last day of a Payment Period shall be deemed to have exercised his/her option on
such date and shall be deemed to have purchased from the Company such number of
full shares of Common Stock reserved for the purpose of the Plan as his/her
accumulated payroll deductions on such date will pay for at the Option Price,
subject to the 1,000-share limit of the option and the Section 423(b)(8)
limitation described in Article 5. If a person is not an eligible employee on
the last day of a Payment Period, he/she shall not be entitled to exercise
his/her option. Only full shares of Common Stock may be purchased under the
Plan. Unused payroll deductions remaining in an employee's account at the end of
a Payment Period by reason of the inability to purchase a fractional share will
be carried forward to the succeeding Payment Period.
7. Authorization for Entering the Plan.
-----------------------------------
An employee may enter the Plan by filling out, signing and delivering to
the Company an authorization:
A. Stating the percentage to be deducted regularly from the employee's
pay;
B. Authorizing the purchase of stock for the employee in each Payment
Period in accordance with the terms of the Plan; and
C. Specifying the exact name in which stock purchased for the employee
is to be issued as provided under Article 11 hereof.
Such authorization must be received by the Company at least ten (10) days
before the beginning date of the next succeeding Payment Period.
Unless an employee files a new authorization or withdraws from the Plan,
the deductions and purchases under the authorization the employee has on
file under the Plan will continue from one Payment Period to succeeding
Payment Periods as long as the Plan remains in effect.
The Company will accumulate and hold for the employee's account the amounts
deducted from his/her pay. No interest will be paid on these amounts.
8. Maximum Amount of Payroll Deductions.
------------------------------------
An employee may authorize payroll deductions in an amount (expressed as a
percentage) not less than one percent (1%) but not more than fifteen percent
(15%) of the employee's base salary compensation actually paid to the employee
in the Payment Period, excluding without limitation any benefits, bonuses or
commissions.
9. Change in Payroll Deductions.
----------------------------
Deductions may not be increased or decreased during a Payment Period.
However, an employee may withdraw in full from the Plan.
10. Withdrawal from the Plan.
------------------------
An employee may withdraw from the Plan in whole but not in part, at any
time prior to the last business day of each Payment Period by delivering a
withdrawal notice to the Company, in which event the Company will promptly
refund the entire balance of the employee's deductions not previously used to
purchase stock under the Plan.
-4-
To re-enter the Plan, an employee who has previously withdrawn must file a
new authorization at least ten (10) days before the beginning date of the next
Payment Period in which he or she wishes to participate. The employee's re-
entry into the Plan becomes effective at the beginning of such Payment Period,
provided that he or she is an eligible employee on the first business day of the
Payment Period.
11. Issuance of Stock.
-----------------
Certificates for stock issued to participants will be delivered as soon as
practicable after each Payment Period by the Company's transfer agent.
Stock purchased under the Plan will be issued only in the name of the
employee, or if his/her authorization so specifies, in the name of the employee
and another person of legal age as joint tenants with rights of survivorship.
12. Adjustments.
-----------
Upon the happening of any of the following described events, an optionee's
rights under options granted under the Plan shall be adjusted as hereinafter
provided:
A. In the event shares of Common Stock of the Company shall be
subdivided or combined into a greater or smaller number of shares or if, upon
a reorganization, split-up, liquidation, recapitalization or the like of the
Company, the shares of the Company's Common Stock shall be exchanged for other
securities of the Company, each optionee shall be entitled, subject to the
conditions herein stated, to purchase such number of shares of Common Stock or
amount of other securities of the Company as were exchangeable for the number
of shares of Common Stock of the Company which such optionee would have been
entitled to purchase except for such action, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or exchange; and
B. In the event the Company shall issue any of its shares as a stock
dividend upon orshareholder with respect to the shares of stock of the class which shall
at the time be subject to option hereunder, each optionee upon exercisingcovered by such
an option shall be entitled to receive (for the purchase price paid upon such
exercise) the shares as to which he/she is exercising his/her option and, in
addition thereto (at no additional cost), such number of shares of the class
or classes in which such stock dividend or dividends were declared or paid,
and such amount of cash in lieu of fractional shares, as is equal to the
number of shares thereof and the amount of cash in lieu of fractional shares,
respectively, which he/she would have received if he/she had been the holder
of the shares as to which he/she is exercising his/her option at all times
betweenOption until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the granting of such option andrecord date is before the date such
stock certificate is issued.
