SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1994 Commission File Number 0-5108
------------------ ------
STATE STREET BOSTON CORPORATION
(Exact name of registrant as specified in its charter)
Commonwealth of Massachusetts 04-2456637
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
225 Franklin Street, Boston, Massachusetts 02110
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (6l7) 786-3000.
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days.
YES X NO
Number of shares of registrant's common stock outstanding on October 31, 1994
was 76,479,467.
<PAGE>
STATE STREET BOSTON CORPORATION
Table of Contents
Page
Part I. Financial Information
Part I. Item 1. Financial Statements
Consolidated Statements of Income 1-2
Consolidated Statement of Condition 3
Consolidated Statement of Cash Flows 4
Consolidated Statement of Changes in Stockholders' Equity 5
Notes to Consolidated Financial Statements 6-10
Independent Accountants' Review Report 11
Part I. Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-22
Part II. Other Information 23
Signatures 24
Exhibits 25-78
<PAGE>
Part I. Item 1. Financial Statements
STATE STREET BOSTON CORPORATION
Consolidated Statement of Income
Three months ended September 30,
(Dollars in thousands, except per share data)
(Unaudited)
1994 1993
Interest Revenue
Deposits with banks $ 51,286 $ 49,137
Investment securities:
U.S. Treasury and Federal agencies 45,564 29,677
State and political subdivisions 9,675 6,159
Other investments 32,451 24,571
Loans 47,776 33,602
Federal funds sold and securities
purchased under resale agreements 43,353 30,127
Trading account assets 5,457 3,547
Total interest revenue 235,562 176,820
Interest Expense
Deposits 72,103 49,257
Other borrowings 68,318 42,250
Long-term debt 2,151 2,316
Total interest expense 142,572 93,823
Net interest revenue 92,990 82,997
Provision for loan losses 3,159 2,880
Net interest revenue after
provision for loan losses 89,831 80,117
Fee Revenue
Fiduciary compensation 176,985 158,360
Other 67,017 53,072
Total fee revenue 244,002 211,432
Revenue Before Operating Expenses 333,833 291,549
Operating Expenses
Salaries and employee benefits 144,139 122,064
Occupancy, net 19,058 16,011
Equipment 27,781 26,190
Other 63,352 54,160
Total operating expenses 254,330 218,425
Income before income taxes 79,503 73,124
Income taxes 27,687 26,851
Net Income $ 51,816 $ 46,273
Earnings Per Share
Primary $ .67 $ .61
Fully diluted .67 .60
Average Shares Outstanding (in thousands)
Primary 76,985 76,167
Fully diluted 77,571 77,141
Cash dividends declared per share $ .15 $ .13
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
Consolidated Statement of Income
Nine months ended September 30,
(Dollars in thousands, except per share data)
(Unaudited)
1994 1993
Interest Revenue
Deposits with banks $149,024 $152,438
Investment securities:
U.S. Treasury and Federal agencies 113,014 88,106
State and political subdivisions 28,970 16,545
Other investments 92,247 72,275
Loans 131,412 92,072
Federal funds sold and securities
purchased under resale agreements 100,281 82,043
Trading account assets 14,682 8,557
Total interest revenue 629,630 512,036
Interest Expense
Deposits 188,504 150,499
Other borrowings 161,357 119,486
Long-term debt 6,479 7,311
Total interest expense 356,340 277,296
Net interest revenue 273,290 234,740
Provision for loan losses 9,511 8,440
Net interest revenue after
provision for loan losses 263,779 226,300
Fee Revenue
Fiduciary compensation 532,660 454,460
Other 200,671 156,285
Total fee revenue 733,331 610,745
Revenue Before Operating Expenses 997,110 837,045
Operating Expenses
Salaries and employee benefits 422,655 349,117
Occupancy, net 53,320 46,242
Equipment 83,639 75,359
Other 198,280 162,435
Total operating expenses 757,894 633,153
Income before income taxes 239,216 203,892
Income taxes 85,069 71,747
Net Income $154,147 $132,145
Earnings Per Share
Primary $ 2.00 $ 1.74
Fully diluted 1.99 1.71
Average Shares Outstanding (in thousands)
Primary 76,841 76,130
Fully diluted 77,488 77,167
Cash dividends declared per share $ .44 $ .38
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
Consolidated Statement of Condition
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Assets
Cash and due from banks $ 1,021,749 $ 1,469,395
Interest-bearing deposits with banks 5,381,227 5,148,249
Securities purchased under resale agreements 2,435,037 2,267,546
Federal funds sold 754,952 188,000
Trading account assets 313,986 159,446
Investment securities:
Held to maturity 5,022,953 4,484,104
Available for sale 2,869,563 1,217,095
Total investment securities 7,892,516 5,701,199
Loans 3,078,424 2,680,174
Allowance for loan losses (58,336) (54,316)
Net loans 3,020,088 2,625,858
Premises and equipment 473,050 445,109
Customers' acceptance liability 21,593 65,643
Accrued income receivable 321,600 280,976
Other assets 722,592 368,702
Total Assets $ 22,358,390 $ 18,720,123
Liabilities
Deposits:
Noninterest-bearing $ 4,204,598 $ 5,450,183
Interest-bearing:
Domestic 1,831,482 2,140,457
Foreign 8,002,509 5,427,231
Total deposits 14,038,589 13,017,871
Federal funds purchased 111,380 269,083
Securities sold under repurchase agreements 5,147,750 2,972,928
Other short-term borrowings 472,373 469,265
Notes payable 305,000 149,990
Acceptances outstanding 22,076 65,928
Accrued taxes and other expenses 403,497 373,152
Other liabilities 515,673 167,993
Long-term debt 127,753 128,939
Total Liabilities 21,144,091 17,615,149
Stockholders' Equity
Preferred stock, no par: authorized 3,500,000; issued none
