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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / 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 requiredrequired.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-110-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(5) Total fee paid:
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/ / 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:
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(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
18, 200017, 2001 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 two (2)three (3) Class IIIII directors, each to serve for a
three-year term and until his successor is elected and
qualified.
2. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
the Company's Common Stock.Stock from 40,000,000 to 100,000,000.
3. To approve anthe amendment toand restatement of the Company's
Certificate of
Incorporation to decrease the number of affirmative votes
necessaryAmended and Restated 1995 Stock Plan to increase the number of
authorized shares ofavailable for grant pursuant to the Company's Common Stock.plan from 4,640,000
to 6,140,000.
4. To approve the Senior Executive Bonus Plan.
5. To ratify the selection of Deloitte & Touche, LLP as
independent auditors for the fiscal year ending December 31,
2000.
5.2001.
6. 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 24,
200022,
2001 are entitled to receive 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 previously returned
a proxy.
By Order of the Board of Directors
John E. Henry
Secretary
Boston, Massachusetts
March 10, 200019, 2001
INVESTORS FINANCIAL SERVICES CORP.
200 CLARENDON STREET
BOSTON,Clarendon Street
Boston, MA 02116
-----------------
PROXY STATEMENT
-----------------
MARCH 10, 200019, 2001
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 18, 2000,17, 2001, 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 24,
200022,
2001 will be entitled to receive notice of and to vote at the Annual Meeting and
any adjournments thereof. As of that date, _____________31,703,139 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 consolidated financial
statements for the fiscal year ended December 31, 1999,2000, 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 10, 2000.19, 2001.
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.
In addition to the election of directors, the stockholders will
consider and vote upon proposals to (i) approve an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock from 40,000,000 to 100,000,000; (ii) approve the
amendment and restatement of the Company's Amended and Restated 1995 Stock Plan
(the "1995 Plan") to increase the number of shares available for grant pursuant
to the plan from 4,640,000 to 6,140,000, (iii) approve the Senior Executive
Bonus Plan, and (iv) 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 shares represented by the
proxy will be voted in accordance with the specifications and will be voted FOR
if no specification is indicated.
The representation in person or by proxy of at least a majority of the
outstanding shares of 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, as well as abstentions and broker "non-votes" with respect to
all other matters being submitted to stockholders, 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 the other proposal, the nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
On Proposal 1 - 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 each of Proposal 2 - Approval of an
amendment to the Company's
Certificate of Incorporation to increase the
number of authorized shares of the Company's Common Stock, and Proposal 3 -
Approval of an amendment to the Company's Certificate of Incorporation to
decrease the number of affirmative votes necessary to increase the number of authorized shares of the
Company's Common Stock, an affirmative vote of seventy-five percent (75%)a majority of the voting powershares
outstanding is required for approval. On each of allProposal 3 - Approval of an
amendment and restatement of the then outstanding
shares1995 Plan, Proposal 4 - Approval of the capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class. OnSenior
Executive Bonus Plan, and Proposal 45 - Ratification of Selection of Auditors, an
affirmative vote of a majority of the shares present or represented and voting
on 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
considered not considered to have been voted for a particular matter. For Proposal 1,
abstentions and broker "non-votes" will have no effect. For Proposal 2,
and Proposal 3, abstentions and broker "non-votes" will have the practical effect of votes "against."a "No"
vote. For Proposal 3, Proposal 4 and Proposal 5, abstentions and broker
"non-
votes""non-votes" will 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 an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock; (ii) approve an amendment to the Company's Certificate
of Incorporation to decrease the number of affirmative votes necessary to
increase the number of authorized shares of the Company's Common Stock; and
(iii) ratify the selection of auditors, each as further described in this proxy
statement. The persons named as attorneys-in-fact in the proxies are officers of
the Company. All properly executed proxies returned in time to be counted at the
meeting will be voted. Where a choice has been specified on the proxy with
respect to the foregoing matters, the shares represented by the proxy will be
voted in accordance with the specifications and will be voted FOR if no
specification is indicated.
The Board of Directors knows of no other matters to be presented at the
meeting. If any other matter should be presented at the meeting upon which a
vote properly may be taken, shares represented by all proxies received by the
Board of Directors will be voted with respect thereto in accordance with the
judgment of the persons named as attorneys-in-fact in the proxies.
On February 16, 1999, the Board of Directors of the Company declared a two-for-one
stock split in the form of a 100% stock dividend payable March 17, 1999 to
stockholders of record on March 1, 1999. On May 15, 2000, the Board of Directors
declared a two-for-one stock split in the form of a 100% stock dividend payable
June 15, 2000 to stockholders of record on May 31, 2000. Share numbers in this
proxy statement have been restated to reflect the two-for-onethese stock split,splits, where
applicable.
2
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 24, 2000:22, 2001: (i) by each
person who, to the knowledge of the Company, beneficially owned 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 executive 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 CLASS*Name and Address Amount and Nature Percent
of Beneficial Owner of Ownership of Class**
- ------------------- ------------------ ----------
Entities associated with
The Northwestern
Mutual Life Insurance CompanyOakmont Corporation (1) ............................ 1,051,200
720 East Wisconsin Avenue
Milwaukee, WI 53202
Entities associated with
The TCW Group, Inc (2) ....................................... 963,499...................................... 1,925,598 6.5%
865 South Figueroa Street
Los Angeles, CA 90017
Entities associated with
PNC Bank Corp. (3) ........................................... 760,205
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15265
Frank B. Condon, Jr. (4)(2)...................................... 55,838 *
Robert B. Fraser (5)(3).......................................... 36,891 *
Donald G. Friedl (6)(4).......................................... 20,260 *
Thomas P. McDermott (7)(5)....................................... 47,830 *
James M. Oates (8)(6)............................................ 101,460 *
Phyllis S. Swersky (9)(7) ....................................... 16,110 *
Kevin J. Sheehan (10).........................................(8).......................................... 1,224,600 3.9%
Michael F. Rogers (11)........................................(9)......................................... 735,042 2.3%
Edmund J. Maroney (12)(10)........................................ 265,465 *
Robert D. Mancuso (13)(11)........................................ 266,110 *
Karen C. Keenan (14)(12).......................................... 221,727 *
All executive officers and directors
as a group (15(12 persons) (15).......(13) ................................. 3,040,165 9.6%
- ------------------
* Less than 1%
3
** Percentage ownership is based upon _____________31,703,139 shares of Common Stock
outstanding as of February 24, 2000.22, 2001. Shares of Common Stock that may be
acquired by a listed person within 60 days of February 24, 200022, 2001 are
deemed outstanding for purposes of computing the number of shares of
Common Stock owned by thethat 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) 492,400 shares held by The Northwestern Mutual Life
Insurance Company, (ii) 126,300 shares held by The Northwestern Mutual
Life Insurance Company Group Annuity Separate Account, (iii) 386,300
shares held by the Growth Stock Portfolio and 15,800 shares held by the
Small Cap Aggressive Growth Stock Portfolio of The Northwestern Mutual
Series Fund, Inc., a wholly-owned subsidiary of The Northwestern Mutual
Life Insurance Company, (iv) 4,500 shares held by the Asset Allocation
Fund, 21,100 shares held by the Aggressive Growth Stock Fund and 3,100
shares held by the Small Cap Growth Stock Fund of Mason Street Funds,
Inc., an affiliate of The Northwestern Mutual Life Insurance Company,
and (v) 1,700 shares held by Northwestern Long Term Care Insurance
Company, a wholly-owned subsidiary of 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 January 27,
2000.
(2) Includes amounts held by Robert Day and Oakmont Corporation.Day. All of the
above-referenced securities1,925,598 shares may be
deemed to be beneficially owned by Robert Day who may be deemed to
control The TCW Group, Inc. and other
entities which hold the above-referenced securities.Oakmont Corporation. Information with respect to The TCW Group, Inc.,Oakmont
Corporation and Robert Day and Oakmont Corporation is derived from the Schedule 13G13G/A filed
jointly by The TCW Group, Inc., Robert Day and Oakmont Corporation with
the Securities and Exchange Commission on or about
3
February 14, 2000. [Mr.2001. Mr. Day disclaims beneficial ownership with respect
to 763,4991,511,598 shares, of the
above-referenced securities, and the reporting herein of such securitiesshares shall not
be construed as an admission by Mr. Day that Mr. Day is the beneficial
owner thereof for purposes of Section 16 of the Securities Exchange Act
of 1934 or for any other purpose.]
(3)
(2) Includes amounts held by PNC Bancorp, Inc., PNC Bank, NA, Blackrock
Advisors, Inc. and Blackrock Financial Management, Inc. Information
with respect to entities associated with PNC Bank Corp. is derived from
the Schedule 13G filed by PNC Bank Corp. with the Securities and
Exchange Commission on or about February 11,2000.
(4) Includes _____33,718 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the Company's 1995 Non-Employee Director Stock Option
Plan (the "Director Plan").
(5)(3) Includes _______32,891 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the Director Plan.
(4) Includes 8,490 shares of Common Stock which may be purchased within
60 days of February 22, 2001 upon the exercise of stock options granted
under the Director Plan.
(5) Includes 27,986 shares of Common Stock which may be purchased
within 60 days of February 22, 2001 upon the exercise of stock options
granted under the Director Plan.
(6) Includes _______8,856 shares of Common Stock which may be purchased within
60 days of February 24, 200022, 2001 upon the exercise of stock options granted under
the Director Plan. Includes 2,844 shares owned by Mr. Oates' spouse as
to which Mr. Oates disclaims beneficial ownership.
(7) Includes _______10,726 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the Director Plan.
(8) Includes ______329,776 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the Director1995 Plan.
(9) Includes _______206,283 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the Director1995 Plan.
4
(10) Includes ______113,178 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the Company's Amended and Restated 1995 Stock Plan (the "1995
Plan").Plan.
(11) Includes _______124,067 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the 1995 Plan.
(12) Includes ________105,785 shares of Common Stock which may be purchased
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the 1995 Plan.
(13) Includes ________ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the 1995 Plan.
(14) Includes _________ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the 1995 Plan.
(15) Includes ________922,185 shares of Common Stock which may be purchased by
executive officers and directors within 60 days of February 24, 200022, 2001
upon the exercise of stock options granted under the 1995 Plan and
_______122,667 shares of Common Stock which may be purchased by directors
within 60 days of February 24, 200022, 2001 upon the exercise of stock options
granted under the Director Plan.
54
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation and 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. CondonSheehan, Oates and
FraserMcDermott are Class IIIII directors whose terms expire at the Annual Meeting of
Stockholders. The Board of Directors is also composed of (i) three Class III directors (Messrs.
Sheehan, Oates and McDermott) whose terms expire upon the election and
qualification of directors at the Annual Meeting of Stockholders to be held in
2001 and (ii) two Class I
directors (Mr. Friedl and Ms. Swersky) whose terms expire upon the election and
qualification of directors at the Annual Meeting of Stockholders to be held in
2002.2002 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 2003.