15. Term and Amendment of its exercise.
UponPlan. This Plan was adopted by the happeningBoard on August
15, 1995, subject, with respect to the validation of anyISOs granted under the
Plan, to approval of the foregoing events,Plan by the class and aggregate
numberstockholders of shares set forththe Company at the next
Meeting of Stockholders or, in Article 4 hereof which are subjectlieu thereof, by written consent. If the approval
of stockholders is not obtained prior to options
which have been orAugust 15, 1996, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on August 1, 2005 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Options may be
granted under the Plan and the limitations set forth
in the second paragraph of Article 5 shall also be appropriately adjustedprior to
reflect the events specified in paragraphs A and B above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A or B shall be made only
to the extent that the Committee, based on advice of counsel for the Company,
determines whether such adjustments would constitute a "modification" (as that
terms is defined in Section 424 of the Code) or would constitute a change
requiring stockholder approval (pursuant to Section 423(b)(2) of the Code). If
the Committee determines that such adjustments would constitute a modification
or would require stockholder approval, it may refrain from making such
adjustments.
If the Company is to be consolidated with or acquired by another entity in
a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to options then outstanding under this Plan, either (i) make
appropriate provision for the continuation of such options by arranging for the
substitution on an equitable basis for the shares then subject to such options
either (a) the consideration payable with respect to the outstanding shares of
the Company's Common Stock in connection with
-5-
the Acquisition, (b) shares of stock of the successor corporation, or a parent
or subsidiary of such corporation, or (c) such other securities as the Successor
Board deems appropriate, the fair market value of which shall not materially
exceed the fair market value of the shares of Common Stock subject to such
options immediately preceding the Acquisition; or (ii) terminate all outstanding
options in exchange for a cash payment equal to the excess of (a) the fair
market value on the date of the Acquisition,stockholder approval of the number of shares of Common
Stock that the participant's accumulated payroll deductions as of the date of
the Acquisition could purchase, at an option price determined with reference
only to the first business day of the applicable Payment Period and subject to
the 1,000-share, Code Section 423(b)(8) and fractional-share limitations on the
amount of stock a participant would be entitled to purchase, over (b) the result
of multiplying such number of shares by such option price.Plan.
The CommitteeBoard may terminate or Successor Board of Directors shall determine the
adjustments to be made under this Article 12, and its determination shall be
conclusive.
13. No Transfer or Assignment of Employee's Rights.
----------------------------------------------
An employee's rights underamend the Plan are the employee's alone and may not be
transferred or assigned to, or availed of by,in any other person other than by
will or the laws of descent and distribution. Any option granted under the Plan
to an employee may be exercised, during the employee's lifetime, only by the
employee.
14. Termination of Employee's Rights,
--------------------------------
An employee's rights under the Plan will terminate when he/she ceases to be
an employee because of retirement, voluntary or involuntary termination,
resignation, lay-off, discharge, death, change of status or for any other reason
and the Company shall promptly refund, without interest, the entire balance of
his or her payroll deduction account under the Plan. Notwithstanding the
foregoing, eligible employment shall be treated as continuing intact while a
participant is on military leave, sick leave or other bona fide leave of
absence, for up to 90 days, or for so long as the employee's right to re-
employment is guaranteed either by statute or by contract, if longer than 90
days. A withdrawal notice will be considered as having been received from the
employee on the day his/her employment ceases, and all payroll deductions not
used to purchase stock will be refunded.
If an employee's payroll deductions are interrupted by any legal process, a
withdrawal notice will be considered as having been received from the employee
on the day the interruption occurs.
15. Termination and Amendments to Plan.
----------------------------------
Unless terminated sooner as provided below, the Plan shall terminate on
January 1, 2007. The Plan may be terminatedrespect at any time, by the Company's Board
of Directors but such termination shall not affect options then outstanding
under the Plan. It will terminate in any case when all or substantially all of
the unissued shares of stock reserved for the purposes of the Plan have been
purchased. If at any time shares of stock reserved for the purpose of the Plan
remain available for purchase but not in sufficient number to satisfy all then
unfilled purchase requirements, the available shares shall be apportioned among
participants in proportion to their options and the Plan shall terminate. Upon
such termination or any other termination of the Plan, all payroll deductions
not used to purchase stock will be refunded, without interest.
