SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party 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/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
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 the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 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 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:
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INVESTORS FINANCIAL SERVICES CORP.
200 Clarendon Street
Boston,CLARENDON STREET
BOSTON, MA 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
14,
199813, 1999 at 11:00 a.m., local time, at the company's offices at 200 Clarendon
Street, 17th Floor, Boston, Massachusetts, for the following purposes:
1. To elect three (3)two (2) Class IIII directors, each to serve for a
three-year term and until theirhis or her successor is elected and
qualified.
2. To approve the Company's Amended and Restated 1995
Non-Employee Director Stock Option Plan.
3. To ratify the selection of Deloitte & Touche, LLP as
independent auditors for the fiscal year ending December 31,
1998.1999.
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 16, 199817,
1999 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, 19981999
INVESTORS FINANCIAL SERVICES CORP.
200 Clarendon Street
Boston,CLARENDON STREET
BOSTON, MA 02116
---------------------------
PROXY STATEMENT
----------
March-----------------
MARCH 5, 19981999
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 14, 1998,13, 1999, at 11:00 a.m., local time, at the Company's
offices at 200 Clarendon Street, 17th Floor, Boston, Massachusetts, or at any
adjournments thereof (the "Annual Meeting").
Only stockholders of record at the close of business on February 16, 1998
(the "Record Date")17,
1999 will be entitled to receive notice of and to vote at the Annual Meeting and
any adjournments thereof. As of that date, 6,472,1886,741,778 shares of the Company's
Common Stock, $.01 par value per share (the "Common Stock"), were issued and
outstanding. An Annual Report to Stockholders, containing financial statements
for the fiscal year ended December 31, 1998, 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, 1999.
The holders of Common Stock are entitled to one vote per share on any
proposal presented at the 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 Annual 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 Annual Meeting or to the Chairman of the Annual Meeting on the day of the
Annual Meeting or any adjournment thereof.
The representation in person or by proxy of at least a majority of the
outstanding Common Stock entitled to vote at the meeting 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 suchthe 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. Votes may be cast in favor of or
withheld from each nominee. On all other matters being submitted to
stockholders, an affirmative vote of a majority 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 and 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) approve the Company's Amended and
Restated 1995 Non-Employee Director Stock Option Plan; and (ii) 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 choice has been specified on the proxy with respect to the
foregoing matters, the
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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 forOn February 16, 1999, the fiscal year ended December 31, 1997, is being mailed together with this proxy
statement to all stockholders entitled to vote. This proxy statement andBoard of Directors declared a two-for-one
stock split in the form of proxy were first maileda 100% stock dividend payable March 17, 1999 to
stockholders of record on or about March 5, 1998.
21, 1999. All share numbers shown in this Proxy
Statement reflect shares outstanding as of February 17, 1999, PRIOR to the
two-for-one stock split. Upon completion of the stock split, all share numbers
presented in this Proxy Statement will double, but percentage ownership will
remain unchanged.
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MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 16, 1998:17, 1999: (i) by each
person who, to the knowledge of the Company, beneficially owned beneficially more than 5% of
the shares of the Company's Common Stock outstanding at such date; (ii) by each
director, nominee and each 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., 200
Clarendon Street, Boston, MA 02116 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 ClassNAME 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% ............................ 519,100 7.7%
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(2)...................................... 14,340 *
Robert B. Fraser (5)....................... 2,665(3).......................................... 4,837 *
Donald G. Friedl (6)....................... 4,621(4).......................................... 7,081 *
Thomas P. McDermott (4).................... 6,322(2)....................................... 9,043 *
James M. Oates (4)......................... 17,590(5)............................................ 20,206 *
Phyllis S. Swersky (7)..................... 2,543(6) ....................................... 4,574 *
Kevin J. Sheehan (8)....................... 206,931 3.2%(7).......................................... 238,180 3.5%
Michael F. Rogers (9)...................... 110,793 1.7%(8)......................................... 136,937 2.0%
Edmund J. Maroney (10)..................... 28,805(9)......................................... 40,778 *
Robert D. Mancuso (11)..................... 24,644(10)........................................ 36,166 *
Karen C. Keenan (12)....................... 20,722(11).......................................... 30,637 *
All officers and directors as a group (14 persons) (13)...................... 451,482 6.8%(12)....... 566,610 8.1%
- ------------------
- ------------------------
* Less than 1%
3
** Percentage ownership is based upon 6,741,778 shares of Common Stock
outstanding as of February 17, 1999. Shares of Common Stock that may be
acquired within 60 days of February 17, 1999 are deemed outstanding for
purposes of computing the average ownership of the person holding the
right to acquire such shares, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(1) Includes (i) 209,300224,300 shares of Common Stock held by The Northwestern Mutual Life
Insurance Company, (ii) 63,00075,200 shares of Common Stock held by The Northwestern Mutual
Life Insurance Company Group Annuity Separate Account, (iii) 200,000205,400
shares of Common Stock held 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) 2,4002,900 shares held by the Asset
Allocation Fund and 13,00010,700 shares held by the Aggressive Growth Stock
Fund of Mason Street
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Funds, Inc., an affiliate of The Northwestern Mutual Life Insurance
Company.
(2) Landon T. Clay is a former officer of Eaton Vance Corp., the former
parent of the Company. Includes 833Company, and (v) 600 shares of Common Stock owned by
family members of Mr. Clay, as to which Mr. Clay disclaims beneficial
ownership. Also includes 2,120 shares of Common 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 348 shares of
Common 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) Shares are held by two investment companies managed by Oppenheimer
Advisers, Inc.,Northwestern Long Term Care
Insurance Company, a wholly-owned subsidiary of OppenheimerFunds, Inc.
(4)The Northwestern Mutual
Life Insurance Company. Information with respect to entities associated
with The Northwestern Mutual Life Insurance Company is derived from the
Schedule 13G filed by The Northwestern Mutual Life Insurance Company
with the Securities and Exchange Commission on or about February 2,
1999.
(2) Includes 4,5897,310 shares of Common Stock which may be purchased within 60
days of February 16, 1998 (the "Record Date")17, 1999 upon the exercise of stock options granted
under the Company's 1995 Non-Employee Director Stock Option Plan (the
"Director Plan").
Excludes 4,689 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)(3) Includes 1,6653,837 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted
under the Director Plan.
Excludes 3,335 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)(4) Includes 4,1216,581 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted
under the Director Plan.
Excludes 5,157 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)(5) Includes 2,3437,205 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted under
the Director Plan.
Excludes 5,157 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)(6) Includes 45,6224,374 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted
under the Company's 1995 Stock Plan (the "1995 Plan"). Excludes 64,378
shares of Common Stock issuable pursuant to options granted under the
1995 Plan which are not exercisable within 60 days of the Record Date.
(9)Director Plan.