The Board of Directors has nominated and recommended that Messrs.
CondonSheehan, Oates and FraserMcDermott be elected Class IIIII directors, to hold office
until the Annual Meeting of Stockholders to be held in the year 20032004 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-fact
in the 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 ELECTION OF FRANK B. CONDON, JR.KEVIN J. SHEEHAN,
JAMES M. OATES AND ROBERT B. FRASERTHOMAS P. McDERMOTT
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 DIRECTOR
- -------------------------------- ---------------- ----------- --------
NOMINEES:
Frank B. Condon, Jr. (1986)Kevin J. Sheehan (1990) Chairman, President, and 2004 III
Chief Executive Officer
James M. Oates (1995) Director 2003 II
Robert B. Fraser (1996)2004 III
Thomas P. McDermott (1995) Director 2003 II2004 III
CONTINUING DIRECTORS:
Donald G. Friedl (1996) Director 2002 I
Phyllis S. Swersky (1996) Director 2002 I
Kevin J. Sheehan (1990) Chairman, President, and 2001 III
Chief Executive Officer
James M. Oates (1995)Frank B. Condon, Jr. (1986) Director 2001 III
Thomas P. McDermott (1995)2003 II
Robert B. Fraser (1996) Director 2001 III2003 II
65
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 them 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 POSITION
- ---- --- --------
Kevin J. Sheehan 4849 Chairman of the Board, President and Chief Executive Officer
Michael F. Rogers 4243 Executive Vice President
Karen C. Keenan 3738 Senior Vice President and Chief Financial Officer
and Treasurer
Robert D. Mancuso 3940 Senior Vice President - Marketing and Client Management
Edmund J. Maroney 4344 Senior Vice President - Technology
David F. Flynn 53John E. Henry 36 Senior Vice President, - Lending
Richard D. Bartony 54 Senior Vice President
Judy A. Murphy 38 Managing Director - Human Resources
John E. Henry 35 Managing Director, General Counsel and Secretary
James M. Oates 5354 Director
Thomas P. McDermott 6465 Director
Robert B. Fraser 7172 Director
Frank B. Condon, Jr. 6465 Director
Donald G. Friedl 6768 Director
Phyllis S. Swersky 4849 Director
Mr. Sheehan is Chairman of the Executive Committee of which Messrs.
Oates, Condon and McDermott 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. Fraser and Ms.
Swersky are also members. Mr. Condon is Chairman of the Nominating Committee of
which Mr. McDermott and Mr. Oates are also members. The Company was organized in
June 1995 to serve as the holding company for Investors Bank & Trust Company
(the "Bank") and for periods prior to that date, references to the Company mean
the Bank. The
board of directors and executive officers of the Bank are identical to the board
of directors and executive officers of the Company.
MR. SHEEHAN has served as a director since 1990 and as President since
June 1992. He has been Chief Executive Officer and Chairman of the Board of
Directors since June 1995. Prior to joining the Company in May 1990 with the
Company's acquisition of the Financial Products Services Division of the Bank of
New England, Mr. Sheehan was a Senior Vice President at the Bank of New England.
MR. 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.
MS. KEENAN has been Treasurer since September 1997 and Senior Vice President and Chief Financial
Officer since June 1995. Ms. Keenan has served as Vice President of the
Company since September 1992. She joined the Company in August 1989 as an
Operations Manager in the mutual fund group, and became Senior Audit Officer
in May 1990. She was Treasurer of the Company from July 1991 to May 1994.1994 and
from September 1997 to April 2000. Prior to joining the Company, Ms. Keenan
worked for Arthur Andersen & Co., a public accounting firm.
MR. MANCUSO has been Senior Vice President - 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.
7
MR. MARONEY has been Senior Vice President - 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, heMr. Maroney was Vice President at the Bank of New England.
MR. FLYNN has been Senior Vice President - 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 at the Bank of
New England.
MR. BARTONY 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. Bartony was Vice President at
the Bank of New England.
MS. MURPHY has been Managing Director of Human Resources since September
1997. Prior to joining the Company, Ms. Murphy was Vice President - Human
Resources at Fidelity Investments.6
MR. HENRY has been General Counsel of the Company since February 1996,
Secretary of the Company since January 1997 and Managing DirectorSenior Vice President since
November
1998.April 2000. Prior to joining the Company, Mr. Henry was an associate at the
Boston law firm of Testa, Hurwitz & Thibeault, LLP.
MR. OATES has been a director of the Company since June 1995. Mr. Oates
has been Chairman of IBEX Capital Markets, LLCInc., since 1996 and has been the
managing director of the Wydown Group, a consulting firm specializing in
start-ups turn-arounds and defining growth strategiesturn-arounds since 1994. Mr. Oates served as President and Chief
Executive Officerofficer of Neworld Bancorp Incorporated from 1984 to 1994. Mr. Oates
has been a director of Connecticut River Bancorp, Inc., and Connecticut River
Bank since 1998. 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, Inc., as well as twenty-five
Phoenix Mutual FundsFunds. Mr. Oates became a director of 1Mind Incorporated in
January 2001. Mr. Oates has been Chairman of the Board of Directors of Emerson
Investment Management, Inc., since 2000. Mr. Oates is also Treasurer and six
AIB Govett Funds.a
director of Endowment for Health, a New Hampshire non-profit corporation.
MR. MCDERMOTT has been a director of the Company since June 1995. He
has been Managing Director of TPM Associates, a consulting firm, since January
1994. He served as Managing Partner, New England Area of Ernst & Young LLP from
1989 to 1993. Mr. McDermott is also a director of ACCION International and the
Pioneer Institute of Public Policy Research.
MR. 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. 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. 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 AquaBio Products Sciences, Inc., a
marine biotechnology company, Classic Foods, Inc. and Custom Foods, Inc. Mr. Friedl also serves on the
Advisory Board of Internet Commerce Services Corp.
MS. SWERSKY has been a director of the Company since February 1996. She
has been 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 vote in the
election of directors. A director may be removed without cause by a vote of at
least seventy-five percent of the shares of the Company's capital stock entitled
to vote in the election of directors.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met twelveeight times during the fiscal year ended
December 31, 1999.2000. The Audit Committee of the Board of Directors, of which
Messrs. McDermott and Fraser and Ms. Swersky are currently members, reviews with
the independent accountants and management the annual consolidated financial
statements and independent auditors' opinion, discusses the scope and reviews
the results of the examination of the Company's consolidated financial
statements by the independent auditors, recommends the retention of the
independent auditors
7
to the Board of Directors and periodically reviews the Company's accounting
policies, audit procedures, internal accounting, financial controls and
Securities and Exchange Commission filings. The Audit Committee met seveneight times
during the fiscal year ended December 31, 1999.2000. 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 fourthree times during the fiscal year ended
December 31, 1999.2000. 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,
1999.2000. During 1999,2000, 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).
REPORT OF THE AUDIT COMMITTEE
The functions of the Audit Committee (the "Committee") are focused on
the following areas:
- the soundness of the Company's internal controls;
- the reliability and integrity of the Company's accounting and
financial reporting practices;
- the quality and integrity of the Company's financial reports;
- the Company's compliance with legal and regulatory requirements
and internal policies; and
- the independence and performance of the Company's internal
auditors and independent auditors.
The Committee meets with management periodically to consider the
adequacy of the Company's internal controls and the objectivity of its financial
reporting. The Committee discusses these matters with the Company's independent
auditors and with appropriate Company financial personnel and internal auditors.
The Committee regularly meets privately with both the independent
auditors and the internal auditors, each of whom has unrestricted access to the
Committee.
The committee met eight times during 2000.
The Committee also recommends to the Board the appointment of the
independent auditors and review periodically their performance and independence
from management.
In addition, the Committee reviews the Company's financing plans and
reports recommendations to the full Board for approval and to authorize action.
The Directors who serve on the Committee are all "Independent" for
purposes of Section 4310(c)(26)(B)(ii) of the National Association of Securities
Dealers' listing standards. That is, the Board of Directors has determined that
none of the members of the Committee has a relationship to the Company that may
interfere with his or her independence from the Company and its management.
8
The Board has adopted a written charter setting out the functions the
Committee is to perform. A copy of the Audit Committee Charter is attached to
this proxy statement as Appendix A.
Management has primary responsibility for the Company's consolidated
financial statements and the overall reporting process, including the Company's
system of internal controls.
The independent auditors audit the annual consolidated financial
statements prepared by management, express an opinion as to whether those
consolidated financial statements fairly present the financial position, results
of operations and cash flows of the Company in conformity with generally
accepted accounting principles and discuss with us any issues they believe
should be raised with us.
For 2000, the Committee reviewed the Company's audited consolidated
financial statements and met with both management and Deloitte & Touche, the
Company's independent auditors, to discuss those consolidated financial
statements. Management has represented to the Committee that the consolidated
financial statements were prepared in accordance with generally accepted
accounting principles.
The Committee has received from and discussed with Deloitte & Touche
the written disclosure and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). These items
relate to Deloitte & Touche's independence from the Company. The Committee also
discussed with Deloitte & Touche the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
Based on these reviews and discussions, the Committee recommended to
the Board that the Company's audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000. The Committee also recommended that Deloitte & Touche be
retained as the Company's independent accountants for the 2001 fiscal year.
RESPECTFULLY SUBMITTED BY THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Thomas McDermott (Chairman)
Robert Fraser
Phyllis Swersky
9
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
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, 2000, 1999 1998 and 19971998 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 $100,000 in fiscal 19992000 (the "Named Executive Officers").
LONG
TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------- ------
ALL OTHER
NAME AND ALL OTHERCOMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(2) COMPENSATION
($)(3)
------------------ -------- ----------- ----------- --------------- -------------
Kevin J. Sheehan............. 2000 550,000 1,100,000 129,704 5,742
President, Chief Executive 1999 450,000 900,000 104,562 29,062
President, Chief Executive209,124 5,442
Officer, Chairman 1998 385,000 481,250 60,000 73,086
Officer, Chairman 1997 350,000 437,500 60,000 39,520120,000 5,294
Michael F. Rogers............ 2000 450,000 900,000 137,806 5,679
Executive Vice President 1999 350,000 700,000 58,859 27,247
Executive Vice President117,718 5,249
1998 302,500 302,500 50,000 25,797
1997 275,000 275,000 50,000 15,421100,000 5,188
Edmund J. Maroney............ 1999 265,000 530,000 32,591 23,7202000 315,000 630,000 53,170 5,504
Senior Vice President - 1999 265,000 530,000 65,182 5,140
Technology 1998 225,000 225,000 30,000 13,360
Technology 1997 200,000 200,000 30,000 4,63560,000 5,089
Robert D. Mancuso............ 1999 225,000 442,577(4) 24,906 5,0892000 275,000 562,312(4) 61,366 5,454
Senior Vice President - 1998 200,000 227,358(4) 30,000 5,0571999 225,000 442,577(4) 49,812 5,089
Marketing and Client Management 1997 180,000 210,326(4) 30,000 7511998 200,000 227,358(4) 60,000 5,057
Karen C. Keenan.............. 2000 235,000 470,000 23,956 5,402
Senior Vice President and 1999 185,000 323,750 29,882 7,652
Senior Vice President,59,764 5,037
Chief Financial Officer 1998 160,000 120,000 30,00060,000 5,005
Financial Officer and 1997 140,000 70,000 30,000 700
Treasurer
- ------------------------
(1) Does not includeExcludes 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) ReflectsAdjusted to reflect the two-for-one stock split made bysplits of the Company with respect
to shares of itsCompany's
Common Stock with an issue/payable date ofon March 17, 1999.1999 and June 15, 2000.