Common stock, $1 par: authorized 112,000,000
issued 76,468,000 and 75,874,000 76,468 75,874
Surplus 30,266 19,253
Retained Earnings 1,107,565 1,009,847
Total Stockholders' Equity 1,214,299 1,104,974
Total Liabilities and Stockholders' Equity $ 22,358,390 $ 18,720,123
</TABLE>
The accompanying notes are an interal part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
Consolidated Statement of Cash Flows
Nine Months ended September 30,
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Operating Activities
Net income $ 154,147 $ 132,145
Noncash charges for depreciation, amortization, provision for
loan losses and foreclosed properties and deferred income taxes 135,354 112,087
Net income adjusted for noncash charges 289,501 244,232
Adjustments to reconcile to net cash provided (used)
by operating activities:
Securities (gains) losses, net 473 (15,375)
Net change in:
Accrued income receivable (40,624) (38,803)
Accrued taxes and other expenses 15,976 27,224
Trading account assets (154,540) (142,421)
Other, net 3,933 (143,709)
Net Cash Provided by Operating Activities 114,719 (68,852)
Investing Activities
Payments for purchases of:
Held to maturity securities (2,916,561) (2,617,204)
Available-for-sale securities (3,232,038) (901,331)
Lease financing assets (312,146) (333,554)
Premises and equipment (97,675) (91,161)
Proceeds from:
Maturities of held to maturity securities 2,350,350 1,580,843
Maturities of investment securities available for sale 281,435 89,798
Sales of investment securities available for sale 1,256,204 935,816
Principal collected from lease financing 35,229 32,489
Net (payments for) proceeds from:
Interest-bearing deposits with banks (232,978) 19,708
Federal funds sold and securities purchased
under resale agreements (734,443) (1,107,133)
Loans (330,266) (567,275)
Net Cash Used by Investing Activities (3,932,889) (2,959,004)
Financing Activities
Proceeds from issuance of:
Long-term debt 99,025
Nonrecourse debt for lease financing 237,540 279,294
Common stock 6,174 3,859
Payments for:
Nonrecourse debt for lease financing (35,156) (25,558)
Long-term debt (582) (39,029)
Cash dividends (33,595) (28,673)
Net proceeds from (payments for):
Deposits 1,020,718 839,627
Short-term borrowings 2,175,425 1,709,664
Net Cash Provided by Financing Activities 3,370,524 2,838,209
Net Increase (Decrease) in Cash and Due From Banks (447,646) (189,647)
Cash and due from banks at beginning of period 1,469,395 1,284,467
Cash and Due From Banks at End of Period $ 1,021,749 $ 1,094,820
Supplemental Disclosure
Interest paid $ 354,558 $ 267,118
Income taxes paid 37,343 39,138
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
Nine months ended September 30,
(Dollars in thousands)
(Unaudited)
1994 1993
Beginning Balance $ 1,104,974 $ 953,135
Net Income 154,147 132,145
Cash dividends declared (33,595) (28,673)
Issuance of common stock 11,608 7,776
Foreign currency translation 6,383 (484)
Unrealized loss on available-for-sale securities,
net of taxes (29,218)
Ending Balance $ 1,214,299 $ 1,063,899
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note A - Basis of Presentation
The consolidated financial statements include the accounts of State Street
Boston Corporation ("State Street") and its subsidiaries, including its
principal subsidiary, State Street Bank and Trust Company ("State Street Bank").
All significant intercompany transactions have been eliminated upon
consolidation. Certain previously reported amounts have been reclassified to
conform to the current method of presentation. State Street's investment in its
50%-owned affiliate, Boston Financial Data Services, Inc., is accounted for by
the equity method.
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," was adopted by State Street
effective January 1, 1994. SFAS No. 115 requires that debt and equity securities
for which State Street does not have the positive intent or ability to hold to
maturity and that are not considered to be part of trading-related activities be
classified as available-for-sale securities and reported at their fair values,
with unrealized gains and losses reported on a net-of-tax basis as a separate
component of stockholders' equity. At September 30, 1994, the unrealized pre-tax
loss on available-for-sale securities was $51,393,000. Held to maturity
investments are stated at cost, adjusted for amortization of premiums and
accretion of discounts. Securities classified as available-for-sale are
purchased in connection with State Street's interest-rate risk management and
may be sold in response to changes in interest rates and other factors. Gains or
losses on securities sold are computed based on identified costs and included in
fee revenue.
Financial Accounting Standards Board Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts" was adopted by State Street during the
first quarter of 1994. Interpretation No. 39 changes the reporting of unrealized
gains and losses on interest rate and foreign exchange contracts on the balance
sheet. The interpretation requires that gross unrealized gains be reported as
assets and gross unrealized losses be reported as liabilities. The amounts were
previously shown on a net basis on the balance sheet. The interpretation,
however, permits netting of such unrealized gains and losses with the same
counterparty when master netting agreements have been executed. At September 30,
1994, a total of $393,000,000 is included in other assets and other liabilities
for gross unrealized gains and gross unrealized losses, respectively.