(7) Includes 33,77759,914 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted
under the Company's Amended and Restated 1995 Plan. Excludes 53,023 shares of Common Stock issuable
pursuant to options granted under the 1995 Plan which are not
exercisable within 60 days of the Record Date.
4
(10)(the "1995
Plan").
(8) Includes 13,28549,154 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted
under the 1995 Plan.
Excludes 25,315 shares of Common Stock issuable
pursuant to options granted under the 1995 Plan which are not
exercisable within 60 days of the Record Date.
(11)(9) Includes 14,12323,332 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted
under the 1995 Plan.
Excludes 24,377 shares of Common Stock issuable
pursuant to options granted under the 1995 Plan which are not
exercisable within 60 days of the Record Date.
(12)(10) Includes 9,62323,177 shares of Common Stock which may be purchased within 60
days of the Record DateFebruary 17, 1999 upon the exercise of stock options granted
under the 1995 Plan.
Excludes 21,877(11) Includes 15,818 shares of Common Stock issuable
pursuant towhich may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the 1995 Plan which are not
exercisable within 60 days of the Record Date.
(13)Plan.
(12) Includes 123,210184,620 shares of Common Stock which may be purchased by
officers and directors within 60 days of the Record DateFebruary 17, 1999 upon the
exercise of stock options granted under the 1995 Plan and 21,89629,412 shares
of Common Stock which may be purchased by directors within 60 days of
the Record DateFebruary 17, 1999 upon the exercise of stock options granted under the
Director Plan.
Excludes 204,190 shares of Common Stock issuable
pursuant to options granted under the 1995 Plan which are not
exercisable within 60 days of the Record Date and 27,716 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 provide for a Board of Directors divided into
three classes. The members of each class of directors serve for staggered
three-year terms. Messrs. Sheehan, OatesMr. Friedl and McDermottMs. Swersky are Class IIII directors whose terms
expire at the Annual Meeting of Stockholders. The Board of Directors is also
composed of (i) 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 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 2000.2000 and (ii) 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
2001.
The Board of Directors has nominated and recommended that Messrs.
Sheehan, OatesMr. Friedl
and McDermottMs. Swersky be elected Class IIII directors, to hold office until the Annual
Meeting of Stockholders to be held in the year 20012002 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 or not voted in accordance with
the judgment of the persons named as attorneys in the proxies.proxies with respect to
the vacancy created by that nominee's inability or unwillingness to serve.
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.ELECTION OF DONALD G. FRIEDL AND PHYLLIS S. SWERSKY
The following table sets forth the nominees to be elected at the Annual
Meeting and, for each director whose term of office will extend beyond the
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 the class of director
of each nominee and each director:
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 DirectorNOMINEE'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:
- ---------------------NOMINEES:
Donald G. Friedl (1996) Director 19992002 I
Phyllis S. Swersky (1996) Director 19992002 I
CONTINUING DIRECTORS:
Frank B. Condon, Jr. (1986) Director 2000 II
Robert B. Fraser (1996) Director 2000 II
Robert B. Fraser (1996)Kevin J. Sheehan (1990) Chairman, President, and 2001 III
Chief Executive Officer
James M. Oates (1995) Director 2000 II2001 III
Thomas P. McDermott (1995) Director 2001 III
6
OCCUPATIONS OF-6-
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
personthem with the
Company. The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full time
employee of the Company. There is no family relationship between any executive
officer or director of the Company.
Name Age PositionNAME AGE POSITION
- ---- --- --------
Kevin J. Sheehan 4647 Chairman of the Board, President and Chief Executive Officer
Michael F. Rogers 4041 Executive Vice President
Karen C. Keenan 3536 Senior Vice President, Chief Financial Officer and Treasurer
Robert D. Mancuso 3738 Senior Vice President--MarketingPresident - Marketing and Client ServicesManagement
Edmund J. Maroney 42 Senior Vice President - Technology
David F. Flynn 5152 Senior Vice President--Lending
Edmund J. Maroney 41President - Lending
Richard D. Bartoney 53 Senior Vice President--TechnologyPresident
Judy A. Murphy 37 Managing Director - Human Resources
John E. Henry 34 Managing Director, General Counsel and Secretary
James M. Oates 5152 Director
Thomas P. McDermott 6263 Director
Robert B. Fraser 6970 Director
Frank B. Condon, Jr. 6263 Director
Donald G. Friedl 6566 Director
Phyllis S. Swersky 4647 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. SheehanMR. 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. RogersMR. ROGERS has been Executive Vice President since September 1993, 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. KeenanMS. 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. MancusoMR. MANCUSO has been Senior Vice President--MarketingPresident - Marketing and Client
Management since 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-7-
MR. FLYNN has been Senior Vice President--LendingPresident - Lending since 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 ofat 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. MaroneyMR. MARONEY has been Senior Vice President--TechnologyPresident - Technology since July 1991.
Mr. Maroney served as a Systems Manager in the custody department prior to
becoming 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 ofat the Bank of New England.
MR. BARTONEY has been Senior Vice President since 1990. 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. Maroney holds a BachelorBartoney was Vice President at
the Bank of Science from The UniversityNew England.
MS. MURPHY has been Managing Director of Notre DameHuman Resources since September
1997. Prior to joining the Company, Ms. Murphy was Vice President - Human
Resources at Fidelity Investments.
MR. HENRY has been General Counsel of the Company since February 1996,
Secretary of the Company since January 1997 and a
MasterManaging Director since November
1998. Prior to joining the Company, Mr. Henry was an associate at the Boston law
firm of Science in Finance from the University of California-Los Angeles.
Mr. OatesTesta, Hurwitz & Thibeault LLP.
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-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 Funds.
Mr. McDermottMR. 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, New England Area of Ernst & Young from 1989 to
1993. Mr. McDermott is also a director of ACCION International and the Pioneer
Institute of Public Policy Research.
Mr. FraserMR. FRASER has been a director of the Company since June 1996. Mr. Fraser
was Chairman of the Boston law firm of Goodwin, Procter & Hoar LLP from 1984 to
1997 and serves as a director of several charitable organizations.
Mr. CondonMR. 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 was 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. FriedlMR. 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 currently serves as
a director of Classic Foods, Inc. and Custom Foods, Inc. Mr. Friedl also
serves on the Advisory Board of Internet Commerce Services Corp.
Ms. SwerskyMS. SWERSKY has been a director of the Company since February 1996. She has
been 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,
-8-
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 Company's capital stock entitled to elect such
director.vote in the
election of directors. A director may be removed without cause by a vote of at
least seventy-five percent (75%) of the shares of the Company's capital stock entitled
to elect
such director.