(3) The amount shown for each Named Executive Officer for 2000, 1999 1998 and
19971998 includes the dollar value ($4,800,5,100, $4,800 and $520, respectively)$4,800) of matching
contributions made pursuant to the Company's 401(k) plan, a qualified
employee benefit defined contribution plan.plan, for 2000, 1999 and 1998,
respectively. Also included are net premiums paid by the Company for
term life insurance for the benefit of Messrs. Sheehan ($578, $494642, $578 and
$449)$494), Rogers ($449, $388579, $449 and $353)$388), Maroney ($340,404, $340 and $289),
Mancuso ($354, $289 and $257), Mancuso ($289, $257 and $231) and Ms. Keenan ($237, $205302, $237 and $180)$205) in
2000, 1999 and 1998, respectively.
(4) Amounts shown representing commission payments made during 2000, 1999
and 1998, relate in part to revenues generated in 1999, 1998 and 1997,
respectively.
The amounts shown also include contributions to a
non-qualified supplemental retirement plan for Mr. Sheehan ($23,684,
$67,792 and $38,551), Mr. Rogers ($21,998, $20,609 and $14,548), Mr.
Maroney ($18,580, $8,271 and $3,858) and Ms. Keenan ($2,615, $0 and $0)
in 1999, 1998 and 1997, respectively.
(4) Amounts shown represent commission payments made during 1999, 1998 and
1997, some of which payments relate to revenues generated in 1998, 1997
and 1996, respectively.
10
OPTION GRANTS IN 19992000
The following table sets forth certain information regarding options to
purchase Common Stock granted during 19992000 by the Company to the Named Executive
Officers. The Company did not grant any stock appreciation rights in 1999.2000.
INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL VALUE AT ASSUMED ANNUAL
SHARES OPTIONS PERCENTAGE RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE APPRECIATIONFOR OPTION TERM (1)(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION FOR OPTION TERM (1)(3)-------------------------
NAME GRANTED (1) FISCAL YEAR ($/SHARE) (1)(2) DATE 5% ($) 10% ($)
- ---- ----------- ------------ ---------------- ---------- --------- ---------------- ----------- ------------
Kevin J. Sheehan...... 6,612* 1.51% 29.68756,390* 0.77% 21.5157 11/08/2005 79,911 186,227
11,770* 2.69% 30.0000 11/08/2005 143,747 334,992
14,150* 3.23% 30.000046,758 106,078
9,862* 1.19% 21.5157 11/12/2006 202,680 485,453
12,614* 2.88% 30.000086,382 201,306
15,074* 1.82% 21.5157 11/18/2007 208,634 513,875
1,994* 0.45% 30.0000154,852 370,897
16,686* 2.02% 21.5157 11/16/2008 37,620 95,338
57,422*197,933 487,518
2,111* 0.26% 44.4380 11/12/2006 31,904 72,379
79,581** 13.10% 43.50009.62% 69.5000 11/15/2009 1,570,889 3,980,94113/2010 3,478,340 8,814,798
Michael F. Rogers..... 5,506* 1.26% 29.68751,742* 0.21% 21.5157 11/08/2005 66,544 155,077
6,500* 1.48% 30.000012,747 28,918
16,744* 2.02% 21.5157 11/12/2006 146,662 341,784
27,218* 3.29% 21.5157 11/18/2007 279,605 669,702
16,222* 1.96% 21.5157 11/16/2008 192,429 473,961
1,163* 0.14% 57.9380 11/08/2005 79,385 185,000
5,224* 1.19% 30.000018,616 41,137
1,677* 0.20% 57.9380 11/12/2006 74,827 179,223
2,107* 0.48% 43.06252007 39,555 92,179
73,040** 8.83% 69.5000 11/18/2005 30,859 70,008
39,522** 9.02% 43.5000 11/15/2009 1,081,200 2,739,97313/2010 3,192,445 8,090,283
Edmund J. Maroney..... 2,128* 0.49% 29.06255,636* 0.68% 21.5157 11/08/2005 25,177 58,673
1,870* 0.43% 29.062541,241 93,561
4,738* 0.57% 21.5157 11/12/2006 25,948 62,150
7,438* 1.70% 29.062541,500 96,714
6,280* 0.76% 21.5157 11/18/2007 119,179 293,543
1,346* 0.31% 29.687564,513 154,520
9,732* 1.18% 21.5157 11/16/2008 115,443 284,342
862* 0.10% 44.4380 11/12/2006 25,130 63,685
1,296* 0.30% 43.063013,028 29,555
1,031* 0.12% 44.4380 11/18/2007 18,652 43,466
24,891** 3.01% 69.5000 11/13/2010 1,087,940 2,757,054
Robert D. Mancuso..... 1,916* 0.23% 21.5157 11/08/2005 14,020 31,807
6,552* 0.79% 21.5157 11/12/2006 22,721 52,948
18,513*57,389 133,741
16,330* 1.97% 21.5157 11/18/2007 167,755 401,802
9,732* 1.18% 21.5157 11/16/2008 115,443 284,342
26,836** 4.22% 43.50003.24% 69.5000 11/15/2009 506,459 1,283,466
Robert D Mancuso...... 5,416* 1.24% 28.9375 11/08/2005 63,803 148,688
1,202* 0.27% 28.9375 11/12/2006 16,607 39,777
1,110* 0.25% 29.6875 11/08/2005 20,724 52,519
17,178** 3.92% 43.5000 11/15/2009 469,937 1,190,91313/2010 1,172,953 2,972,492
Karen C. Keenan....... 2,892* 0.66% 29.68752,874* 0.35% 21.5157 11/08/2005 34,952 81,453
8,735* 1.99% 43.500021,030 47,710
21,082** 2.55% 69.5000 11/18/2007 181,420 434,532
18,255** 4.16% 43.5000 11/15/2009 499,401 1,265,57913/2010 921,456 2,335,150
- ---------------
* Grants are exercisable immediately.
** Of the number shown, (i) a portion of the grant becomes exercisable in
48 equal monthly installments beginning November 15, 199913, 2000 and includes
a reload feature (30,000(60,000 for Mr. Sheehan, 25,00050,000 for Mr. Rogers, 15,00020,000
for Mr. Maroney, 15,00020,000 for Mr. Mancuso and 15,00020,000 for Ms. Keenan,
respectively), and (ii) a portion of the grant is exercisable
immediately (27,422(19,581 for Mr. Sheehan, 14,52223,040 for Mr.
11
Rogers, 3,5134,891 for Mr. Maroney, 2,1786,836 for Mr. Mancuso and 3,2551,082 for Ms.
Keenan, respectively). The reload feature provides that on an exercise
of options in which the optionee makes payment through the delivery of
previously owned shares of the Company's Common Stock, the optionee
shall receive an 11
additional option to purchase that number of shares of
the Company's Common Stock as was delivered in payment for such
exercise.
(1) ReflectsAdjusted to reflect the two-for-one stock split made byof the Company with respect
to shares of itsCompany's Common
Stock with an issue/payable date of March 17,
1999.on June 15, 2000.
(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, the
date on which the options are 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. None of the Named Executive Officers sold during
19992000 any of the shares acquired by such Named Executive Officer during
19992000 upon exercise by such Named Executive Officer of options
previously held by such Named Executive Officer.
12
AGGREGATED OPTION EXERCISES IN 19992000
AND OPTION VALUES AT DECEMBER 31, 19992000
The following table sets forth certain information regarding stock
option exercises by the Named Executive Officers in 19992000 and the number and
value of the Named Executive Officers' unexercised stock options at December 31,
1999.2000.
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT DECEMBER 31, 1999(1)(#)2000(#)(1) DECEMBER 31, 19992000 ($)(1)(3)
---------------------------------- ---------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#)(1)(#) REALIZED ($)(1)(2)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------ ------------------ ----------- ------------- -------------------------- ----------------- ------------ -------------
Kevin J. Sheehan......... 119,098 2,153,258 137,477 111,257 2,647,726 2,091,511Sheehan.......... 138,640 2,098,095 308,521 180,011 20,139,086 9,631,520
Michael F. Rogers........ 60,640 1,400,483 117,106 92,713 2,701,947 1,742,899Rogers......... 179,720 3,589,430 227,717 150,007 14,180,272 8,026,138
Edmund J. Maroney........ 25,937 425,328 55,306 53,548 1,373,576 977,189Maroney......... 85,062 1,406,473 105,389 80,427 6,935,517 4,657,995
Robert D. Mancuso........ 25,662 521,062 51,332 52,922 1,271,337 956,569Mancuso......... 81,584 1,012,304 107,843 80,427 7,101,104 4,657,995
Karen C. Keenan.......... 20,830 312,410 46,546 52,506 1,017,051 942,866Keenan........... 15,000 260,861 126,633 80,427 9,087,652 4,657,995
- ---------------
(1) ReflectsAdjusted to reflect the two-for-one stock split made byof the Company with respect
to shares of itsCompany's Common
Stock with an issue/payable date of March 17,
1999.on June 15, 2000.
(2) 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.
(3) 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,
19992000 ($46.0086.00 per share, the last reported sales price of the Company's
Common Stock on the Nasdaq National Market on December 31, 1999)29, 2000)
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. None of the Named Executive Officers sold during 19992000 any of
the shares
12
acquired by such Named Executive Officer during 19992000 upon
exercise by such Named Executive Officer of options previously held by
such Named Executive Officer.
STOCK PLANS
The Company currently has three stock 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 (the "1997 Plan").
BONUSES
The Company from time to time awards certain key employees bonuses
based on both individual and Company performance. The Company's 19992000 Bonus Plan
was put in place in December 19981999 and expired on December 31, 1999.2000. The planBonus
Plan established a target level for 19992000 operating earnings per share and cash
bonus pools for executive officers based on achieving target levels. Bonuses
were allocated to management based on contributions to operating results.
Payments to Named Executive Officers in 19992000 were made in the following amounts:
Mr. Sheehan $1,100,000; Mr. Rogers $900,000; Mr. Rogers $700,000; Mr. Maroney $530,000;$630,000; Ms. Keenan
$323,750;$470,000; and all executive officers as a group $2,717,771.$3,210,000.