For the Consolidated Statement of Cash Flows, State Street has defined cash
equivalents as those amounts included in the Statement of Condition caption,
"Cash and due from banks." For the nine months ended September 30, 1994 and
1993, long-term debt converted into common stock was $632,000 and $1,240,000,
respectively.
In the opinion of management, all adjustments consisting of normal recurring
accruals which are necessary for a fair presentation of the financial position
of State Street and subsidiaries at September 30, 1994 and December 31, 1993,
and its cash flows for the nine months ended September 30, 1994 and 1993, and
the consolidated results of its operations for the three months and nine months
ended September 30, 1994 and 1993 have been made. These statements should be
read in conjunction with the financial statements, notes and other information
included in State Street's latest annual report on Form 10-K.
<PAGE>
STATE STREET BOSTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note B - Investment Securities
Investment securities consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1994
Unrealized
Cost Gains Losses Market
<S> <C> <C> <C> <C>
Held to maturity
U.S. Treasury and
Federal agencies $ 1,464,346 $ 1,217 $ 19,411 $ 1,446,152
State and political
subdivisions 1,076,770 745 11,100 1,066,415
Asset-backed securities 2,297,187 1,525 54,295 2,244,417
Other investments 184,650 293 4,066 180,877
----------- ----------- ----------- -----------
Total 5,022,953 3,780 88,872 4,937,861
Available for sale
U.S. Treasuries 2,839,704 49,959 2,789,745
Other investments 81,252 32 1,466 79,818
----------- ----------- ----------- -----------
Total 2,920,956 32 51,425 2,869,563
----------- ----------- ----------- -----------
Total investment
securities $ 7,943,909 $ 3,812 $ 140,297 $ 7,807,424
=========== =========== =========== ===========
</TABLE>
Investment securities consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1993
Unrealized
Cost Gains Losses Market
<S> <C> <C> <C> <C>
Held to maturity
U.S. Treasury and
Federal agencies $ 1,272,370 $ 11,522 $ 1,673 $ 1,282,219
State and political
subdivisions 1,083,879 7,006 494 1,090,391
Asset-backed securities 2,028,099 9,800 4,345 2,033,554
Other investments 99,756 1,398 70 101,084
----------- ----------- ----------- -----------
Total 4,484,104 29,726 6,582 4,507,248
Available for sale
U.S. Treasuries 1,121,605 9,000 4,597 1,126,008
Other investments 95,490 423 95,913
----------- ----------- ----------- -----------
Total 1,217,095 9,423 4,597 1,221,921
----------- ----------- ----------- -----------
Total investment
securities $ 5,701,199 $ 39,149 $ 11,179 $ 5,729,169
=========== =========== =========== ===========
</TABLE>
During the nine months ending September 30, 1994, gains of $2,852,000 and losses
of $3,325,000 were realized on sales of available-for-sale securities of
$1,256,204,000. During the nine months ending September 30, 1993, gains of
$15,426,000 and losses of $51,000 were realized on sales of available-for-sale
securities of $935,816,000.
<PAGE>
STATE STREET BOSTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note C - Allowance for Loan Losses
The adequacy of the allowance for loan losses is evaluated on a regular basis by
management. Factors considered in evaluating the adequacy of the allowance
include previous loss experience, current economic conditions and their effect
on borrowers, and the performance of individual credits in relation to contract
terms. The provision for loan losses charged to earnings is based upon
management's judgment of the amount necessary to maintain the allowance at a
level adequate to absorb probable losses.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
-------------------- -----------------
1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 55,947 $ 55,734 $ 54,316 $ 57,931
Provision for loan losses 3,159 2,880 9,511 8,440
Loan charge-offs (1,130) (3,931) (7,014) (13,786)
Recoveries 360 498 1,523 1,191
Allowance of subsidiary
purchased 1,405
-------- -------- -------- --------
Balance at end of period $ 58,336 $ 55,181 $ 58,336 $ 55,181
======== ======== ======== ========
</TABLE>
Note D - Income Taxes
The provision for income taxes included in the Consolidated Statement of Income
is comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
-------------------- -----------------
1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C>
Current $ 20,102 $ 15,788 $ 48,525 $ 45,996
Deferred 7,585 11,063 36,544 25,751
-------- -------- -------- --------
Total provision $ 27,687 $ 26,851 $ 85,069 $ 71,747
======== ======== ======== ========
</TABLE>
The provision for income taxes is less than the combined U.S. corporate tax rate
of 35% for 1994 and 34% for 1993, and the applicable state tax rates in both
periods primarily because of tax exempt income and tax credits.
<PAGE>
STATE STREET BOSTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note E - Fee Revenue - Other
The following items are included in the other category of fee revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
-------------------- -----------------
1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C>
Foreign exchange trading $ 25,696 $ 22,641 $ 88,863 $ 59,232
Processing service fees 18,917 12,104 48,685 33,751
Service fees 12,221 10,147 35,166 28,664
Securities gains (losses) net 1,810 3,690 (473) 15,375
Trading account profits (252) 1,332 596 4,058
Other 8,625 3,158 27,834 15,205
--------- --------- --------- ---------
Total fee revenue - other $ 67,017 $ 53,072 $ 200,671 $ 156,285
========= ========= ========= =========
</TABLE>
Note F - Operating Expenses - Other
The following items are included in the other category of operating expenses:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
-------------------- -----------------
1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C>
Contract services $ 22,669 $ 16,322 $ 66,092 $ 45,692
Professional services 12,331 8,221 34,579 24,685
Advertising and sales promotion 5,995 4,493 18,315 13,953
Telecommunications 5,049 5,738 16,563 16,700
Postage, forms and supplies 4,598 4,570 15,482 14,859
FDIC and other insurance 3,867 4,073 14,277 12,829
Other 8,843 10,743 32,972 33,717
--------- --------- --------- ---------
Total operating
expenses - other $ 63,352 $ 54,160 $ 198,280 $ 162,435
========= ========= ========= =========
</TABLE>
Note G - Commitments and Contingent Liabilities
State Street provides custody, accounting and information services to mutual
fund, master trust/master custody/global custody, corporate trust and defined
contribution plan customers; and investment management services to institutions
and individuals. Assets under custody and management, held by State Street in
fiduciary or custody capacity, are not included in the Consolidated Statement of
Condition since items are not assets of State Street. Management conducts
regular reviews of its responsibilities for these services and considers the
results in preparing its financial statements. In the opinion of management,
there are no contingent liabilities at September 30, 1994 that would have a
material adverse effect on State Street's financial position or results of
operations.