8
vote in the election of directors.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met twelve times during the fiscal year ended
December 31, 1997.1998. 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, discusses the scope and 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, audit
procedures and internal accounting and financial controls. The Audit Committee
met four times during the fiscal year ended December 31,1997.31,1998. 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, 1997.1998. 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 will consider
nominees recommended by stockholders. Any such recommendations should be
submitted in writing to the Secretary of the Company at the Company's principal
executive offices in accordance with the nominating procedures set forth in the
Company's by-laws. The Nominating Committee met one time during the fiscal year
ended December 31, 1997.1998. During 1997,1998, 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).
-9
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUITIVE 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, 1998, 1997 1996 and 19951996 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 $100,000 in fiscal 19971998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
--------------------------------------- -------------------------
RESTRICTED SECURITIES---------------------- ----------
ALL OTHER
NAME AND STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS(#) OPTIONS(#) ($)(2)
- ----------------------------------- ---- --------- -------------------------------------- -------- ----------- ---------- ---------- ----------------------
Kevin J. Sheehan...................Sheehan............. 1998 385,000 481,250 30,000 79,296
President; Chief Executive 1997 350,000 437,500 -- 30,000 39,520
President; Chief ExecutiveOfficer; Chairman 1996 300,000 411,000 -- 30,000 29,971
Officer; Chairman 1995 222,950 595,000 40,000 50,000 15,559
Michael F. Rogers..................Rogers............ 1998 302,500 302,500 25,000 28,032
Executive Vice President 1997 275,000 275,000 -- 25,000 15,421
Executive Vice President
1996 250,000 312,500 -- 25,000 9,964
1995 175,225 250,000 30,000 40,000 2,722
Edmund J. Maroney..................Maroney............ 1998 225,000 225,000 15,000 14,460
Senior Vice President - 1997 200,000 200,000 -- 15,000 4,635
Senior ViceTechnology 1996 175,000 218,750 -- 10,000 2,732
President--Technology 1995 145,000 125,000 10,000 15,000 694
Robert D. Mancuso..................Mancuso............ 1998 200,000 227,358(3) 15,000 5,847
Senior Vice President - 1997 180,000 210,326(3) -- 15,000 751
Senior Vice President--MarketingMarketing and Client 1996 155,000 162,000(3) -- 8,500 706
and Client Management 1995 125,000 67,208(3) 10,000 15,000 670
Karen C. Keenan.................... 1997 140,000 70,000 --Keenan.............. 1998 160,000 120,000 15,000 7005,005
Senior Vice President, Chief 1996 122,000 68,320 -- 7,500 6661997 140,000 70,000 15,000 700
Financial Officer and Treasurer 1995 91,900 25,0001996 122,000 68,320 7,500 10,000 656666
- ------------------------
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 officerNamed Executive Officer for 1998, 1997 1996 and
19951996 includes the dollar value ($520)4,800, $520 and $520, respectively) 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 ($449, $2406,704, $449 and $268)$240), Rogers ($353, $2402,623,
$353 and $240), Maroney ($1,389, $257 and $210), Maroney ($257, $210 and $174), Mancuso ($231, $1861,047, $231
and $150)$186) and Ms. Keenan ($180, $146205, $180 and $136)$146) in 1998, 1997 and 1996,
and 1995,
respectively. Finally, theThe amounts shown also include contributions to a
non-
qualifiednon-qualified supplemental retirement plan for Mr. Sheehan ($38,551, $29,21167,792,
$38,551 and $14,771)$29,211), Mr. Rogers ($14,548, $9,20420,609, $14,548 and $1,992)$9,204) and Mr.
Maroney ($3,858,
$2,0028,271, $3,858 and $0)$2,002) in 1998, 1997 1996 and 1995,1996,
respectively.
(3) Amounts shown represent commission payments made during 1998, 1997 1996 and
1995,1996, some of which payments relate to revenues generated in 1997, 1996
and 1995, and 1994,
respectively.
-10
OPTION GRANTS IN LAST FISCAL YEAR1998
The following table sets forth certain information regarding options to
purchase Common Stock granted during 19971998 by the Company to the Named Executive
Officers. The Company did not grant any stock appreciation rights in 1998.
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENTAGE RATES OF
NUMBER OF % OF TOTAL PERCENTAGE RATES OF STOCK
SECURITIESSHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------------------- -----------
NAME GRANTED (1) FISCAL YEAR ($/SHARE) (2) DATE 5% ($) 10% ($)
- --------------------------------------------- ----------- --------------- --------------- ----------- ----------------------- -------------- ---------- -------- -----------
Kevin J. Sheehan.........................Sheehan...... 30,000 17.95% 43.2512.64% 47.875 11/18/07 815,991 2,067,88116/08 903,250 2,289,013
Michael F. Rogers........................Rogers..... 25,000 14.96% 43.2510.53% 47.875 11/18/07 679,992 1,723,23416/08 752,708 1,907,511
Edmund J. Maroney........................Maroney..... 15,000 8.97% 43.256.32% 47.875 11/18/07 407,995 1,033,94016/08 451,625 1,144,506
Robert D Mancuso.........................Mancuso...... 15,000 8.97% 43.256.32% 47.875 11/18/07 407,995 1,033,94016/08 451,625 1,144,506
Karen C. Keenan..........................Keenan....... 15,000 8.97% 43.256.32% 47.875 11/18/07 407,995 1,033,94016/08 451,625 1,144,506
- ---------------
(1) Grants become exercisable in 48 equal monthly installments beginning on
November 18, 1997.16, 1998.
(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.exercised and the date on which the
underlying shares of Common Stock are sold. The potential realizable
value does not represent the Company's prediction of its future stock
price performance.
10
Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year-End Option Values-11
AGGREGATED OPTION EXERCISES IN 1998
AND OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth certain information regarding stock
optionsoption exercises by the Named Executive Officers in 1998 and the number and
value of the Named Executive Officers' unexercised stock options at December 31,
1997.1998.
NUMBER OF SECURITIES
UNDERLYING
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED IN-THE-MONEYOPTIONS AT
OPTIONS AT DECEMBER 31, OPTIONS AT
1997(#)1998(#) DECEMBER 31, 1997 ($1998($)(1)
-------------------------- --------------------------
VALUE(2)
SHARES ACQUIRED REALIZEDVALUE ------------------------------- ------------------------
NAME ON EXERCISE (#) REALIZED (1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------------- --------------- --------------- --------------- ----------- ------------- ----------- -------------
Kevin J. Sheehan.................... -- -- 37,080 72,920 976,240 1,177,510Sheehan...... 8,365 227,946 57,464 74,171 2,048,515 1,595,744
Michael F. Rogers................... 3,200 102,400 26,798 60,002 692,518 958,707Rogers..... 6,000 221,437 44,339 61,461 1,554,092 1,314,783
Edmund J. Maroney................... 1,400 43,225 10,264 28,336 258,030 383,171Maroney..... 2,500 111,875 18,388 32,712 604,271 631,292
Robert D. Mancuso................... -- -- 11,227 27,273 290,644 362,043Mancuso..... 1,000 35,875 20,476 32,024 702,132 608,244
Karen C. Keenan..................... 1,000 30,500 7,227 24,273 175,455 280,358Keenan....... 1,500 67,125 14,476 30,524 448,598 547,964
- ---------------------------------------
(1) Calculated as the difference between the fair market value of the
underlying Common Stock at the exercise date of the options and the
aggregate exercise price. Actual gains on stock option exercises depend
on the value of the underlying Common Stock on the date such Common
Stock is actually sold.