13
EMPLOYMENT AGREEMENTS
The Company entered into amended and restated employment agreements
with Kevin J. Sheehan, Michael F. Rogers, Robert D. Mancuso, Edmund J. Maroney
and Karen C. Keenan on October 11, 1995,May 16, 2000, 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, 2002.2003.
Messrs. Sheehan's, Rogers', Maroney's and Rogers'Mancuso's and Ms. Keenan's
agreements provide that the Company will employ Messrs. Sheehan, Rogers,
Maroney, Mancuso and RogersMs. Keenan as President and Chief Executive Officer,
and
Executive Vice President, Senior Vice President - Technology, Senior Vice
President - Marketing and Client Management and Senior Vice President and Chief
Financial Officer, 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 thea 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 thea majority of the Board of Directors that they havean individual has performed theirhis or
her duties inadequately, in which case the agreements provide for a lump sum
payment equal to nine months of their annual salary at theirthe 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.Messrs. Sheehan, Rogers, Maroney or Mr. RogersMancuso or Ms. Keenan 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 stockholders 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 and the amount equal
to the highest of their three most recent annual bonuses, or the salary and
bonus 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.agreement. 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, Rogers, Maroney and RogersMancuso 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 theMs.
Keenan's employment of Messrs. Sheehan or Rogers be terminated withinby 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 Company also entered into change of control employment agreements
with Kevin J. Sheehan, Michael F. Rogers, Robert D. Mancuso, Edmund J. Maroney
and Karen C. Keenan on May 16, 2000, each with a term of three months beforeyears, subject to
automatic annual renewal and twelve months afterearlier termination.
The change of control employment agreements become effective upon a
change in control of the Company, defined to be a consolidation, merger,
reorganization or sale or transfer of all or substantially all of the assets of
the Company, a change in a majority of the Board of Directors, or the
acquisition by any person of 20% or more of the voting securities of the
Company, theCompany. The agreements provide forthat if any of Messrs. Sheehan, Rogers, Mancuso
or Maroney or Ms. Keenan is terminated during the term of his or her agreement,
he or she shall receive a lump sum severance payment equal to three times theirthe
employee's most recent annual salary plus
13
a payment equal to three times the
averagehighest of their twothe employee's three most recent annual bonuses as well as an
actuarial payment under any existing defined benefit plan and continuing
benefits and medical coverage for three years.
The employment agreements with Messrs. Mancuso and Maroney and Ms.
Keenan provide that the Company will employ them as Senior Vice President -
Marketing and Client Management, Senior Vice President - 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 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 PLANPLANS
In 1971, the Company adopted the Investors Bank & Trust Pension Plan
as(as amended, (thethe "Pension Plan"), covering all employees who are at least 21
years of age. In 1996, the Company amended the Pension Plan to freeze
14
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
such participant's total eligible compensation (I.E.(i.e., salary, annual bonus and
other cash earnings) in such participant's highest paid five consecutive full
calendar years of employment in such participant's last 10 consecutive full
calendar years of employment, subject to certain limits on eligible compensation
set by Federal law. For 1999, such2000, this limit was $160,000.$170,000. The Pension Plan's
benefit formula described above became effective in 1991, but applies to all
periods of benefit service.
14
In 1994, the Company adopted the Investors Bank & Trust Supplemental
Executive Retirement Plan (as amended, the "SERP") covering certain employees.
The SERP is a non-qualified supplemental retirement plan and pays benefits that
supplement any benefits paid under the Pension Plan. Benefits under the SERP are
generally based on an employee's total compensation not includable in the
calculation of benefits to be paid under the Pension Plan. Payments under the
SERP are based on years of service and the employee's final total compensation,
including bonus and commissions.
The following table shows the estimated annual benefits payable to
employees covered by both the Pension Plan and the SERP upon retirement in
specified total compensation and years of service classifications. Amounts
listed in the table are not subject to deductionsdeduction for social security or other
offset amounts.
Years of Service at Retirement (Age 65 in 1999)2000)
---------------------------------------------------------------------------------------------------
REMUNERATIONRemuneration 10 15 20 25 30 35
------------ ---------- ---------- ---------- ---------- ---------- ----------
$200,000 $ 50,00041,053 $ 8,935 $13,40361,580 $ 17,87082,106 $ 22,338102,633 $ 24,213110,133 $ 26,088
$100,000 $19,685 $29,528117,633
$500,000 $105,553 $158,330 $ 39,370211,106 $ 49,213263,883 $ 52,963282,633 $ 56,713
$150,000 $30,435 $45,653301,383
$1,000,000 $213,053 $319,580 $ 60,870426,106 $ 76,088532,633 $ 81,713570,133 $ 87,338
$200,000 $32,585 $48,878607,633
$1,500,000 $320,553 $480,830 $ 65,170641,106 $ 81,463801,383 $ 87,463857,633 $ 93,463
$250,000 $32,585 $48,878913,883
$2,000,000 $428,053 $642,080 $ 65,170856,106 $ 81,4631,070,133 $ 87,4631,145,133 $ 93,4631,220,133
The Named Executive Officers have the following credited years of
service under the Pension Plan:Plan and the SERP as of December 31, 2000: Mr.
Sheehan, 2424.6 years; Mr. Rogers, 1718.3 years; Mr. Maroney, 1415.3 years; Ms.
Keenan, 1011.4 years; and Mr. Mancuso, 78.3 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:
o- To enhance profitability of the Company and increase stockholder
value.
o- To reward executives in accordance with the Company's annual and
long-term performance goals.
o- To recognize individual initiative and achievement.
o- To provide competitive compensation that will attract and retain
qualified executives.
15
The compensation program for executive officers consists of three
primary elements: (1) base salary, which is determined on an annual basis and is
primarily dependent on external market data; (2) annual incentive compensation
in the form of cash bonuses which are based on the achievement of both
pre-determined financial objectives of the Company and individual objectives;
and (3) long-term incentive compensation, in the form of stock options, granted
periodically with the objective of aligning the executive officers' long-term
interests with those of the stockholders, encouraging superior results over an
extended period and retaining key executive officers.
Base salary is intended to be competitive with base salary offered for
similar executive positions at other local companies in the same or similar
industries. The base salary for the Company's executive officers for 19992000
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 the fall of 1999, the Compensation Committee engaged Hewitt
Associates to perform an independent evaluation of executive compensation at the
Company. The Hewitt report looked at each compensation component as well as the
relative mix of compensation for both executive officers and directors of the
Company. The report compared executive compensation at the Company to
compensation at competitors of the Company and also used a number of third party
compensation surveys. The Compensation Committee used the information and
analysis contained in the Hewitt report in determining 2000 executive compensation
levels at the Company.Company beginning in 2000.
In November 1999,2000, the Compensation Committee set the terms for the 20002001
Executive Compensation Plan. This plan established (i) base salaries for 2000;2001;
(ii) proposed option grant levels for 2000;2001; and (iii) a target level for
operating earnings per share for 20002001 and cash bonus pools for executive
officers under the Senior Executive Bonus Plan, based on achieving target levels.levels
of operating earnings per share. If 20002001 operating earnings per share equal the
target, executive officers will receive bonuses ranging from 50%100% to
15
125% of
their salary,annual salaries, depending on their positionpositions and individual performance,
with the Chief Executive Officer receiving 125% of his annual salary. If 20002001
operating earnings per share exceed the target level, additional bonus amounts
are available.available to the executive officers under the bonus plan, up to a maximum
award equal to 225% of their annual salaries. The actual level of bonus earned
is based upon achievement of specific predetermined performance targets
established by the Committee. No bonuses will be payable to executive officers
if 20002001 operating earnings per share are less than or equal to 19992000 operating
earnings per share.
Federal law and regulations provide that in order to qualify for a tax
deduction (as further explained later in this report), compensation in excess of
$1 million to a public corporation's top executive officers must qualify as
performance-based compensation. In order to qualify as exempt performance-based
compensation, bonuses must be earned under a plan, the material terms of which
have been approved by stockholders. In general, the performance measures under
such a plan must be reapproved by stockholders every five years. Described
elsewhere in this proxy statement is a Senior Executive Bonus Plan which
stockholders are being asked to approve at the April 2001 meeting. If approved,
the new plan will be in effect for the 2001 plan year.
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 19992000 base salary for Mr. Sheehan, the Company's Chief Executive
Officer and President, was established by the Board of Directors in December
1998.1999. Under the terms of the 19992000 Bonus Plan, Mr. Sheehan's bonus eligibility
was set forth on a matrix under which Mr. Sheehan would receive no bonus if 19992000
operating
16
earnings per share did not exceed 19981999 operating earnings per share. Mr.
Sheehan's bonus eligibility increased incrementally with each $.05 per share
(prior to adjustment for the two-for-one stock split effective March 17, 1999)June 15, 2000)
by which 19992000 operating earnings exceeded 19981999 operating earnings. In
accordance with the terms of the 19992000 Bonus Plan, at the Company's operating
earnings level of $1.43 per share for 1999,2000 (prior to adjustment for the
two-for-one stock split effective June 15, 2000), Mr. Sheehan was eligible
for a bonus equal to 200% of his 19992000 salary, or $900,000.$1,100,000. Accordingly,
approximately 67% of his $1,350,000$1,650,000 in 19992000 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 104,562129,704 shares of Common Stock. Of this number, 30,000options to purchase
60,000 shares were granted under the Company's 19992000 Executive Compensation
Plan, 47,140options to purchase 50,123 shares were granted in place of shares
surrendered in payment of the exercise price for exercised stock options, and
27,422options to purchase 19,581 shares were granted as tax reimbursement options.
The Board of Directors believes that Mr. Sheehan has led the Company toward
achieving its goals of growth in the revenue and the client base and expansion in
the breadth of services provided. The Board specifically noted the Company's
overall performance under Mr. Sheehan.Sheehan's leadership.
In general, under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), the Company cannot deduct, for federal income tax
purposes, compensation in excess of $1,000,000 paid to certain executive
officers. This deduction limitation does not apply, however, to compensation
that constitutes "qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations promulgated thereunder. Stock
option awards under the 1995 Plan have been designed to qualify as
performance-based compensation, with the intended result that the deduction of
compensation under this plan, including compensation from the exercise of
options, would not be affected by the Section 162(m) deduction limits. A portion
of the bonus earned in 2000 by each of Messrs. Sheehan and Rogers did not
qualify for the federal income tax deduction pursuant to Section 162(m). 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, in the future and for so long as it is consistent with its
overall compensation objective,objectives, substantially all tax deductions attributable
to executive compensation will not be subject to the deduction limitations of
Section 162(m) of the Code. Proposal 4 below is submitted to stockholders in
connection with the deduction limitations of Section 162(m) of the Code.
The Compensation Committee is satisfied that the executive officers of
the Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute towards achieving this goal.
RESPECTFULLY SUBMITTED BY
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
James M. Oates
Frank B. Condon, Jr.
Thomas P. McDermott
16
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.