State Street is subject to pending and threatened legal actions that arise in
the normal course of business. In the opinion of management, after discussion
with counsel, these can be successfully defended or resolved without a material
adverse effect on State Street's financial position or results of operations.
<PAGE>
STATE STREET BOSTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note H - Earnings Per Common Share
The computation of earnings per common share is based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. The computation of fully diluted earnings per share is based on the
assumption that the convertible capital notes and debentures had been converted
as of the beginning of each year with the elimination of related interest
expense less income tax effect. The computation of earnings per share is as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands, Three Months Ended Nine Months Ended
except per share data) September 30, September 30,
1994 1993 1994 1993
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 76,453,021 75,500,786 76,274,944 75,364,822
Common stock equivalents 532,409 666,219 566,500 764,951
---------- ---------- ---------- ----------
Primary shares outstanding 76,985,430 76,167,003 76,841,441 76,129,773
========== ========== ========== ==========
Net income $51,816 $46,273 $154,147 $132,145
======= ======= ======== ========
Earnings Per Share-primary $ .67 $ .61 $ 2.00 $ 1.74
======= ======= ======== ========
Fully Diluted
Average shares outstanding 76,453,021 75,500,784 76,274,944 75,364,822
Common stock equivalents 532,409 703,476 566,500 764,951
Assumed conversion of 7 3/4%
convertible subordinated
debentures 585,739 895,423 639,923 995,466
Assumed conversion of 5%
convertible notes - 41,323 6,562 41,323
---------- ---------- ---------- ----------
Fully diluted average
shares outstanding 77,571,169 77,141,006 77,487,929 77,166,562
========== ========== ========== ==========
Net income $51,816 $46,273 $154,147 $132,145
Elimination of interest on
7 3/4% convertible subordinated
debentures and 5% convertible
notes less related income tax
effect 37 50 119 180
------- ------- -------- --------
Fully diluted net income $51,853 $46,323 $154,266 $132,325
======= ======= ======== ========
Earnings Per Share-fully
diluted $ .67 $ .60 $ 1.99 $ 1.71
======= ======= ======== ========
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Stockholders and Board of Directors
State Street Boston Corporation
We have reviewed the accompanying consolidated statement of condition of State
Street Boston Corporation as of September 30, 1994, and the related consolidated
statements of income for the three month and nine month periods ended September
30, 1994 and 1993 and changes in stockholders' equity and cash flows for the
nine month periods ended September 30, 1994 and 1993. These financial statements
are the responsibility of the Corporation's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of State Street Boston
Corporation as of December 31, 1993 and the related consolidated statements of
income, cash flows and changes in stockholders' equity for the year then ended,
not presented herein, and in our report dated January 13, 1994, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated statement of
condition as of December 31, 1993, is fairly stated, in all materials respects,
in relation to the consolidated statement of condition from which it has been
derived.
ERNST & YOUNG LLP
Boston, Massachusetts
October 17, 1994
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Third quarter earnings per share were $.67 on a fully diluted basis, an increase
of 12% from $.60 per share in the third quarter of 1993. Net income in the
quarter was $51.8 million, up 12% from $46.3 million a year ago. Return on
stockholders' equity was 17.1%. The earnings per share gain reflected revenue
growth of 14%, partially offset by increased expenses to support growth and
continued investment spending.
Year-to-date, revenue increased 19%, earnings per share were up 16% and return
on stockholders' equity was 17.7%.
<TABLE>
Condensed Income Statement
Taxable Equivalent Basis
(Dollars in millions, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 Change % 1994 1993 Change %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue $244.0 $211.4 $ 32.6 15 $733.3 $610.7 $122.6 20
Interest revenue 241.3 183.2 58.1 32 647.0 526.7 120.3 23
Interest expense 142.6 93.8 48.8 52 356.3 277.3 79.0 28
------ ------ ----- ------ ------ ------ ------
Net interest revenue 98.7 89.4 9.3 10 290.7 249.4 41.3 17
Provision for loan losses 3.2 2.9 .3 10 9.5 8.5 1.0 12
------ ------ ------ ------ ------ ------ ------
Net interest revenue after
provision for loan losses 95.5 86.5 9.0 10 281.2 240.9 40.3 17
------ ------ ----- ------ ------ ------
Total revenue 339.5 297.9 41.6 14 1,014.5 851.6 162.9 19
Operating expenses 254.3 218.4 35.9 16 757.9 633.2 124.7 20
------ ------ ----- ------ ------ ------
Income before taxes 85.2 79.5 5.7 7 256.6 218.4 38.2 17
------ ------ ----- ------ ------ ------
Income taxes 27.7 26.9 .8 3 85.1 71.7 13.4 19
Taxable equivalent adjustment 5.7 6.3 (0.6) (10) 17.4 14.6 2.8 19
------ ------ ----- ------ ------ ------ ------
Net income $ 51.8 $ 46.3 $ 5.5 12 $154.1 $132.1 $ 22.0 17
====== ====== ===== ====== ====== ====== ======
Earnings Per Share
Primary $ .67 $ .61 $ .06 10 $ 2.00 $ 1.74 $ .26 15
Fully diluted .67 .60 .07 12 1.99 1.71 .28 16
($ and % change based on dollars in thousands)
</TABLE>
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
TOTAL REVENUE
Total revenue was $339.6 million, up $41.6 million, or 14%, from a year ago.