(2) 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,
19971998 ($46.0059.625 per share, the last reported sales price of the Company's
Common Stock on the Nasdaq National Market on December 31, 1997)1998)
multiplied by the number of shares underlying the option. The actual
gains, if any, on stock option exercises will depend on the future
performance of the Common Stock, the optionholder's continued
employment through the option period, the date on which the options are
exercised and the date on which the underlying shares of Common Stock
are sold.
STOCK PLANS
The Company currently has three stock ownership plans: the Amended and Restated
1995 Stock Plan, the Amended and Restated 1995 Non-Employee Director Stock
Option Plan and the 1997 Employee Stock Purchase Plan.
Amended and Restated 1995 Stock Plan
A description of the Company's Amended and Restated 1995 Stock Plan is
included under Proposal 2 below. A complete copy of the plan is attached as
Appendix A hereto.
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 is administered by the Board. The Director
Plan authorizes the grant of options for up to 100,000 shares of Common Stock.
As of the Record Date, options to purchase 49,612 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 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.
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 and approved by the 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 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 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. 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 last 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 last 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.
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. The Company sold 11,248
shares of Common Stock to employees under the 1997 Purchase Plan on
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.
BonusesBONUSES
The Company from time to time awards certain key employees bonuses
based on both individual and Company performance. The Company's 19971998 Bonus Plan
was put in place in December 19961997 and expired on December 31, 1997.1998. The plan
established a target level for 1997 net income1998 operating earnings per share 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 19971998 were made in the following amounts: Mr. Sheehan
$437,500;$481,250; Mr. Rogers $275,000;$302,500; Mr. Maroney $200,000;$225,000; Ms. Keenan $70,000;$120,000; and
all executive officers as a group $982,500.$1,361,000.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Kevin J. Sheehan,
Michael F. Rogers, Robert D. Mancuso, Edmund J. Maroney and Karen C. Keenan on
October 11, 1995, each with a term of three years subject to annual renewal and
earlier termination. These agreements currently have a term that expires on
December 31, 2001.
-12-
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--MarketingPresident -
Marketing and Client Management, Senior Vice President--SystemsPresident - Technology 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 defined 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
-13-
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.(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.(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 1997,1998, such 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
--------------------------------------------------------------------
REMUNERATIONYears of Service
-----------------------------------------------------------------------------------------------------
Remuneration 10 15 20 25 30 35
- ------------- --------- --------------------- ---------- ---------- ---------- ---------- ---------- ----------
$ 50,000$50,000 $ 8,000 $ 12,000$12,000 $ 16,000 $ 20,000 $ 21,875 $ 23,750
$ 100,000 $ 18,134 $ 27,201$100,000 $18,134 $27,201 $ 36,268 $ 45,335 $ 49,085 $ 52,835
$ 150,000 $ 28,884 $ 43,326$150,000 $28,884 $43,326 $ 57,768 $ 72,210 $ 77,835 $ 83,460
$ 200,000 $ 39,634 $ 59,451$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$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, 2425 years; Mr. Rogers, 1617 years; Mr.
Maroney, 12 years; Ms. Keenan, 910 years; and Mr. Mancuso, 56 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
-14-
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 19971998
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 1997,1998, the Compensation Committee set the terms for the 19981999
Bonus Plan, which is to be reviewed and updated annually. This plan established
a target level for net incomeoperating earnings per share for 19981999 and cash bonus pools
for executive officers based on achieving target levels. If 1998 net income
equals1999 operating
earnings per share equal 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 exceeds1999 operating earnings per share exceed the target level, additional
bonus amounts are available. No bonuses will be payable to executive officers if
1998 net
income is1999 operating earnings per share are less than or equal to 1997 net income.
15
1998 operating
earnings per share.
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 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 19971998 base salary for Mr. Sheehan, the Company's Chief Executive
Officer and President, was established by the Board of Directors in December
1996.1997. Under the terms of the 19971998 Bonus Plan, Mr. Sheehan's bonus eligibility
was set forth on a matrix under which Mr. Sheehan would receive no bonus if 19971998
operating earnings per share did not exceed 19961997 operating earnings per share.
Mr. Sheehan's bonus eligibility increased incrementally with each $.05 per share
by which 19971998 operating earnings exceeded 19961997 operating earnings. In accordance
with the terms of the 19971998 Bonus Plan, at the Company's operating earnings level
of $1.75$2.20 per share for 1997,1998, Mr. Sheehan was eligible for a bonus equal to 125%
of his 19971998 salary, or $437,500.$481,250. Accordingly, approximately 56% of his $787,500$866,250
in 19971998 cash compensation was based on corporate performance, specifically, the
Company's operating 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 believeBoard specifically noted the Company's successful
completion of two strategic acquisitions during 1998 and the Company's overall
performance under Mr. Sheehan.
In general, under Section 162(m) of the Internal Revenue Code which generally
disallows aof 1986,
as amended (the "Code"), the Company cannot deduct, for federal income tax
deduction forpurposes, compensation in excess of $1 million$1,000,000 paid to any
ofcertain executive
officers. This deduction limitation does not apply, however, to compensation
that constitutes "qualified performance-based compensation" within the executive officers appearing in the Summary Compensation Table above,
will have an effect on the Company. The Compensation Committee has considered
the requirementsmeaning
of Section 162(m) of the Code and the related regulations. Itregulations promulgated thereunder. The
Compensation Committee has considered the limitations on deductions imposed by
Section 162(m) of the Code, and it is the Compensation Committee's present
intention that, for so long as it is consistent with its overall compensation
objectives,objective, substantially all tax deductions attributable to executive
compensation will not be deductible for Federal income tax purposes.subject to the deduction limitations of Section 162(m)
of the Code.
-15-
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 DirectorsRESPECTFULLY 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.
16
COMPENSATION OF DIRECTORS
Employee directors do not receive cash compensation for their service
as members of the Board of Directors. Non-employeeFor 1998, non-employee directors receivereceived
an annual fee of $10,000 and an additional $1,000 for each meeting of the Board
of Directors they attended. During 1999, non-employee directors will receive
$1,100 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-
employeenon-employee director receives
automatic grants of options and is eligible to receive their annual fee in the
form of stock options. See "1995Proposal 2 "Approval of the Amended and Restated 1995
Non-Employee Director Stock Option Plan."