17
COMPENSATION OF DIRECTORS
Employee directors do not receive cash compensation for their service
as members of the Board of Directors. For 1999,2000, non-employee directors received
an annual fee of $10,000 and an additional $1,100$1,700 for each meeting of the Board
of Directors they attended. During 2000,2001, non-employee directors will receive
$1,700 for each meeting of the Board of Directors that they attend. ElevenSeven Board
of Director Meetings were planned for 19992000 and seven are planned for 2000.2001.
Non-employee directors are also eligible for participation in the 1995
Non-Employee Director Stock Option Plan, pursuant to which each non-employee
director receives automatic grants of options and is eligible to receive theirhis or
her annual fee in the form of stock options.
17
STOCK PERFORMANCE
The following graph compares the change in the cumulative total
stockholder return on the Company's Common Stock for the period from the
Company's initial public offering on November 8, 1995January 1,
1996 through December 31, 1999,29, 2000, 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,December 29, 1995 in the Company's Common Stock at
the $8.25 initial offering$5.188 closing price on that day and in each of the foregoing indices and
assumes reinvestment of dividends, if any.
Comparison of Five Year(1)Year Cumulative Total Return Among
Investors Financial Services Corp., Nasdaq Stock Market Index
and Nasdaq Financial Stocks Index
11/8/1995[GRAPH]
12/29/199595 12/31/199696 12/31/199797 12/31/199898 12/31/1999
--------- ---------- ---------- ---------- ---------- ----------99 12/29/00
-------- -------- -------- -------- -------- --------
Investors Financial Services Corp. 100 125.76 168.36 279.27 362.10 558.55133.73 221.67 287.32 443.33 1,657.67
Nasdaq Stock Market Index 100 100.58 123.75 151.63 213.67 386.02100.23 150.69 212.51 394.92 237.62
Nasdaq Financial Stocks Index 100 105.03 134.84 206.28 200.23 198.00128.36 196.30 190.73 189.46 207.03
- ------------
(1) Prior to November 8, 1995 the Company's Common Stock was not publicly
traded.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
18
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
GENERAL
The Board of Directors has voted to recommend to stockholders that the
Company amend its Certificate of Incorporation (the "Certificate of
Incorporation") to increase the number of authorized shares of the Company's
Common Stock from 20,000,00040,000,000 to 40,000,000.100,000,000. Shares of the Company's Common
Stock, including the additional shares proposed for authorization, do not have
preemptive or similar rights. The full text of the Certificate of Amendment (the
"Certificate of Amendment") to the Certificate of Incorporation that will effect
the aforementioned amendment (the "Number"Charter Amendment") to the Certificate of
Incorporation is attached hereto as
EXHIBIT A.B. As of February 24, 2000,22, 2001, the record date for the Annual Meeting,
__________31,703,139 shares of Common Stock were outstanding, with an additional ___________663,589
shares reserved for issuance under the 1995 Plan, the 1997 Plan and the Director
Plan.
The Board of Directors believes that the authorized number of authorized shares of
the Company's Common Stock should be increased to provide sufficient shares for
such corporate purposes as may be determined by the Board of Directors to be
necessary or desirable. These purposes may include, without limitation:
facilitating broader ownership of the Company's Common Stock by effecting a
stock split or issuing a stock dividend; acquiring other businesses in exchange
for shares of the Company's Common Stock; and raising capital through the sale
of the Company's Common Stock. The Board of Directors considers the
authorization of additional shares of the Company's Common Stock advisable to
ensure availability of shares for issuance should the occasion arise, without
the considerable delay and expense incident to the holding of a special meeting
of stockholders to consider any specific issuance, as may
be required by Rule 4460(i)(1)(c)amend the Certificate of the Marketplace Rules of the Nasdaq
Stock Market.Incorporation. Authorized but
unissued shares may be issued at such time or times, to such person or persons
and for such consideration as the Board of Directors determines to be in the
best interests of the Company, without further authorization from stockholders
except as may be required by the rules of Nasdaq. If the NumberCharter Amendment is
approved, the Board will have the authority to issue approximately [23,000,000]67,633,272 shares of Common
Stock which are not otherwise reserved for issuance.
The authorization of additional shares of Common Stock will not, by
itself, have any effect on the rights of the holders of existing shares. Any new
shares of Common Stock, when issued, would have the same rights and privileges
as the shares of Common Stock presently outstanding, and would be available for
issuance at such times and on such terms as the Board of Directors may consider
appropriate. Depending on the circumstances, issuance of additional shares of
Common Stock could affect the existing holders of shares by diluting the voting
power of the outstanding shares. Stockholders do not have pre-emptive rights to
purchase additional shares of Common Stock nor will they as a result of this
proposal.
There are no current negotiations, plans, commitments, agreements or
understandings relating to the issuance of any additional shares of Common
Stock. The timing of the actual issuance of additional shares will depend upon
market conditions, the specific purpose for which the stock is to be issued and
other similar factors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF THE CHARTER AMENDMENT
The authorization of additional shares of Common Stock may be deemed to
have an anti-takeover effect since such shares may be used, under certain
circumstances, to create voting impediments to frustrate persons seeking to
effect a takeover or otherwise gain control of the Company. In addition, the
issuance of additional shares of Common Stock may have an anti-takeover effect,
as attached to each share of Common Stock is the right, upon satisfaction of the
conditions set forth in the Company's Rights Agreement, dated as of September
25, 1995, as amended, to purchase shares of the Company's series A junior
participating preferred stock, $.01 par value per share, which have 100 votes
per share on all matters submitted to a vote of the stockholders of the Company.
The increase in authorized Common Stock and the possibility of the issuance of
the shares of preferred stock may also be viewed as having the effect of
discouraging an attempt by another person or entity, through the acquisition
19
of a substantial number of shares of Common Stock, to acquire control of the
Company, since the issuance of additional shares may be used to dilute such
person's ownership of shares of the Company's voting stock.
19
The NumberCharter Amendment has not been proposed as an anti-takeover measure
nor is the Board aware of any offers to acquire control of the Company. It
should be noted that any action taken by the Company to discourage an attempt to
acquire control of the Company may result in stockholders not being able to
participate in any possible premiums which may be obtained in the absence of
anti-takeover provisions. Any transaction which may be so discouraged or avoided
could be a transaction that the Company's stockholders might consider to be in
their best interests. However, the Board has a fiduciary duty to act in the best
interests of the Company's stockholders at all times.
BOARD OF DIRECTORS' RESERVATION OF RIGHTS
If the NumberCharter Amendment is approved by the stockholders, the NumberCharter
Amendment will become effective upon the filing of the Certificate of Amendment
to the Certificate of Incorporation of the Company
with the Delaware Secretary of State. The Board reserves the right,
notwithstanding stockholder approval and without further action by the
stockholders, to elect not to proceed with the NumberCharter Amendment, if at any time
prior to filing the Certificate of Amendment to
the Certificate of Incorporation with the Secretary of State of the
State of Delaware the Board, in its sole discretion, determines that the NumberCharter
Amendment is no longer in the best interests of the Company and its
stockholders. In addition, the Board reserves the right to delay filing the
Certificate of Amendment to the Certificate of Incorporation for up to 12 months following stockholder approval of
the NumberCharter Amendment at the Annual Meeting. However, at the present time, the
Board intends to proceed with the NumberCharter Amendment as presented without delay.
Approval of the NumberCharter Amendment will require an affirmative vote of seventy-five percent (75%)a
majority of the voting power of all of the then outstanding shares of the capital stockCommon Stock of the Company entitled to vote generally in the
election of directors, voting together as a single class. Abstention from voting
on this proposal will have the same effect as a vote "against" this proposal.Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE PROPOSED NUMBERCHARTER AMENDMENT.
20
PROPOSAL 3
APPROVAL OF ANTHE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
DECREASE THE NUMBER OF AFFIRMATIVE VOTES NECESSARY TO EFFECT AN INCREASE IN
THE NUMBER OF AUTHORIZED SHARESAND RESTATEMENT OF THE COMPANY'S
CAPITALAMENDED AND RESTATED 1995 STOCK FROM
SEVENTY-FIVE PERCENT OF THE SHARES OUTSTANDING TO A MAJORITY OF THE
SHARES OUTSTANDINGPLAN
The Company's Certificate1995 Plan provides for the grant of Incorporation presently requiresoptions to purchase shares of
Common Stock pursuant to the affirmative votegrant to employees of at least seventy-five percent (75%incentive stock options
("ISOs") within the meaning of Section 422(b) of the voting powerInternal Revenue Code of
all1986, as amended (the "Code"), and the grant of non-qualified stock options,
stock awards or opportunities to make direct purchases of stock in the Company
to directors, officers, employees and consultants of the then outstanding shares of the capital stock of the Company entitled
to vote generally in the election of directors, voting together as a single
class to effectuate an amendment to the Certificate of Incorporation increasing
the number of authorized shares of the Company's capital stock.Company. The Board of
Directors has votedapproved and recommends to recommend tothe stockholders that they approve the
Company's Certificateamendment and restatement of Incorporation bethe Amended and Restated 1995 Stock Plan (as so
amended (the "Voting Amendment"and restated, the "Amended and Restated 1995 Plan") to decrease the affirmative
vote required to effectuate an increase in the
number of authorizedshares of Common Stock that may be issued under the 1995 Plan from
4,640,000 (after automatic adjustments made to take into account the two-for-one
stock splits made by the Company with respect to shares of its Common Stock with
issue/payable dates of June 15, 2000 and March 17, 1999, respectively) to
6,140,000 shares - an addition of 1,500,000 shares.
In April 1998, stockholders approved an amendment to the 1995 Plan that
increased the number of shares of Common Stock available for issuance under the
1995 Plan from 2,320,000 shares to 4,640,000 shares (after automatic adjustments
made to take into account the two-for-one stock splits made by the Company with
respect to shares of its Common Stock with issue/payable dates of June 15, 2000
and March 17, 1999, respectively). A total of 282,473 shares of the Company's
Common Stock currently remain reserved for issuance under the 1995 Plan.
Since April 1998, when the number of shares of Common Stock available
for issuance pursuant to the 1995 Plan was last increased, the number of
employees at the Company has increased from seventy-five percent (75%)approximately 1,000 to approximately
1,880. The Company relies on stock options as an essential part of the
voting powercompensation package necessary for the Company to attract and retain qualified
and experienced key employees. The Board of allDirectors believes that the proposed
increase in the number of shares available under the 1995 Plan is essential to
permit the Company to continue to provide long-term, equity based incentives to
present and future key employees.
Approval of the then outstanding sharesAmended and Restated 1995 Plan will require an
affirmative vote of the capital stock of the Company
entitled to vote generally in the election of directors, voting together as a
single class to a majority of the outstanding shares of the Company entitled to
vote on the proposal. The full textCommon Stock of the
Certificate of Amendment to the
Certificate of Incorporation that will effect the Voting Amendment is attached
hereto as EXHIBIT A.