This growth reflected the increasingly comprehensive and complex range of
services provided to customers. Volumes of non-U.S. assets and trades continued
to grow, with both up approximately 40%. Multicurrency accounting, settlement,
and other complex services associated with non-U.S. securities result in higher
revenue per holding and trade than for U.S. securities.
Assets under custody were $1.6 trillion, up $132 billion, or 9%, from a year ago
due to both additions by existing customers and new customers. As reported
previously, a corporate trust customer with $47 billion of assets under custody
assumed custody of its own assets at the end of May, 1994. Assets under
management were $155 billion, up 11% from June and 16% from a year ago. In the
third quarter, short-term cash funds managed increased $10 billion from a
relatively low level in June.
Year-to-date, total revenue was $1.015 billion, an increase of $163 million,
or 19%, from 1993.
FEE REVENUE
Fee revenue was $244.0 million, up $32.6 million, or 15%, from the third quarter
of 1993. Fiduciary compensation, the largest component of fee revenue, was
$177.0 million, up $18.6 million, or 12%. Fiduciary compensation is derived from
accounting, custody, information services, recordkeeping, investment management
and trusteeship services provided from offices in the United States, Canada,
Grand Cayman, Netherland Antilles, United Kingdom, France, Belgium, Luxembourg,
Denmark, Germany, United Arab Emirates, Hong Kong, Taiwan, Japan, Australia and
New Zealand. In the third quarter, fiduciary compensation from non-U.S. offices
increased over 20% from a year ago. In the United States, fiduciary compensation
grew from servicing mutual funds and pension plans, and from managing assets.
Fiduciary compensation from servicing mutual funds grew due to increased use of
more complex services as well as additional mutual funds serviced, trades and
assets. The percentage of non-U.S. securities held by funds continued to
increase. The number of mutual funds serviced increased to 2,375, up 322 from a
year ago, and the number of trades processed increased 12%. Mutual fund
servicing is continuing to shift from primarily custody and portfolio accounting
services to multiple services. Additional funds offered multiple classes of
shares, and funds expanded the number of classes offered, each class with its
own accounting and pricing requirements. In the third quarter, fiduciary
compensation from servicing mutual funds grew faster than the related assets
under custody.
Fiduciary compensation also grew from securities lending, custody,accounting and
other services provided to corporate and public pension plan sponsors. Net new
pension plan customers and additional services for existing customers also
contributed to revenue growth. Corporate trust revenue was lower due to
substantially less active markets for the issuance of asset-backed securities,
and the reduction in services provided to one customer as mentioned above.
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Revenue from asset management services benefitted from the increasing popularity
of investment in emerging markets and international asset allocation strategies.
Actively managed global portfolios increased by over $1 billion from a year ago.
Processing service fees were $18.9 million, up $6.8 million, or 56%, from a year
ago, due in part to growth in processing unclaimed securities, including an
acquisition in December, and an increase in the volume of mortgage loans
serviced. The year-over-year growth in fee revenue also benefitted from an
increase in foreign exchange trading revenue of $3.1 million; an increase in
service fees of $2.1 million; sale of a foreclosed asset of $2.0 million and a
net increase in currency translation of $.9 million on the foreign bond
portfolio. Growth in fee revenue was restrained by lower net securities gains,
down $1.9 million, and a small loss in trading account profits, down $1.6
million from a relatively high level in the third quarter of 1993.
For the nine-month period ending September 30, 1994, fee revenue was $733.3
million, up $122.6 million, or 20%, over 1993. The increase resulted primarily
from growth in fiduciary compensation, up $78.2 million, or 17%, and higher
foreign exchange revenue of $29.6 million.
NET INTEREST REVENUE
Taxable equivalent net interest revenue was $98.7 million, up $9.3 million, or
10%, over the same quarter a year ago, primarily reflecting balance sheet growth
to support customers' activities and the benefit of higher asset yields.
Average interest-earning assets grew $2.5 billion, or 15%, to $19.1 billion,
funded primarily by an increase in foreign deposits and securities sold under
repurchase agreements. Foreign deposits increased by $2.4 billion, or 47%, to
$7.6 billion, due in part to the conversion of customers' cash balances from
subcustodian banks to State Street accounts. Securities sold under repurchase
agreements were up $1.0 billion, or 25%, to $5.1 billion reflecting short-term
investments by customers. Noninterest-bearing deposits declined $158 million to
$3.8 billion due, in part, to lower corporate trust-related balances, which were
particularly high in 1993 due to an active market for securitizations.