-16-
STOCK PERFORMANCE
The following graph compares the change in the cumulative total
stockholder return on the Company's Common Stock duringfor the period from the
Company's initial public offering on November 8, 1995 through December 31, 1997,1998,
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 Year1Year(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 12/31/97 12/31/98
------- -------- -------- -------- -------
Investors Financial Services Corp. .........Corp...... 100 125.76 168.36 279.45 362.76
Nasdaq Stock Market Index ..................Index.............. 100 100.58 123.71 151.80123.68 151.74 213.30
Nasdaq Financial Stocks Index ..............Index.......... 100 105.02 134.63 206.62205.66 198.99
- ------------
(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.
-17-
PROPOSAL 2
APPROVAL OF THE AMENDED AND RESTATED 1995 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
The 1995 Non-Employee Director Stock Option Plan was adopted by the
Board of Directors and approved by the Company's sole stockholder in October
1995 Stockand subsequently amended and restated and approved by the stockholders of
the Company in 1997. The Director Plan provides for the grant of options to
purchase a maximum of 100,000 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 tonon-employee directors officers, employees and consultants
of the Company. The Board of Directors has approved and recommended to the
stockholders that they approve Thethe Amended and Restated 1995 StockNon-Employee
Director Plan (the "1995 Plan") which
increasescontaining the numberamendments set forth below.
THE AMENDMENTS
The Director Plan, as amended, will allow non-employee directors to pay
for the exercise price of vested options through the surrender of shares of
Common Stock available for issuance underalready owned by the 1995director. As amended, the Director Plan from 560,000also
provides that shares to 1,160,000 shares.
Since August 1995, whenof Common Stock surrendered in payment of the 1995 Stock Plan was originally approved,exercise
price are added back into 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 thetotal number of shares available for grant under
the 1995 plan.Director Plan. Therefor, only the net number of shares issued upon such an
exercise are counted against the number of shares issued under the Director
Plan. For example, if a director exercises options to purchase 300 shares of
Common Stock and pays the exercise price by delivering 200 shares of Common
Stock, only the net 100 shares are counted as being issued under the Director
Plan.
The proposed amendments also provide for the automatic grant of
"reload" options when a non-employee director exercises options using the
surrender of shares method. The new "reload" stock option will:
- be an option to purchase the number of shares paid to
the Company as the exercise price for the exercise of
the original stock option
- have a per share exercise price equal to the fair
market value of the Common Stock as of the date of
exercise of the original stock option
- be immediately exercisable and have a term of ten
years from the date of the original stock option
- otherwise have the same terms and conditions as the
original stock option, except that it will not
provide for the automatic grant of additional reload
stock options upon its exercise
Finally, the amendments to the Director Plan provide for two changes to
the provisions regarding the term of option agreements. First, the Director
Plan, as amended, states that option grants after January 12, 1999 shall have a
term of ten years from the date of grant, an increase from the previous
five-year term. Second, the Director Plan provides that if a non-employee
director ceases to be a member of the Board for any reason other than death or
permanent disability, any outstanding option shall remain exercisable until the
scheduled expiration date of the option. The Director Plan previously provided
that all such vested options would terminate 90 days after cessation of Board
membership. Such option shall remain exercisable, however, only to the extent
the option was exercisable at the time the director ceased to be a member of the
Board.
The Company relies on stock options as anthe essential part of the
compensation package necessary for the Company to attract and retain qualified
and experienced key
employees. Thenon-employee members of its Board of Directors believes thatDirectors. Non-employee
directors receive a grant of options to purchase 2,500 shares of Common Stock at
the proposed increasefair market value on the date of grant upon their initial election to the
Board and upon each one-year anniversary of their election. Non-employee
directors also receive an annual cash retainer of $10,000 plus 1,100 for each
meeting attended.
Surrendering shares of Common Stock in payment of the exercise price
allows non-employee directors to purchase and hold shares without having to
raise cash or, as is common, immediately sell the option shares in a cashless
exercise in order to pay the exercise price. In addition, the grant of the
reload option encourages non-employee directors to exercise and hold shares of
Common Stock because they can continue to participate in future appreciation in
the numberprice of shares available under the 1995 Plan is essentialCommon Stock without the reduction in their stock ownership
that would otherwise
-18-
occur when they paid to permit the Company the shares of Common Stock representing the
exercise price. These provisions encourage non-employee directors to continue to provide long-term, equity based incentives to presentexercise
their options, and future key employees.own shares of Common Stock outright, earlier in the option
term. Continued ownership of Common Stock by non-employee directors aligns the
interests of those directors with the interests of the Company's stockholders.
Accordingly, the Company and the Board believe, therefore, that these amendments
are in the best interest of both the Company and its stockholders.
DESCRIPTION OF THE DIRECTOR PLAN
The complete text of the Amended and Restated 1995 Non-Employee
Director Stock Option Plan, as amended (the "Director Plan"), is attached hereto
as AppendixAPPENDIX A and the following discussion is qualified in its entirety by the
full text of the 1995Director 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 1995Director 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 Compensation Committee (the
"Committee")currently administers the Director Plan.
The Director Plan authorizes the grant of options for up to 100,000
shares of Common Stock. As of the Board. SubjectRecord Date, options to purchase 66,940 shares
of Common Stock had been granted under the termsDirector 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. If an optionee uses shares of
Common Stock to pay the 1995 Plan, the Committee
has the authority to determine the persons to whom Stock Rights are granted,exercise price of an option, only the number of shares
covered by each Stock Right, theissued net of shares tendered in payment of such exercise price per shareshall be deemed
to be issued for the purposes of determining the maximum number of shares
available under the Director Plan.
The Director Plan authorizes the grant to each director who is not an
employee of the Company and other terms and provisions governing Stock Rights, including restrictions, if
any, applicablewho is first elected as a director after the date of
the Company's initial public offering, an option to thepurchase 2,500 shares of
Common Stock issuable throughon the date of such Stock Right.
18
However, no employee may be granted Options treated as ISOsdirector's first election to the extent
that ISOs become exercisable forBoard. Each
non-employee director will also receive, on each one-year anniversary of such
director's first election to the first time by such optionee during any
calendar year with respectBoard, an option 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
448,000purchase 2,500 shares of
Common Stock, underprovided that such director has continuously served on the Plan. The interpretation and
constructionBoard
during such one-year period.
In addition to the automatic grant of options described above, the
Director Plan, as amended, 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 Committee of any provisionCompany no less than six-months prior to the scheduled payment
of the 1995 Plancash 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 any
Stock Right granted under the 1995 Plan is final unless otherwise determinedeach
calendar quarter. The total number of shares of stock to be covered by the
Boardoption is equal to the quotient obtained by dividing the cash retainer scheduled
to be paid on such date by the value of Directors.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.