Prior to the adoption of the Certificate of Incorporation by the Board
at the time of the Company's formation, certain drafting changes were made to
the Certificate of Incorporation that had the unintended result of imposing a
higher than normal stockholder voting requirement for increasing the number of
authorized shares. The
20
Board of Directors believes the adoption of the Voting Amendment is advisable
because it will bring the Company in line with other public companies, which
typically require a vote of a majority of outstanding shares to amend their
charters to increase the number of authorized shares. Approval of the Voting
Amendment will also bring the Company in line with the Delaware General
Corporation Law, which generally requires the minimum vote of only a majority of
outstanding shares entitled to vote to increase the number of authorized shares.
Approval of the Voting Amendment will require an affirmative vote of
seventy-five percent (75%) of the voting power of all of the then outstanding
shares of the capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class. Abstention from voting
on this proposal will have the same effect as a vote "against" this proposal.Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE PROPOSED
VOTING AMENDMENT.PROPOSAL TO APPROVE THE AMENDED AND RESTATED 1995 STOCK PLAN.
DESCRIPTION OF THE AMENDED AND RESTATED 1995 PLAN
On February 13, 2001, the Board of Directors approved the
transferability of Stock Rights other than ISOs (as defined in the 1995
Plan). This change does not require stockholder approval.
The complete text of the Amended and Restated 1995 Plan, marked to
show the changes proposed for approval, is attached hereto as APPENDIX C and
the following discussion is qualified in its entirety by the full text of the
Amended and Restated 1995 Plan. The Amended and Restated 1995 Plan was
originally approved by the Company's Board of Directors (the "Board") and
sole stockholder in August 1995. The purpose of the Amended and Restated 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.
21
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 Amended and Restated 1995 Plan,
directors, officers, employees and consultants of the Company 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 Amended and Restated 1995 Plan is administered by the
Compensation Committee (the "Committee") of the Board. Subject to the terms
of the Amended and Restated 1995 Plan, the Committee has the authority to
determine the persons to whom Stock Rights are granted, the number of shares
covered by each Stock Right, the exercise price per share and other terms and
provisions governing Stock Rights, including restrictions, if any, applicable
to the shares of Common Stock issuable through such Stock Right. However, no
employee may be granted Options treated as ISOs to the extent that ISOs
become exercisable for the first time by such optionee during any calendar
year with respect to stock of the Company having a fair market value
(determined at the time the ISOs were granted) in excess of $100,000, and no
employee may be granted Options to acquire, in the aggregate, more than
1,792,000 shares of Common Stock under the Plan. The interpretation and
construction by the Committee of any provision of the Amended and Restated
1995 Plan or of any Stock Right granted under the Amended and Restated 1995
Plan is final unless otherwise determined by the Board of Directors.
Stock Rights may be granted under the Amended and Restated 1995 Plan
at any time prior to August 1, 2005. The exercise price per share of ISOs
cannot be less than the fair market value of the Common Stock on the date of
grant (or, in the case of ISOs granted to employees holding more than 10% of
the voting stock of the Company, 110% of the fair market value of the Common
Stock on the date of grant). The exercise price for Non-Qualified Options and
the purchase price per share of Common Stock granted pursuant to an award of
Common Stock or grant of an opportunity to purchase Common Stock cannot be
less than the minimum legal consideration required under the laws of any
jurisdiction in which the Company may be organized. Options granted under the
Amended and Restated 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 Amended and Restated 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 Amended
and Restated 1995 Plan may be made in cash or by check, or, if authorized by
the Committee, in full or in part by a personal recourse, interest bearing
note, by tendering Common Stock of the Company or by assignment to the
Company of the proceeds from the sale of the Common Stock acquired upon
exercise of the Option and an authorization to the broker or selling agent to
pay that amount to the Company. No Stock Right shall be assignable or
transferable except by will or the laws of descent and distribution;
provided, however, that (a) a Non-Qualified Option may be assigned or
transferred pursuant to a valid domestic relations order and (b) a Stock
Right other than an ISO may be assigned or transferred pursuant to the terms
of the agreement relating to such Stock Right. During the lifetime of a
grantee each Stock Right shall be exercisable only by the grantee or an
authorized transferee.
Unless otherwise specified in an ISO agreement or unless an ISO has
been converted into a Non-Qualified Option, if an ISO optionee ceases to be
employed by the Company other than by reason of death or disability, no further
installments of his or her ISOs will become exercisable, and the ISOs shall
terminate after the passage of thirty days after the date of termination of
employment (but no later than their specified expiration dates). If an ISO
optionee ceases to be employed by the Company by reason of death or permanent
disability, no further installments of his or her options will become
exercisable and the ISO's shall terminate after the passage of one year from the
date of termination of employment (but no later than their specified expiration
dates). Non-Qualified Options are subject to such termination and cancellation
provisions as may be determined by the Committee.
Option holders are protected against dilution in the event of a
stock dividend, recapitalization, stock split, merger or similar transaction.
The Board may from time to time adopt amendments to the Amended and Restated
1995 Plan, certain of which are subject to stockholder approval, and the
Board may terminate the Amended and Restated 1995 Plan at any time (although
such
22
action shall not affect Stock Rights previously granted). Any shares subject
to a Stock Right granted under the Amended and Restated 1995 Plan, which
Stock Right for any reason expires or terminates unexercised, may again be
available for future grants. Unless terminated sooner, the Amended and
Restated 1995 Plan will terminate on August 1, 2005.
In 2000, the Company granted to Messrs. Sheehan, Rogers, Maroney and
Mancuso and Ms. Keenan Options exercisable for an aggregate of 170,000 shares
of Common Stock which become exercisable in forty-eight equal monthly
installments beginning on the date of grant and Options exercisable for an
aggregate of 236,002 shares of Common Stock which became exercisable
immediately upon grant. In addition, in 2000, the Company granted Options
exercisable for an additional (i) 50,000 shares of Common Stock which become
exercisable in forty-eight equal installments beginning on the date of grant
and (ii) 10,065 shares of Common Stock that became exercisable immediately
upon grant. The remaining Options granted in 2000 become exercisable in four
equal annual installments beginning one year from the date of grant.
The following general rules are applicable under current federal income
tax law to ISOs under the Amended and Restated 1995 Plan:
1. In general, no taxable income results to the optionee upon
the grant of an ISO or upon the issuance of shares to him or her upon
the exercise of the ISO, and no tax deduction is allowed to the Company
upon either grant or exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not
disposed of within (i) two years following the date the ISO was granted
or (ii) one year following the date the shares are issued to the
optionee pursuant to the ISO exercise (the "Holding Periods"), the
difference between the amount realized on any subsequent disposition of
the shares and the exercise price will generally be treated as capital
gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of
before the expiration of one or both of the requisite Holding Periods
(a "Disqualifying Disposition"), then in most cases the lesser of (i)
any excess of the fair market value of the shares at the time of
exercise of the ISO over the exercise price or (ii) the actual gain on
disposition will be treated as compensation to the optionee and will be
taxed as ordinary income in the year of such disposition.
4. In any year that an optionee recognizes compensation
income on a Disqualifying Disposition of stock acquired by exercising
an ISO, the Company generally should be entitled to a corresponding
deduction for income tax purposes.
5. Any excess of the amount realized by the optionee as the
result of a Disqualifying Disposition over the sum of (i) the exercise
price and (ii) the amount of ordinary income recognized under the above
rules will be treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares
will be long-term capital gain or loss if the optionee's holding period
for the shares exceeds one year.
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
23
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 Amended and Restated 1995 Plan:
1. The optionee generally does not realize any taxable income
upon the grant of a Non-Qualified Option, and the Company is not
allowed a business expense deduction by reason of such grant.
2. The optionee generally will recognize ordinary
compensation income at the time of exercise of the Non-Qualified Option
in an amount equal to the 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 optionee sells the shares acquired through the
exercise of a Non-Qualified 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 shares and his or her basis in the
stock (generally, the exercise price plus the amount taxed to the
optionee as compensation income). If the optionee's holding period for
the shares exceeds one year, such gain or loss will be a long-term
capital gain or loss.
4. The Company generally should be entitled to a tax
deduction when compensation income is recognized by the optionee.
5. An optionee may be entitled to exercise a Non-Qualified
Option by delivering shares of the Company's Common Stock to the
Company in payment of the exercise price. If an 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 Option is subject to vesting, or is
subject to certain restrictions on resale under federal securities laws
applicable to directors, officers or 10% stockholders.
Under current federal income tax law, persons receiving Common Stock
under the Amended and Restated 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.
24
PROPOSAL 4
APPROVAL OF THE SENIOR EXECUTIVE BONUS PLAN
The Compensation Committee of the Board of Directors has approved, and
recommends for stockholder approval, the Senior Executive Bonus Plan (the "Bonus
Plan". The Bonus Plan provides additional incentive to senior executives to
achieve targeted levels of performance. If approved, the Bonus Plan would be in
effect for the fiscal year ending December 31, 2001 and successive fiscal years.
Stockholders are being asked to approve the material terms of the Bonus
Plan so that compensation deductions for amounts paid under the Bonus Plan will
not be limited by Section 162(m) of the Code. For a more complete discussion of
Section 162(m) of the Code, see the Report of the Compensation Committee on
Executive Compensation. Approval by stockholders of the Bonus Plan and
certification by the Compensation Committee that targeted performance has been
achieved, are each a condition to the rights of participants to receive any
payments under the Bonus Plan.
The following is a description of the Bonus Plan:
ELIGIBLE PARTICIPANTS
Employees eligible to receive payments under the Bonus Plan for any
fiscal year shall include the Chief Executive Officer of the Company and such
other key executives as determined by the Compensation Committee. As of
January 1, 2001, 4 employees were eligible to participate in the Bonus Plan.
PERFORMANCE GOALS
Payments of amounts under the Bonus Plan shall be solely on account of
the attainment of one or more pre-established, objective performance goals.
The performance goals will be based on earnings-per-share business criterion.
In general, within the first 90 days of each fiscal year, the Compensation
Committee will determine the target earnings-per-share business criterion for
such fiscal year and the amounts payable under the Bonus Plan upon attainment
of such targets for such fiscal year. Once established for a fiscal year, the
specific targets under the performance goals will not be modified, except to
reflect changes in the Company's Common Stock (such as stock splits, stock
dividends or recapitalizations). No payments will be made under the Bonus
Plan to the extent minimum performance goals are not attained.
PAYMENTS
The Compensation Committee will provide for varying levels of payment
under the Bonus Plan depending on the extent to which the performance goals
have been met or exceeded. The amount of compensation to be paid to a
participant upon attainment of the performance goals will be based on a
percentage of such participant's base pay; provided, however, that no more
than $3,000,000 shall be payable under the Bonus Plan to any one participant
for any fiscal year. All payments will be made in cash.
The compensation which would be payable in the future under the Bonus
Plan cannot be determined because the amount of such compensation is
contingent upon attainment of the pre-established performance goals, the
outcome of which is substantially uncertain at the time the performance goals
are established. Similarly, as the performance goals established by the
Compensation Committee pursuant to the Bonus Plan are applicable only to a
specific year, the amount that would have been paid in the prior fiscal year
to eligible participants in the Bonus Plan is not determinable.