Average loans of $3.3 billion were up $592 million, or 22%, over the same
quarter a year ago. Growth occurred in traditional commercial loans as well as
loans to financial asset services customers and securities brokers. Loans to
financial asset services customers are primarily domestic and foreign securities
settlement advances. These advances and loans to securities brokers are
primarily short term and backed by investment securities held at State Street.
Traditional loans comprised 10% of total average assets for the quarter.
<PAGE>
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The spread between interest rates earned and paid declined from 1.54% to 1.42%
due to rising market interest rates, partially offsetting the benefits of
balance sheet growth and a higher level of interest rates. The net interest
margin declined from 2.14% in the third quarter of 1993 to 2.05%, reflecting
narrower spreads and a larger proportion of funding from interest-bearing
sources of funds.
Three Months Ended
September 30,
1994 1993
--------------------- ---------------------
Average Average
Balance Rate Balance Rate
(Dollars in millions)
Interest-earning assets $19,141 5.00% $16,604 4.38%
Interest-bearing liabilities 15,793 3.58 13,126 2.84
---- ----
Excess of rates earned
over rates paid 1.42% 1.54%
==== ====
Net interest margin 2.05% 2.14%
==== ====
For the nine-month period ending September 30, 1994, taxable equivalent net
interest revenue was $290.7 million, up 17% from 1993 due primarily to balance
sheet growth.
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
OPERATING EXPENSES
Operating expenses of $254.3 million were up $35.9 million, or 16%, from the
third quarter of 1993, to accommodate growth and continuation of the investment
program. Salaries and employee benefits were $144.1 million, up $22.1 million,
or 18%, due in part to a 13% increase in staff. Other expenses of $63.4 million,
up $9.2 million, or 17%, reflected the increased volume of transactions
worldwide, as well as higher expenses for professional services and global
marketing.
We anticipate that investment spending, now running at about 10% of revenue,
will gradually return over the course of 1995 to more historical levels (around
8%). As we execute our investment program focused on application development,
improved processing infrastructure, and product and market development, we are
seeing benefits. We are providing a wider array of value-added service to our
customers, and our improved processing infrastructure is producing a higher
level of quality, timeliness and reliability in our daily servicing for
customers around the world.
For the nine-month period ending September 30, 1994, operating expenses were
$757.9 million, up $124.7 million, or 20%, over 1993 for similar reasons as
discussed for the quarter.
CREDIT QUALITY
At September 30, 1994, total loans were $3.1 billion. Excluding securities
settlement advances and other loans to financial asset services customers and
loans to securities brokers, loans were $2.2 billion, or 10% of total assets.
The provision for loan losses charged against income was $3.2 million, up from
$2.9 million a year ago. During the quarter, the allowance for loan losses
increased from $55.9 million to $58.3 million, and the allowance for loan losses
as a percentage of ending loans increased to 1.89%.
<TABLE>
<CAPTION>
Loan ratios 1994 1993
- - ----------- -------------------------- ---------------------------------------
3Q 2Q 1Q 4Q 3Q 2Q 1Q
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance to ending loans 1.89% 1.72% 1.67% 2.03% 2.11% 2.31% 2.60%
Net charge-offs
to average loans .10 .25 .30 .50 .50 .63 .98
Non-performing loans to
ending loans .74 .83 .70 1.00 1.15 1.44 2.00
</TABLE>
During the third quarter, non-performing loans decreased from $26.9 million to
$22.7 million. At quarter end, non-performing assets of $29.3 million were
carried at 37% of their original value. Charge-offs continued to decline. In the
third quarter, net charge-offs were $.8 million, down significantly from $3.4
million in the third quarter of 1993. Credit quality continues to improve.
<PAGE>
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
Non-performing assets 1994 1993
- - --------------------- ----------------------------- --------------------------------------
3Q 2Q 1Q 4Q 3Q 2Q 1Q
------ ------ ------ ------ ------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial and financial $ 19.6 $24.7 $20.7 $24.7 $27.7 $32.3 $34.2
Real estate 2.8 .9 1.0 .5 .7 .7 5.4
Other .3 1.3 1.3 1.6 1.6 1.7 2.8
----- ----- ----- ----- ----- ----- -----
Total non-accrual loans 22.7 26.9 23.0 26.8 30.0 34.7 42.4
Other real estate owned 6.6 6.8 6.8 11.1 11.8 13.1 11.1
----- ----- ----- ----- ----- ----- -----
Total non-performing
assets $29.3 $33.7 $29.8 $37.9 $41.8 $47.8 $53.5
===== ===== ===== ===== ===== ===== =====
</TABLE>
TAXES
The effective tax rate in the third quarter was 34.8%, unchanged from the second
quarter. This was down from 36.7% in the third quarter of 1993, primarily due to
the adjustment booked in the third quarter of 1993 to reflect the increase in
the Federal corporate income tax rate enacted in August, effective retroactively
to January.
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LINES OF BUSINESS
The estimated results for State Street's lines of business are derived from
internal accounting systems, which are continually refined to reflect
organizational performance. These systems allocate to each business revenue and
expenses related to the business, as well as certain corporate overhead,
operations and systems development expenses. They also incorporate processes for
allocating assets and liabilities to each business, including the interest rates
appropriate to each allocation. Capital is allocated using the Federal
regulatory guidelines as a basis, coupled with management's judgement regarding
the operational risks inherent in the businesses. The capital allocations may
not be representative of the capital levels that would be required if these two
lines of business were independent business units.