If an optionee makes payment for the exercise of an option granted
hereunder through the delivery to the Company of shares of Common Stock, Rights maysuch
optionee shall be granted underautomatically a new "reload" stock option. Such new
"reload" stock option shall (i) be an option to purchase the 1995 Plan at any time priornumber of shares
paid to August
1, 2005.the Company as the exercise price for the exercise of the original stock
option, (ii) have a per share exercise price equal to the fair market value of
such shares as of the date of exercise of the original stock option, (iii) be
immediately exercisable and have a term of ten years from the date of the
original stock option, and (iv) otherwise have the same terms and conditions as
the original stock option, except that it will not provide for the automatic
grant of additional reload stock options upon its exercise.
-19-
The exercise price per share of ISOs cannot be less thanoptions granted under 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%Director Plan
is 100% of the fair market value of the Company's Common Stock on the date of grant).the
option is granted. The exercise price is subject to adjustment for Non-Qualifiedchanges in
capitalization. The Director Plan requires that options granted thereunder will
expire on the date which is ten years from the date of grant. Options andgranted
prior to January 12, 1999 expire on the purchase price per sharedate which is five years from the date
of Common Stockgrant. 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 and reload options vest immediately.
Subject to the terms and conditions of the Director Plan, an awardoption
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 by cash, check,
surrender of shares of Common Stock or, grantconsistent with applicable law, through
the delivery 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 a sufficient amount of the
proceeds from the sale of the Common Stock acquired upon exercise of the Optionoption
and an authorization ofto the broker or selling agent to pay that amount to the
Company.
OnlyIf an optionee ceases to be a member of the grantee may
exerciseBoard for any reason other
than death or permanent disability, any unexercised portion of an option to the
extent vested remains exercisable until the scheduled expiration date of the
option. In the event that an optionee ceases to be a Stock Right; no assignmentmember of the Board by
reason of his or transfers are permitted excepther 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.
If an ISO optionee ceases to be employeddistribution and
is exercisable during the optionee's lifetime only by the Company other than by reason
of deathhim or disability, no further installments of his or her ISOs will become
exercisable,her. Option holders
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. 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, to the 1995 Plan, certain of which are subject to stockholdershareholder approval, and the Board may
terminate the 1995Director Plan at any time, (althoughalthough such action shall not affect
Stock Rightsoptions 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 1995Director 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 ISOsoptions under the 1995 Plan:Director Plan.
1. In general, no taxable income results toOptions granted under the optionee upon the grant
of an ISO or upon the issuance of shares to him or her upon the exerciseDirector Plan do not qualify as
"Incentive Stock Options" under Section 422 of the ISO, and no tax deduction is allowed to the Company upon either grant or
exercise of an ISO.Code.
2. If shares acquired upon exercise of an ISO areA Director will 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 realizerecognize any taxable income upon the
grant of an option under the Director Plan (provided that the option
does not have a Non-Qualified Option, and the Company is not allowed a business
expense deduction by reason of such grant.
20
2. The optioneereadily ascertainable fair market value), but will
generally will recognize ordinary compensation income at the time of
exercise of the Non-Qualified Optionoption 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.
The Company may be required to withhold
income tax on this amount.
3. When the optioneea director sells the sharesCommon Stock acquired through theupon
exercise of a Non-Qualified Option,an option, he or she generally will recognize a capital
gain or loss in an amount equal to the difference between the amount realized upon
the sale of the sharesstock and his or her basis in the stock (generally,(in the case of a
cash exercise, the exercise price plus the amount, if any, taxed to the
optioneedirector as compensation income)income as a result of his or her exercise of
the option). If the optionee'sdirector's holding period for the sharesstock exceeds one1
year, suchthe gain or loss will be a long-term capital gain or loss.
An optionee may
-20-
4. Generally, upon any grant or exercise of an option in which
a director does not recognize compensation income, no tax deduction
will be allowed to the Company. When a director recognizes compensation
income as a result of the exercise of an option under the Director
Plan, the Company generally will be entitled to a reduced long-term capital gain rate if the holding periodcorresponding
deduction for the shares exceeds 18 months.
4. The Company generally should be entitled to aincome tax deduction when
compensation income is recognized by the optionee.purposes.
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 optionee 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 Optionan option is subject to vesting or is subject to
certainresale 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 fair 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 sold, the seller
generally will recognize capital gain or loss. Special rules apply if the
stock acquired is subject to vesting, or is subject to certain restrictions
on resale under federal securities laws applicable to directors, officers or
10% stockholders.directors.
Approval of the Amended and Restated 1995 Non-Employee Director Stock
Option Plan 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 PROPOSAL TO APPROVE THE AMENDED AND RESTATED
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
PROPOSAL 3
APPOINTMENTRATIFICATION OF SELECTION 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, 1998.1999. 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 meetingAnnual 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, 19971999 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.THE SELECTION OF DELOITTE & TOUCHE LLP.
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, 1997,1998,
the Company believes that all Reporting Persons complied with all Section 16(a)
filing requirements in the period ended December 31, 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.1998.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement
to be furnished to all stockholders 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, 1998.November 5, 1999 nor earlier than September 5,
1999. Proposals of stockholders not intended for inclusion in the proxy
statement must be received at the Company's principal executive offices not
later than November 5, 1999 nor earlier than September 5, 1999 to be properly
brought before
-21-
the next Annual Meeting of Stockholders of the Company. All stockholder
proposals must comply with the applicable requirements of the Company's by-laws.
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: Corporate Secretary.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and
in addition to soliciting stockholders 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 stockholders in person or by mail, telephone or telegraph following the
original solicitation.
22
AppendixAPPENDIX A
INVESTORS FINANCIAL SERVICES CORP.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDED AND RESTATED AS OF JANUARY 12, 1999
1. PURPOSE. This Non-Qualified Stock Option Plan, to be known as the 1995
STOCK PLAN
1. Purpose. The purpose of the Investors Financial Services Corp. 1995Non-Employee Director Stock Option Plan (the(hereinafter, this "Plan") is intended
to encourage key employeespromote the interests of Investors Financial Services Corp. (the(hereinafter, the
"Company") by providing an inducement to obtain and retain the services of
any presentqualified persons who are not employees or future parent or subsidiaryofficers of the Company (collectively, "Related Corporations") and other individuals who render
services to the Company or a Related Corporation, by providing opportunities to
participate in the ownershipserve 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, of the Company (the "Common Stock") for which options may be
granted under this Plan shall not exceed 100,000 shares, subject to adjustment
in accordance with paragraph 12 of this Plan. Shares subject to this Plan are
authorized but unissued shares or shares that were once issued and its future growth through (a)subsequently
reacquired by the grantCompany. 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. If, in
accordance with the Plan, an optionee uses shares of options which qualify as "incentivecommon stock options" ("ISOs") under
Section 422(b) of the Internal Revenue CodeCompany
to pay the exercise price of 1986, as amended (the "Code");
(b)an Option, only the grantnumber of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awardsshares issued net of
stockshares tendered in payment of such exercise price shall be deemed to be issued
for purposes of determining the Company ("Awards"); and (d) opportunities to make
direct purchasesmaximum number of stock in the 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 the
Code.