ADMINISTRATION
The Compensation Committee shall administer the Bonus Plan. The
Compensation Committee must certify in writing prior to payment of the
compensation that the performance goals and any other material terms were in
fact satisfied.
AMENDMENT
The Compensation Committee may amend the Bonus Plan, provided that the
Compensation Committee considers the effect of any amendment under Section
162(m) of the Code.
If the proposal is not approved, the Company will not make any payments
under the Bonus Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
ADOPTION OF THE SENIOR EXECUTIVE BONUS PLAN.
25
PROPOSAL 5
RATIFICATION 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, 2000.2001. 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 Annual 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.
The following table details aggregate fees billed for 2000 by Deloitte
& Touche to the Company for (i) professional services rendered for the audit of
the Company's annual consolidated financial statements for 2000 and the reviews
of the Company's quarterly consolidated financial statements; (ii) financial
information systems design and implementation; and (iii) all other services.
Services Aggregate Fees Billed for 2000
- -------- ------------------------------
Audit $247,000
Financial Information System Design and
Implementation None
Other* $172,600
- --------------
* Includes fees billed for the audit of the Company's pensions and savings
plans, SFAS No. 133 review and implementation consulting and the Company's
equity offering and related SEC filings.
The audit committee of the Board of Directors has considered whether
the provision of the services by Deloitte & Touche covered by the caption
"Other" in the above-table is compatible with Deloitte & Touche's independence
and has concluded that it is.
Ratification of the selection of Deloitte and& Touche to serve as auditors
for the fiscal year ending December 31, 20002001 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 THE
SELECTION OF DELOITTE & TOUCHE LLP.
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (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 Securities and Exchange Commission (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 year ended December
31, 1999,2000, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in the year ended December 31, 1999,2000, except
that Donald G. Friedleach of Messrs. Maroney, Mancuso and Henry, filed late one Form 4 with
respect to a salepurchase of shares of the Company.Company pursuant to the 1997 Plan.
26
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Company's proxy
materials to be furnished to all stockholders entitled to vote at the 20012002
Annual Meeting of Stockholders pursuant to Rule 14a-8 promulgated by the
Commission under the Exchange Act must be received at the Company's principal
executive offices not later than November 20, 2000.19, 2001. Under the Company's By-laws,
stockholders who wish to make a proposal at the 20012002 Annual Meeting - other than
one that will be included in the Company's proxy materials - must notify the
Company 21
no earlier than October 21, 200020, 2001 and no later than November 20, 2000.19, 2001. If
a stockholder who wishedwishes to present a proposal fails to notify the Company by
November 20, 2000,19, 2001, the stockholder would not be entitled to present the proposal
at the meeting. If, however, notwithstanding the requirements of the Company's
By-laws, the proposal is brought before the meeting, then under the Commission's
proxy rules the proxies solicited by management with respect to the 20012002 Annual
Meeting will confer discretionary voting authority with respect to the
stockholder's proposal on the persons selected by management to vote the
proxies. If a stockholder makes a timely notification, the proxies may still
exercise discretionary voting authority under circumstances consistent with the
Commission's proxy rules. All stockholder proposals must comply with the
applicable requirements of the Company's By-laws, a copy of which is on file
with the Commission. 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. The Company has retained Innisfree M&A Corporation of New
York, New York to assist in the solicitation of proxies at a cost estimated not
to exceed $12,500.
2227
EXHIBITAPPENDIX A
INVESTORS FINANCIAL SERVICES CORP.
AUDIT COMMITTEE CHARTER
AUDIT COMMITTEE POLICY STATEMENT
The Audit Committee ("Committee") shall provide assistance to the Boards of
Directors of Investors Financial Services Corp. (the "Company") and Investors
Bank & Trust Company (the "Bank") in fulfilling their oversight responsibilities
to stockholders relating to the reliability and integrity of corporate
accounting and financial reporting practices, the quality and integrity of
financial reports, compliance with laws, regulations and Company policies, and
maintenance of a sound system of internal controls. In doing so, it is the
responsibility of the Audit Committee to maintain free and open means of
communication among the directors, the independent auditors, and the Company's
internal auditors and financial management. The Board of Directors and the
Committee will review, update as conditions dictate, and approve this charter
annually.
AUDIT COMMITTEE ORGANIZATION
The Committee shall be composed of a minimum of three directors who are
independent of the management of the Company and are free of any relationship
that, in the opinion of the Board of Directors, would interfere with the
exercise of their independence from management and the Company. The Committee
adopts the definition of independence recommended by the Blue Ribbon Committee
on Improving the Effectiveness of Corporate Audit Committees. Two members of the
Committee shall constitute a quorum. While all members are expected to possess a
working familiarity with basic finance and accounting practices, at least one of
the Committee members shall possess direct accounting or related financial
management expertise. The Committee consists of the following three members of
the Company's and Bank's Boards of Directors: Thomas McDermott (Chairperson of
the Committee), Robert Fraser, and Phyllis Swersky.
The Committee shall meet on a minimum of a quarterly basis. If circumstances
warrant, an unscheduled meeting of the Committee can be called with or without
the presence of the Company's management. The Committee strongly supports
confidential exchanges with internal auditors and independent auditors.
Therefore, no less than annually, the Committee shall meet with the Director of
Internal Audit without the presence of management. In addition, at all meetings
where independent auditors are present, the Committee will ensure that
sufficient opportunity is made available for the independent auditors to meet
without management present.
AUDIT COMMITTEE RESPONSIBILITIES
The Committee will:
1. Recommend to the Board of Directors the independent accounting firm to be
retained to certify the Company's consolidated financial statements. This
external accounting firm is ultimately accountable to the Board of
Directors and the Committee, which is responsible for selecting, evaluating
and, where appropriate, replacing the external auditing firm.
2. Meet with the independent auditors and financial management of the Company
to review the scope of the proposed audit for the coming year and to
approve the engagement letters for public accounting firms either retained
to certify the Company's consolidated financial statements or to conduct
internal control reviews.
3. At the conclusion of such audits, meet with the independent auditors and
financial management of the Company and review any related report or
opinion issued by the independent auditors and any comments or
recommendations stemming from such audits. Prior to the release of the
Company's audited and interim
A-1
consolidated financial statements, review the consolidated financial
statements with the independent auditors and financial management of the
Company. Determine that the independent auditors are satisfied with the
disclosure and content of the consolidated financial statements.
4. Review any changes in accounting principles, the accounting treatment of
significant transactions, or changes in financial reporting policies.
Additionally, review the independent auditor's judgments regarding the
quality and appropriateness of the Company's accounting principles, as
applied in the Company's financial reporting, and the clarity of the
Company's financial disclosure practices. Inquire as to the auditors'
judgments regarding the degree of aggressiveness or conservatism of the
Company's accounting principles and underlying estimates and other
significant decisions made by management in preparing the financial
disclosure. Review any significant disagreement or difficulty encountered
during the course of the audit.
5. Annually discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards 61.
6. Require that the independent auditors annually disclose in writing to the
Committee all relationships between the auditors and the Company,
consistent with the Independence Standards Board's Standard No. 1. The
Committee will review and discuss any disclosed relationships the auditors
have with the Company that may impact the objectivity and independence of
the auditing firm, including review and discussion of compensation arising
from those relationships with the Company. The Committee will recommend to
the Board of Directors that appropriate action be taken to assure the
independence of the auditors, as applicable.
7. Based on the reviews and discussions of the Committee under paragraphs 2
through 6 above, determine on an annual basis whether to recommend to the
full Board of Directors that the audited consolidated financial statements
of the Company be included in the Company's Annual Report on Form 10-K.
8. Review and approve Audit Committee disclosures to be contained in the
Company's proxy statement for its annual meeting of stockholders, including
the Audit Committee Report and disclosure regarding the independence of
members of the Committee. The Committee shall ensure that this Charter is
attached as an appendix to the Company's proxy statement at least once
every three years, beginning in 2001.
9. Review with the independent auditors, the Company's internal auditor, and
the Company's financial management, the effectiveness and integrity of the
accounting and financial controls of the Company, and elicit any
recommendations for the improvement of such internal control procedures or
particular areas where new or more detailed controls are desirable. In this
regard, the Committee shall review management's annual statement of
responsibilities for preparing consolidated financial statements,
establishing and maintaining an adequate internal control for financial
reporting, and complying with designated safety and soundness laws. The
Committee shall also review management's assessments of the effectiveness
of the Company's internal control and procedures for financial reporting as
of the fiscal year-end and compliance with designated laws and regulations
during the fiscal year. In addition, the Committee shall review the
independent auditors' attestations on the aforementioned management
assertions.
10. Review significant findings and recommendations of all regulatory reports
of examination and management's responses thereto.
11. Review and approve the appointment of the Director of Internal Audit.
12. Review and approve the Internal Audit Department's annual audit plans and
budget, and determine that resources are sufficient to maintain an
effective audit program. Review the independence and authority of the
internal audit function's reporting obligations and the coordination of
efforts with the independent auditors.
13. At each meeting, but no less than quarterly, review internal audit reports
containing management's responses completed since the previous Committee
meeting, the status of the annual audit plan, and a progress report on the
extent to which internal audit recommendations have been implemented by
management. Any deviations
A-2
from or modifications to the original audit plan will be reviewed with the
Committee, as will be any changes in internal audit policies.
14. Review annually the program established to monitor compliance with the
Company's Code of Conduct. Advise the Board with respect to the Company's
policies and procedures regarding compliance with applicable laws and
regulations and with the Company's Code of Conduct.
15. Under the direction of the Chairperson of the Committee, report on the
Committee's activities at the Board of Director meetings which immediately
follow all Committee meetings.
16. Have the ability to investigate any matter brought to the Committee's
attention within the scope of its duties, with the power to retain outside
counsel, accountants or others to assist it in the conduct of any
investigation if, in its judgment, that is appropriate.
17. Review with the Company's General Counsel legal matters that may have a
material impact on the consolidated financial statements, the Company's
compliance policies and any material reports or inquiries received from
regulators or governmental agencies.
18. Meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditor in separate
executive sessions.
While the Committee has the responsibilities and powers set forth in the
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's consolidated financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Committee to conduct investigations, to resolve disagreements,
if any, between management and the independent auditor or to assure compliance
with laws and regulations and the Company's code of Conduct.
Approved: By The Committee Date: February 13, 2001
-------------------
A-3
APPENDIX B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INVESTORS FINANCIAL SERVICES CORP.
Investors Financial Services Corp. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware ("GCL"), does hereby certify as follows, pursuant to Section
242 of the GCL:
FIRST: That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors, at a meeting held on February 15, 2000,13, 2001, in accordance with Section
242 of the GCL, duly adopted a resolution (i) proposing an amendment to the
Certificate of Incorporation of the Corporation, (ii) declaring said amendment
to be advisable and in the best interests of the Corporation's stockholders and
(iii) directing that the matter be submitted to the stockholders of the
Corporation for the approval of said amendment.