This section of financial review presents performance results of State Street's
lines of business: financial asset services and commercial lending. The
following line-of-business information is based on management accounting
practices that conform to and support the strategic objectives and management
structure of State Street and are not necessarily comparable with similar
information for any other banking company:
<TABLE>
<CAPTION>
Lines of Business
(Taxable equivalent basis, Financial Commercial
dollars in millions) Asset Services Lending Corporate
Three Months ending September 30, 1994 1993 1994 1993 1994 1993
- - --------------------------------- ---- ---- ----- ---- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Fee revenue $233.6 $204.8 $ 11.4 $ 8.3 $(1.0) $(1.7)
Net interest revenue 70.8 71.3 28.7 19.9 (.8) (1.9)
Provision for loan losses .4 .1 2.8 2.8 .- .-
------ ------ ------ ----- ----- -----
Total revenue 304.0 276.0 37.3 25.4 (1.8) (3.6)
Operating expenses 230.8 193.5 18.4 15.0 5.1 9.9
------ ------ ------ ------ ----- -----
Income before income taxes 73.2 82.5 18.9 10.4 (6.9) (13.5)
Income taxes 29.8 37.7 8.1 4.3 (4.5) (8.8)
------ ------ ------ ------ ----- -----
Net income $ 43.4 $ 44.8 $ 10.8 $ 6.1 $(2.4) $(4.7)
====== ====== ====== ====== ===== =====
Percentage contribution 84% 97% 21% 13% (5)% (10)%
Average assets $19,444 $16,480 $2,356 $2,107
</TABLE>
Financial Asset Services. Financial asset services, which contributed 84% of
State Street's net income for the three months ending September 30, 1994 is
comprised of business components that service and manage financial assets
worldwide. These include services for mutual funds and pension plans, both
defined benefit and defined contribution; corporate trusteeships; and management
of institutional financial assets and personal trust. A broad array of banking
services is provided, including accounting, custody of securities, information
services and recordkeeping; taking short-term customer funds onto State Street's
balance sheet; investment management; foreign exchange trading; and cash
management. Revenue for these services is reflected in fee revenue and net
interest revenue.
In the third quarter of 1994, net income from financial asset services of $43.4
million decreased $1.4 million, or 3%, from the same quarter a year ago.
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Fee revenue increased $28.8 million, or 14%, with fiduciary compensation up
$18.6 million, processing service fees up %6.8 million, and foreign exchange
revenue up $3.1 million. Growth in operating expenses reflected expenses
supporting growth and the ongoing investment spending program.
Commercial Lending. In the third quarter of 1994, commercial lending contributed
21% of net income. Net income increased $4.7 million, or 77%, due to higher fee
revenue and net interest revenue, partially offset by higher operating expenses.
Taxable equivalent net interest revenue increased $8.8 million, or 44%,
primarily due to growth in commercial and financial loans. Fee revenue increased
$3.1 million, or 37%, due to the gain on the sale of a foreclosed asset,
increased trade banking fees and increased service fees on loans. Operating
expenses increased $3.4 million, or 23%, due to increased expenses for other
real estate owned, expenses related to increased volumes, and increased salaries
and employee benefits expense due to growth
Corporate. Corporate includes the impact of long-term debt; investment of
corporate cash; tax credits from tax-advantaged financings, including writedowns
of these investments in fee revenue; operating expenses; and other corporate
items. In the third quarter of 1994, these corporate items reduced net income by
5%.
<TABLE>
<CAPTION>
Lines of Business
(Taxable equivalent basis, Financial Commercial
dollars in millions) Asset Services Lending Corporate
Nine Months ending September 30, 1994 1993 1994 1993 1994 1993
- - -------------------------------- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fee revenue $706.4 $587.5 $ 31.1 $ 28.5 $(4.2) $ (5.3)
Net interest revenue 217.2 194.2 78.4 61.7 (4.9) (6.6)
Provision for loan losses 1.0 .3 8.6 8.2 .- .-
------ ------ ------ ------ ----- ------
Total revenue 922.6 781.4 100.9 82.0 (9.1) (11.9)
Operating expenses 683.5 562.5 55.6 47.0 18.8 23.5
------ ------ ------ ------ ----- ------
Income before income taxes 239.1 218.9 45.3 35.0 (27.9) (35.4)
Income taxes 105.5 96.7 19.6 14.7 (22.7) (25.0)
------ ------ ------ ------ ------ -------
Net income $133.6 $122.2 $ 25.7 $ 20.3 $(5.2) $(10.4)
====== ====== ====== ====== ====== =======
Percentage contribution 86% 93% 17% 15% (3)% (8)%
Average assets $19,151 $15,484 $2,297 $1,970
</TABLE>
Financial Asset Services. For the nine months ending September 30, 1994,
net income from financial asset services contributed 86% of total net income.
Net income increased $11.4 million, or 9% from a year ago. Total revenue
increased $141.2 million, or 18% and operating expenses were up $121.0 million,
or 22%. Within the Financial Asset Services business, asset management services
- - -- institutional asset management and personal trust -- comprised 19% of net
income for 1994.
Commercial Lending. Year-to-date, net income increased $5.4 million, or 27% from
a year ago. Taxable equivalent net interest revenue increased $16.7 million, or
27%, primarily due to loan growth. Operating expenses increased $8.6 million for
the same reasons mentioned above.
Corporate. For the nine months ending September 30, 1994, corporate items
reduced net income by 3%. The net income reduction of $5.2 million compared with
a reduction of $10.4 million a year ago.