2. Administration ofshares available under the
Plan.
A. Board or Committee Administration. The3. ADMINISTRATION. This Plan shall be administered by the Board of Directors of the Company (the "Board") or by a
committee appointed by the Board (the "Committee"); provided that. In the Planevent the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be administered: (i)deemed 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 if noBoard. The Committee has been appointed. Subject to ratification of
the grant or authorization of each Stock Right by the Board (if so
required by applicable state law), andshall,
subject to the terms of the Plan,
the Committee shall have the authority to (i) determine to whom (from
among the class of employees eligible under paragraph 3 to receive ISOs)
ISOs shall be granted, and to whom (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
byhave the Board. The Committee may from timepower to timeconstrue this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for carrying out the administration of this Plan as it may deem advisable.desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to thethis Plan or any Stock
Rightoption granted
under it.
B. 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 Stock Rights to Board Members.4. AUTOMATIC GRANT OF OPTIONS. Subject to the provisionsavailability of the 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 membersshares under
this Plan, (a) each person who is or becomes a member of the Board and who is
not an employee or officer of the Company (a "Non-Employee Director") shall 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 all other respectslieu of his or her cash retainer, options to acquire shares of
Common Stock. The Election must be madein 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. RELOAD OPTIONS. If an optionee makes payment for the exercise of an
option granted hereunder through the delivery to the Company of shares of the
Company's Common Stock pursuant to paragraph 11(b) of this Plan, such optionee
shall be granted automatically a new "reload" stock option. Such new "reload"
stock option shall (i) be an option to purchase the number of shares provided as
consideration for the exercise price in connection with the exercise of the
original stock option, (ii) have a per share exercise price equal to the fair
market value of such shares as of the date of exercise of the original stock
option, (iii) be immediately exercisable and have a term of ten years from the
date of the original stock option, and (iv) otherwise have the same terms and
conditions as the original stock option, except that it will not provide for the
automatic grant of additional reload stock options upon its exercise.
7. 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
adjustment in accordance with the provisions of paragraph 12 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 13. 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 Common 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, 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,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. IfMarket 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, if the Common
Stock is not publicly traded at the time an Optionoption is granted under the Plan,
"fair market value" shall meanbe deemed to be 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. Option Duration. Subject to earlier termination as provided8. PERIOD OF OPTION. Unless sooner terminated in paragraphs
9 andaccordance with the
provisions of paragraph 10 or in the agreement relating to such Option, each Optionof this Plan, an option granted hereunder shall
expire on the date specified bywhich is ten (10) years after the Committee, butdate of grant of the
option. Notwithstanding, options granted prior to January 12, 1999 shall expire
on the date which is five (5) years after the date of grant.
9. (a) VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS. Options
granted under this Plan shall not more than (i) ten yearsbe 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 that the optionee has continuously served as a member of
the Board through such vesting date. Options granted under Section 5 of this
Plan shall vest in the case of Options generallyoptionee 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 total 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 12,
each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fullythus become exercisable on the date of
grant orgrant.
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable thereafter in such installments as the Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
exercisableto any shares it
shall remaincontinue to be exercisable as to said shares, until expiration or
termination of the Option, unless otherwise specifiedoption as provided in this Plan.
(b) NON-TRANSFERABILITY. Any option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
-3-
10. TERMINATION 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; and 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 shall remain exercisable until the scheduled
expiration date of the option.
(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 optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the Committee.
3
C. Partial Exercise. Each Optionoptionee
(or by the optionee's personal representative, heir or installment maylegatee, in the event of
death) until the scheduled expiration date of the option.
11. EXERCISE OF OPTION. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercised at
any time or from time to time,exercisable in whole or in part for upby giving written notice to the
totalCompany by mail or in person addressed to the Company, at its principal
executive offices, stating the number of shares with respect to which itthe option
is then exercisable.
D. Accelerationbeing exercised, accompanied by payment in full for such shares. Payment may
be (a) in United States dollars in cash or by check, (b) through delivery of
Vesting. The Committee shall have the right to
accelerateshares 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) 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 any installmentamount to the Company, which sale shall be at the participant's
direction at the time of any Option becomes
exercisable; provided thatexercise, or (d) at the discretion of the Committee, by
any combination of (a), (b) and (c) above. There shall not, withoutbe no such exercise at
any one time as to fewer than one hundred (100) shares or all of the consentremaining
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 behalf of
an optionee, accelerate the permitted exercise date of any installment
of any Option granted to any employee as an ISO (and not previously
converted intoCompany, prepare a Non-Qualified Optioncertificate or certificates representing such shares
acquired pursuant to paragraph 16) if such
acceleration would violate the annual vesting limitation contained in
Section 422(d)exercise of the Code,option, shall register the optionee as described in paragraph 6(C).
9. Terminationthe
owner of Employment. Unless otherwise specified insuch shares on the agreement
relating to such ISO, if an ISO optionee ceases to be employed bybooks of the Company and all Related Corporations other thanshall cause the fully
executed certificate(s) representing 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 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,option, except to the extent that one or more certificates for
such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. For purposes of this paragraph 9, employmentshares shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributabledelivered 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 onupon 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 datedue exercise 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 by the
grantee except by will, by the laws of descent and distribution or, in the case
of Non-Qualified Options only, pursuant to a valid domestic relations order.
Except as set forth in the previous sentence, during the lifetime of a grantee
each Stock Right shall be exercisable only by such grantee.option.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform 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 Common Stock issuable upon exercise of
Options. The Committee may specify that any Non-Qualified Option shall be
subject to the restrictions set forth herein with respect to ISOs, or to such
other termination and cancellation provisions as the Committee may determine.
The Committee may from time to time confer authority and responsibility on
one or more of its own members and/or one or more officers of the Company to
execute and deliver such instruments. The proper officers of the Company are
authorized and directed to take any and all action necessary or advisable
from time to time to carry out the terms of such instruments.
13. Adjustments.ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER EVENTS. Upon the
occurrence of any of the following events, an optionee's rights with respect to
Optionsoptions granted to such optioneehim or her hereunder shall be adjusted as hereinafter
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.provided:
(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. Consolidations or Mergers.(b) RECAPITALIZATION ADJUSTMENTS. 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, (an
"Acquisition"), the Committee or the board of directors of any entity
assuming the obligationseach option
granted under this Plan which is outstanding but unvested as of the
Company 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 theeffective date of such notice, at the end of which period the Optionsevent shall terminate; or (iii) terminate all Optionsbecome exercisable in exchange for a cash
payment equalfull 15 days
prior to the excesseffective date of the fair market value of the shares
subject to such Options (to the extent then exercisable) over the
exercise price thereof.