The Committee or the Board of Directors may from time to time adopt
amendments to the Plan providedexcept
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the Company, no amendment may (i) increasefollowing actions:
(a) the total number of shares that may be issued under the Plan; (ii) changePlan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the class of employees eligiblebenefits
accruing to receive
optionsparticipants under the Plan if suchmay not be materially increased; (c) the
requirements as to eligibility for participation in the Plan may not be
materially modified; (d) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (e) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); (f) the
expiration date of the Plan may not be extended; and (g) the Board may not take
any action which would be treatedcause the Plan to fail to comply with Rule 16b-3. Except
as otherwise provided in this paragraph 15, in no event may action of the adoptionBoard
or stockholders alter or impair the rights of a new plan for purposesgrantee, without such grantee's
consent, under any Option previously granted to such grantee.
6
16. Conversion of Section 423(b)ISOs into Non-Qualified Options. The Committee, at the
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the Code; or (iii) cause Rule or
(iii) cause Rule 16b-3 under the Securities Exchange Actdate of 1934 to become
inapplicable to the Plan.
-6-
16. Limits on Sale of Stock Purchased Under the Plan.
------------------------------------------------
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any employee in the conduct of his/her own affairs. An employee may, therefore,
sell stock purchased under the Planconversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee chooses, subject to
compliance with any applicable federal or state securities laws and subject to
any restrictions imposed under Article 21 to ensure that tax withholding
obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET
FLUCTUATIONS IN THE PRICE OF THE STOCK.
17. Participating Subsidiaries.
--------------------------
The term "participating subsidiary" shall mean any subsidiary of the Company as that term is defined in Section 424(f)or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the Code, which is
designated fromappropriate installments of such
ISOs. At the time to time byof such conversion, the BoardCommittee (with the consent of Directors to participatethe
optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan. The Board of DirectorsPlan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the power to make such designation
before or after the Plan is approved by the stockholders.
18. Optionees Not Stockholders.
--------------------------
Neither the granting of an option to an employee nor the deductions from
his/her pay shall constitute such employee a stockholder of the shares covered
by an option until such shares have been actually purchased by the employee.
19.Committee takes appropriate action.
17. Application ofOf Funds.
-------------------- The proceeds received by the Company from the sale
of Common Stockshares pursuant to optionsOptions granted and Purchases authorized under the Plan
willshall be used for general corporate purposes.
20.18. Notice to Company of Disqualifying Disposition. ----------------------------------------------
By electing to participate inaccepting an ISO
granted under the Plan, each employeeoptionee agrees to notify the Company in writing
immediately after the employee transfers Common Stock
acquired under the Plan, if such transfer occurs within two years after the
first business day of the Payment Periodoptionee makes a Disqualifying Disposition (as described
in which such Common Stock was
acquired. Each employee further agrees to provide any information about such a
transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421, 422 and 424 of the Code which have certain tax consequences to participants and regulations thereunder) of any
stock acquired pursuant to the Company and
its participating subsidiaries.
21.exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. Withholding of Additional Income Taxes. --------------------------------------
By electing to participateUpon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the Plan, each employee acknowledges thatvesting or transfer of restricted
stock or securities acquired on the Company and its participating subsidiaries are required to withhold taxesexercise of an Option hereunder, or the
making of a distribution or other payment with respect to the amounts deducted from the employee's compensation and accumulated
for the benefit of the employee under the Plan, and each employee agrees that
the Company and its participating subsidiaries may deduct additional amounts
from the employee's compensation, when amounts are added to the employee's
account, used to purchase Common Stocksuch stock or
refunded, in order to satisfy such
withholding obligations. Each employee further acknowledges that when Common
Stock is purchased under the Plan the Company and its participating subsidiaries
may be required to withhold taxes with respect to all or a portion of the
difference between the fair market value of the Common Stock purchased and its
purchase price, and each employee agrees that such taxes may be withheld from
compensation otherwise payable to such employee. It is intended that tax
withholding will be accomplished in such a manner that the full amount of
payroll deductions elected by the participant under Article 7 will be used to
purchase Common Stock. However, if amounts sufficient to satisfy applicable tax
withholding obligations have not been withheld from compensation otherwise
payable to any employee, then, notwithstanding any other provision of the Plan,securities, the Company may withhold such taxes fromin respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the employee's accumulated payroll
deductions and applyexercise of an Option, (ii) the net amount togrant of an Award, (iii) the
purchasemaking of a Purchase of Common Stock unless
-7-for less than its fair market value, or
(iv) the employee pays tovesting or transferability of restricted stock or securities acquired
by exercising an Option, on the Company, prior tograntee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the exercise date, angrantee in cash or
by check of the amount sufficient to satisfy suchof the withholding obligations. Each employee further
acknowledges thattaxes or, at the Company and its participating subsidiaries may be required
to withhold taxes in connection withdiscretion of the
dispositionCommittee, by the grantee's delivery of stock acquired under the
Plan and agrees that the Company or any participating subsidiary may take
whatever action it considers appropriate to satisfy such withholding
requirements, including deducting from compensation otherwise payable to such
employee an amount sufficient to satisfy such withholding requirements or
conditioning any dispositionpreviously held shares of Common Stock
byor the employeewithholding from the shares of Common Stock otherwise deliverable upon
the paymentexercise of a Option shares having an aggregate fair market value equal to the
Company or such subsidiaryamount of an amount sufficient to satisfy such withholding requirements.