SECOND: The amendment to the Certificate of Incorporation of the
Corporation was duly adopted at the Annual Meeting of Stockholders of the
Corporation held on April 18, 2000,17, 2001, in accordance with Section 242 of the GCL.
THIRD: That in accordance with the aforementioned resolution, the
Corporation's Certificate of Incorporation is hereby amended by amending and
restating in its entirety Article FOURTH(A)FOURTH (A) thereof and substituting in lieu
thereof the following new Article FOURTH(A)FOURTH (A):
(A) The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is
41,650,000101,650,000 shares, consisting of 40,000,000100,000,000 shares of
Common Stock with a par value of One Cent ($.01) per share
(the "Common Stock"), 650,000 shares of Class A Common Stock
with a par value of One Cent ($.01) per share (the "Class A
Stock"), and 1,000,000 shares of Preferred Stock with a par
value of One Cent ($.01) per share, the designations of which
are to be determined by the Board of Directors.
A description of the respective classes of stock and a
statement of the designations, preferences, voting powers (or
no voting powers), relative, participating, optional or other
special rights and privileges and the qualifications,
limitations and restrictions of the Common Stock, Class A
Stock and Preferred Stock are as follows:
23
FOURTH: That in accordance with the aforementioned resolution, the
Corporation's Certificate of Incorporation is hereby amended by amending and
restating in its entirety Article ELEVENTH thereof and substituting in lieu
thereof the following new Article ELEVENTH:
ELEVENTH. The Corporation reserves the right to amend
or repeal any provision contained in this Certificate of
Incorporation in the manner prescribed by the laws of the
State of Delaware and all rights conferred upon stockholders
are granted subject to this reservation, PROVIDED, HOWEVER,
that in addition to the vote of the holders of any class or
series of stock of the Corporation required by law or by this
Certificate of Incorporation, but in addition to any vote of
the holders of any class or series of stock of the
Corporation required by law, this Certificate of
Incorporation or a Certificate of Designation, the
affirmative vote of the holders of shares of voting stock of
the Corporation representing at least seventy-five percent
(75%) of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together
as a single class, shall be required to (i) reduce or
eliminate the number of authorized shares of Common Stock and
Class A Stock set forth in Article Fourth or (ii) amend or
repeal, or adopt any provision inconsistent with, Parts B and
C of Article FOURTH and Articles FIFTH, SIXTH, SEVENTH,
EIGHTH, NINTH, TENTH and this Article ELEVENTH of this
Certificate of Incorporation.
FIFTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the GCL.
B-1
IN WITNESS WHEREOF, Investors Financial Services Corp. has caused this
certificate to be signed by Kevin J. Sheehan, its President and Chief Executive
Officer, as of this ____ day of ________, 2000.2001.
INVESTORS FINANCIAL SERVICES CORP.
By:____________________________ ___________________________________________
Name: Kevin J. Sheehan
Title: President 24and Chief Executive Officer
B-2
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 REVERSEAPPENDIX C
INVESTORS FINANCIAL SERVICES CORP.
AMENDED AND RESTATED 1995 STOCK PLAN
1. To elect two (2)
Class II Directors.
See reverse side / / / /
for instruction.
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve an amendmentPURPOSE. The purpose of the Investors Financial Services Corp. 1995
Stock Plan (the "Plan") is to encourage key employees of Investors Financial
Services Corp. (the "Company") and of any present or future parent or subsidiary
of the Company (collectively, "Related Corporations") and other individuals who
render services to the Company's CertificateCompany or a Related Corporation, by providing
opportunities to participate in the ownership of Incorporationthe Company and its future
growth through (a) the grant of options which qualify as "incentive stock
options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) the grant of options which do not qualify as ISOs
("Non-Qualified Options"); (c) awards of stock in the Company ("Awards"); and
(d) opportunities to make direct purchases 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 OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The 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 the
Plan shall be administered: (i) to the extent required by applicable
regulations under Section 162(m) of the Code, by two or more "outside
directors" (as defined in applicable regulations thereunder) and (ii)
to the extent required by Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 or any successor provision ("Rule 16b-3"), by a
disinterested administrator or administrators within the meaning of
Rule 16b-3. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no 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), and 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 by the Board. The Committee may from time to time adopt such
rules and regulations for carrying out the Plan as it may deem
advisable. No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan
or any Stock Right granted under it.
C-1
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. Subject to the provisions
of paragraph 2(A) above, if applicable, Stock Rights may be granted to
members of the Board. All grants of Stock Rights to members of the
Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons.
Consistent with the provisions 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 6,140,000, 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 1,792,000 shares of Common
Stock under the Plan, subject to adjustment as provided in paragraph 13. 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. If, in accordance with the Plan, an optionee
uses shares of common stock of the Company to pay the exercise price of an
Option, only the number of shares issued net of shares tendered in payment of
such exercise price shall be deemed to be issued for purposes of determining
the maximum number of shares available 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
C-2
the Plan are intended to qualify as performance-based compensation to the
extent required under 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 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, at the time an Option 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. If the
Common Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall mean 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 provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the 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.
C-3
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 fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as
the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent
of an optionee, accelerate the permitted exercise date of any
installment of any Option granted to any employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
thirty (30) days after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under this
paragraph 9, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his or her death, any ISO
owned by such optionee may be exercised, to the extent otherwise
exercisable on the date of death, by the estate, personal
representative or beneficiary who has acquired the ISO by will or by
the laws of descent and distribution, until the earlier of (i) the
specified expiration date of the ISO or (ii) one year from the date of
the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her
disability, such optionee shall have the right to exercise any ISO held
by him or her on the date of termination of employment, for the number
of shares for which he or she could have exercised it on that date,
until the earlier of (i) the specified expiration date of the ISO or
(ii) one year from the date of the termination of the optionee's
C-4
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. Except as set forth below, (i) no Stock Right shall
be transferable by any grantee other than by will or by the laws of descent and
distribution and (ii) Stock Rights may be exercised during the grantee's
lifetime only by the grantee (or, if the grantee is disabled and so long as the
Stock Right remains exercisable, by the grantee's duly appointed guardian or
other legal representative). However, a grantee may transfer (i) a Non-Qualified
Option pursuant to a valid domestic relations order and (ii) a Stock Right other
than an ISO to, or for the benefit of, family members or to other persons for
estate planning purposes. Following any such transfer, any such Stock Right
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, and references to a grantee, to the extent
relevant in the context, shall include references to authorized transferees. The
events and consequences of termination of employment set forth in an grantee's
agreement pursuant to which such Stock Right is granted shall continue to be
applied and triggered with reference to the original grantee, following which
the Stock Right shall be exercisable by the transferee only to the extent and
for the periods specified in such agreement.
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 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.
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 Options 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. 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 obligations 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 the date of such notice, at the end of which period the Options
shall terminate; or (iii) terminate all Options in exchange for a cash
payment equal to the excess of the fair
C-5
market value of the shares subject to such Options (to the extent
then exercisable) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an 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. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to
ISOs shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" 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 would constitute a modification
of such ISOs or would cause adverse tax consequences to the holders, it
may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event 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.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number
or price of shares subject to 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. Upon the happening of any of the events described in
subparagraphs A, B or C above, the class and aggregate number of shares
and the per participant limit set forth in paragraph 4 hereof that are
subject to Stock Rights which previously have been or subsequently may
be granted under the Plan shall also be appropriately adjusted to
reflect the events described in such subparagraphs. The Committee or
the Successor Board shall determine the specific adjustments to be made
under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
14. MEANS 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 as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no 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 acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination
C-6
of (a), (b), (c) and (d) above. If the Committee exercises its discretion to
permit payment of the exercise price of an ISO by means of the methods set forth
in clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall
be exercised in writing at the time of the grant of the ISO in question. The
holder of an Option shall not have the rights of a stockholder with respect to
the shares covered by such Option until the date of issuance of a stock
certificate to such holder for such shares. Except as expressly provided above
in paragraph 13 with respect to changes in capitalization and stock dividends,
no adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was originally adopted by
the Board on August 15, 1995, and approved by the sole stockholder of the
Company in August 1995. The Plan shall expire at the end of the day on August
1, 2005 (except as to Options outstanding on that date). 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); (b) the benefits
accruing to participants under the Plan may not be materially increased; (c)
the requirements as to eligibility for participation in the Plan may not be
materially modified; (d) the provisions of paragraph 3 regarding eligibility
for grants of ISOs may not be modified; (e) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs
may not be modified (except by adjustment pursuant to paragraph 13); (f) the
expiration date of the Plan may not be extended; and (g) the Board may not
take any action which would 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 rights of a grantee, without
such grantee's consent, under any Option previously granted to such grantee.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at
the written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the 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.
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.
C-7
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Stock Right, 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, the Company may withhold taxes in respect of
amounts that constitute compensation includible in gross income. The Committee
in its discretion may condition (i) the exercise of an Option, (ii) the grant 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 Company's / / / / / /
Common Stock.
FOR AGAINST ABSTAIN
3. To approve an amendmentStock under this Plan is subject to the Company's Certificateapproval of
Incorporationany 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 decrease
the numberPlan. For example, the Company may be required to
send tax information statements to employees 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 affirmative votes
necessary to increaseOptions in connection with
the number
of authorized sharesPlan.
21. GOVERNING LAW. The validity and construction of the Company's
Common Stock. / / / / / /
FOR AGAINST ABSTAIN
4. To ratifyPlan and the
selectioninstruments evidencing Options shall be governed by the laws of Deloitte & Touche LLP as auditors
for the fiscal year ending / / / / / /
December 31, 2000.
(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) DATECommonwealth
of Massachusetts, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
C-8
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 18, 2000, 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 10, 2000, a copy of which has been received by
the undersigned. The proxies are further authorized to vote, in their
judgment, upon such other business as may properly come before the meeting or
any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AS DESCRIBED
IN ITEM 1, FOR THE PROPOASALSPROPOSALS IN ITEMS 2, 3 AND 4, AND IN THE JUDGEMENTJUDGMENT OF
THE PROXIES NAMED HEREIN WITH RESPECT TO ANY OTHER MATTERS.
The nominees for Class II Director are:
Frank B. Condon, Jr. and Robert B. Fraser
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)
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 II Directors.
See reverse side / / / /
for instruction.
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve an amendment to
the Company's Certificate of
Incorporation to increase
the number of authorized
shares of the Company's / / / / / /
Common Stock.
FOR AGAINST ABSTAIN
3. To approve an amendment to
the Company's Certificate of
Incorporation to decrease
the number of affirmative votes
necessary to increase the number
of authorized shares of the Company's
Common Stock. / / / / / /
FOR AGAINST ABSTAIN
4. To approve the Senior Executive
Bonus Plan. / / / / / /
FOR AGAINST ABSTAIN
5. To ratify the selection of
Deloitte & Touche LLP as auditors
for the fiscal year ending / / / / / /
December 31, 2000.
(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