C. Recapitalization or Reorganization.event. In the event of a
reorganization, recapitalization, merger, consolidation, or reorganizationany other
change in the corporate structure or shares of the Company, (other than a
transaction describedto the extent
permitted by Rule 16b-3 under the Securities Exchange Act of 1934,
adjustments in subparagraph B above) pursuantthe 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 which
securitiesmaintain the
proportionate interest of the Company oroptionee and preserve, without exceeding,
the value of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Optionsuch option, shall be 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.made. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOsno
such adjustment shall be made only afterwhich would, within the Committee, after consulting with counsel formeaning of any
applicable provisions of
-4-
the Company, determines whether such adjustments would constitute a
"modification"Internal Revenue Code of such ISOs (as that term is defined in Section 424 of
the Code) or would cause any adverse tax consequences for the holders of
such ISOs. If the Committee determines that such adjustments made with
respect to ISOs would1986, as amended, constitute a
modification, extension or renewal of such ISOsany Option or would
cause adverse tax consequencesa grant of
additional benefits to the holders, it may refrain from making
such adjustments.
E. Dissolution or Liquidation. In the eventholder of 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.an Option.
(c) 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 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.
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.(d) 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 paragraphparagraphs
2, 4, hereof5 and 6 of this Plan that are subject to Stock Rightsoptions which previously
have been or subsequently may be granted under thethis Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.events. The Committee or the Successor Board shall determine
the specific adjustments to be made under this paragraph 1312 and subject to
paragraph 2, its
determination shall be conclusive.
14. Means13. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the provisions of
Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent asparagraphs 4, 5, 6 and 12 of this Plan, the Company shall designate. Such notice shall identify the Option being exercised and specify the
number of shares ashave no obligation to
which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cashdeliver any certificate 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 less 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 the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquiredcertificates upon exercise of an option until one of
the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which salefollowing conditions shall be atsatisfied:
(i) The issuance of shares with respect to which the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, 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 beoption has been
exercised in writingis at the time of the grantissue of such shares effectively
registered under applicable Federal and state securities laws as now 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.
14. LEGEND ON CERTIFICATES. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to 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 ISO in question. The holderSecurities Act of
an Option1933 or any state securities laws.
15. REPRESENTATION OF OPTIONEE. If requested by the Company, the optionee
shall not
have the rights of a shareholder with respectdeliver 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 covered by such
Option untilunder 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 beoption is made for dividends or similar rights for whichinvestment and not with a
view to their distribution (as that term is used in the record date is before the date such
stock certificate is issued.
15. Term and AmendmentSecurities Act of Plan. This Plan was adopted by the Board on August
15, 1995, subject, with respect to the validation of ISOs1933).
16. OPTION AGREEMENT. Each option granted under the provisions of this
Plan to approval of the Planshall be evidenced by the stockholdersan option agreement, which agreement shall be duly
executed and delivered on behalf of the Company atand by the next
Meeting of Stockholders or, in lieu thereof,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 written consent. If the approval
of stockholders is not obtained prior to August 15, 1996, any grants of ISOsofficer
executing it.
17. TERMINATION AND AMENDMENT OF PLAN. Options may no longer be granted
under thethis Plan made prior to that date will be rescinded. Theafter October 1, 2005, and this Plan shall expireterminate 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 endBoard may not,
without approval by the affirmative vote of the dayholders of a majority of the
shares of Common Stock present in person or by proxy and voting on August 1, 2005 (except as to Options outstanding on
that date). Subject tosuch matter
at a meeting, (a) increase the provisionsmaximum number of paragraph 5 above, Optionsshares for which options may be
granted under thethis Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13);Section 12), (b)
the benefits
accruing to participants under the Plan may not be materially increased; (c)modify the requirements as to eligibility for participationto 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-
-5-
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 materially modified; (d)amended more than
once every six months, other than to comport with changes in the provisionsInternal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder. Termination or any modification or amendment of paragraph 3 regarding eligibility for
grants of ISOs maythis Plan shall 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 cause 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 Board
or stockholders alter or impair the rightswithout consent of a grantee, without such grantee's
consent,participant, affect his or her rights under any Optionan option
previously granted to such grantee.
6
16. Conversion of ISOs into Non-Qualified Options. The Committee, at the
written requesthim 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 date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company 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 appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
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 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 Committee takes appropriate action.
17. Application Of Funds. The proceeds received by the Company from the sale
of shares pursuant to Options granted and Purchases authorized under the Plan
shall be used for general corporate purposes.her.
18. Notice to Company of Disqualifying Disposition. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the 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.WITHHOLDING OF INCOME TAXES. Upon 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 vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities,option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
withholdrequire the optionee to pay withholding taxes in respect of amounts that constituteconsidered
to be compensation includible in the optionee's gross income.
The Committee19. COMPLIANCE WITH REGULATIONS. It is the Company's intent that the Plan
comply in its discretion may
condition (i)all respects with Rule 16b-3 under the exerciseSecurities Exchange Act of an Option, (ii) the grant1934
(or any successor or amended provision thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash or
by check of the amount of the withholding taxes or, at the discretion of the
Committee, by the grantee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
20. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan
is subjectdeemed not to be in compliance with Rule 16b-3, the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company mayprovision shall be required to
send tax information statements to employeesnull
and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. Governing Law.void.
20. GOVERNING LAW. The validity and construction of thethis Plan and the
instruments evidencing Optionsoptions shall be governed by the laws of the Commonwealth
of Massachusetts, orwithout giving effect to the lawsprinciples of any jurisdiction in whichconflicts of law
thereof.
6461
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
WITHHOLD
AUTHORITY TO
VOTE FOR ALL
FOR ALL NOMINEES NOMINEES LISTED
LISTED ON REVERSE ON REVERSE
1. To elect two (2)
Class 1 Directors.
See reverse side / / / /
for instruction.
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve the Company or its
successors in interest may be organized.
7Company's Amended
and Restated 1995 Non-Employee / / / / / /
Director Stock Option Plan.
FOR AGAINST ABSTAIN
3. To ratify the selection of
Deloitte & Touche LLP as auditors
for the fiscal year ending / / / / / /
December 31, 1999.
(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
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 14, 1998,13, 1999, at 11:00 a.m. at the Company's
offices at 200 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, 1998,1999, a copy of which has been received by
the undersigned.
The nominees for Class IIII Director are:
Kevin J. Sheehan, James M. OatesPhyllis S. Swersky and Thomas P. McDermottDonald G. Friedl
INSTRUCTION: To withhold your vote for any individual nominee, write that
nominee'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 HEREside)