22.taxes.
20. Governmental Regulations.
------------------------Regulation. The Company's obligation to sell and deliver
shares of the Company's Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares,
including the Securities and Exchange Commission, the Board of Governors of the
Federal Reserve System, and the Internal Revenue Service.shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
identify
shares of Common Stock issued under the Plan on its stock ownership records and
send tax information statements to employees and former employees who transfer
titlethat exercise
ISOs under the Plan, and the Company may be required to such shares.
23.file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. Governing Law.
------------- The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect toor the principleslaws of conflicts of law thereof.
24. Approval of Board of Directors and Stockholders ofany jurisdiction in which the Company.
--------------------------------------------------------------
The Plan was adopted by the Board of Directors on January 14, 1997.
[X] PLEASE MARK YOUR 6461
VOTES AS IN THIS EXAMPLE.
WITHHOLD
AUTHORITY TO
VOTE FOR ALL
1. To elect two FOR ALL NOMINEES NOMINEES LISTED
(2) Class II LISTED ON REVERSE ON REVERSE
Directors.
See reverse [_] [_]
side for
instruction.
- ---------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve certain amendments to the [_] [_] [_]
Company's 1995 Non-Employee
Director Stock Option Plan.
3. To approve the adoption of the [_] [_] [_]
Company's 1997 Employee Stock
Purchase Plan.
4. To ratify the selection of Deloitte & [_] [_] [_]
Touche LLP as auditors for the fiscal
year ending December 31, 1997.
(PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD
EACH SIGN. IF SIGNING AS ATTORNEY, EXECUTOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE YOUR FULL TITLE AS SUCH.)
________________________________________________________________
________________________________________________________________
SIGNATURE(S) DATE
FOLD AND DETACH HERECompany or its
successors in interest may be organized.
7
INVESTORS FINANCIAL SERVICES CORP.
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kevin J. Sheehan and Karen C. Keenan and
each or either of them, proxies with full power of substitution to vote all
shares of stock of Investors Financial Services Corp. (the "Company") which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of
the Company to be held on Tuesday, April 15, 1997,14, 1998, at 11:00 a.m. at 125 Summer200
Clarendon Street, Boston, Massachusetts, and at any adjournment thereof, upon
matters set forth in the Notice of Annual Meeting and Proxy Statement dated
March 5, 1997,1998, a copy of which has been received by the undersigned.
The nominees for Class IIIII Director are:
Frank B. Condon, Jr.Kevin J. Sheehan, James M. Oates and Robert B.FraserThomas P. McDermott
INSTRUCTION: To withhold your vote for any individual nominee, write that
nomineesnominee's name in the space provided below Proposal 1 on reverse side. To vote
for or against all nominees, see Proposal 1 on reverse side.
(To be signed on reverse side.)
/X/ Please mark your
votes as in this
example.
WITHHOLD
AUTHORITY TO
VOTE FOR ALL
FOR ALL NOMINEES NOMINEES LISTED FOR AGAINST ABSTAIN
1. To elect three LISTED ON REVERSE ON REVERSE
(3) Class III 2. To approve the / / / / / /
Directors. / / / / Company's Amended
See reverse and Restated 1995
side for Stock Plan.
instruction.
3. To ratify the / / / / / /
selection of
Deloitte &
___________________________________________ Touche LLP as
auditors for
the fiscal year
ending
December 31, 1998.
(Please sign exactly as name appears hereon.
Joint owners should each sign. If signing as
attorney, executor, trustee or guardian,
please give your full title as such.)
____________________________________________
____________________________________________
SIGNATURE(S) DATE
FOLD AND DETACH HERE