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
ACCOUNTING CHANGES
In the first quarter of 1994, State Street adopted Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts Related To Certain
Contracts." This new accounting requirement for all corporations mandated that
both unrealized gains and losses on certain off-balance sheet instruments be
included on the balance sheet. In the past, unrealized gains or losses were
shown net on the balance sheet. For State Street, the primary instrument
affected was forward foreign exchange contracts, due in part to the treasury
services provided to global financial asset services customers. Market risk of
these instruments is controlled under State Street's credit and counterparty
risk management system. Most of the contracts are for 90 days or less, which
results in a portfolio of relatively short maturity. At September 30,
approximately $393 million of unrealized gains and losses relating to
off-balance sheet instruments were added to both other assets and other
liabilities on the balance sheet. This reporting change did not affect the
risk-based capital ratios, which have always included these off-balance sheet
instruments.
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" was adopted on January 1, 1994. This
standard requires that available-for-sale securities be reported at fair value,
with any unrealized gains and losses, net of taxes, reflected as a separate
component of stockholders' equity. At January 1, 1994 the fair value of the
available-for-sale portfolio exceeded this aggregate amortized cost by $4.8
million. This will create variability in stockholders' equity.
CAPITAL AND LIQUIDITY
State Street has a strong capital position to support current operations and
growth, and continues to generate capital internally at a high rate. In the
third quarter, the internal capital generation rate was 13.3%.
At September 30, 1994, State Street's capital and leverage ratios exceeded the
regulatory guidelines:
Minimum
State Regulatory
Street Guidelines
Risk-based capital ratios:
Tier 1 capital 12.4% 4.0%
Total capital 13.0 8.0
Leverage ratio 5.5 3.0
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
State Street expects to grow the balance sheet commensurate with growth in
equity, maintaining capital ratios at State Street Bank which qualify for the
"well-capitalized" designation. The corporation's objectives are to optimize the
use of the balance sheet and to fully service customers, with emphasis on those
services which State Street is well positioned to provide.
Liquidity is required to replace maturing liabilities, accommodate the
transaction and cash management requirements of State Street's customers, meet
loan commitments and accommodate other corporate needs. Liquidity is provided
from the ability to access global market sources of funding and gather
additional deposits, and from maturing short-term assets, sale of available for
sale securities and payment of loans.
State Street manages its assets and liabilities to maintain a high level of
liquidity. The Corporation has an extensive and diverse funding base inside and
outside the United States. A significant percentage of funding comes from
customers who have other relationships with State Street, particularly those
using financial asset services worldwide. Deposits are accessed through domestic
as well as international treasury centers, providing a cost-effective,
geographically diverse source of funding. Significant funding is also provided
from institutional customers' demand for repurchase agreements for their
short-term investment needs. State Street maintains other funding alternatives,
ensuring access to additional sources of funds if needed. Relationships are
maintained with a variety of investors, for a range of financial instruments, in
various markets and time zones.
State Street maintains a large portfolio of liquid assets. At September 30,
1994, the portfolio included $5.4 billion of interest-bearing deposits with
banks and $2.4 billion of securities purchased under resale agreements. Although
not relied on for daily liquidity needs, the $2.9 billion available-for-sale
portfolio of marketable securities provides a significant secondary source of
liquidity.
State Street maintains strong liquidity ratios. When liquidity is measured by
the ratio of liquid assets to total assets, State Street ranks among the highest
of U.S. banking companies. Liquid assets consist of cash and due from banks,
interest-bearing deposits with banks, Federal funds sold, securities purchased
under resale agreements, trading account assets and investment securities. At
September 30, 1994, the Corporation's liquid assets were 80% of total assets.
<PAGE>
STATE STREET BOSTON CORPORATION
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
ENVIRONMENTAL FACTORS
As explained in the first and second quarters, when revenue was up 25% and
19%, respectively, there are factors in our environment that influence
short-term earnings performance. In the third quarter, several of these factors
restrained our growth. Fewer customer foreign exchange trades lowered our
foreign exchange trading revenue from the second quarter. Lackluster securities
markets gave no boost to our asset-based fees. The interest rates in the United
States continued to rise, compressing our net interest spreads. Year-to-date
through August, industry-wide, net new mutual fund sales were off 38% from a
year ago. Last year was a very active period for residential mortgages and
municipal bonds, with payoffs and refinancings at high levels, and our corporate
trust business benefitted substantially. This year, the issuance of residential
mortgage-backed securities is running about 30% less than in 1993.
BUSINESS UPDATE
As previously announced, State Street signed a definitive agreement to acquire
Investors Fiduciary Trust Company (IFTC), of Kansas City, Missouri, from its
joint owners, DST Systems, Inc. and Kemper Financial Services. The purchase
price, to be paid in State Street common stock, was approximately $225 million
when the stock was at $40 per share. If the stock is at $36 per share or below
then State Street will issue 6% more shares than State Street would have if the
price had remained at $40. State Street intends to account for the transaction
as a pooling. At September 30, 1994, IFTC had total balance sheet assets of $807
million and stockholders' equity of $103 million.
GOALS
State Street has a primary financial goal and supporting goals. The primary
financial goal continues to be sustainable real growth in earnings per share. In
support of that goal, State Street aims for superior long-term performance. For
State Street, that translates to an ROE of 18%. This is an annual goal, not a
goal for each and every quarter.
State Street also has a revenue goal, which is expressed in real terms, or
adjusted for inflation. In the 80's, real revenue grew at an annual compound
growth rate of 12.5% per year. State Street aims to repeat that record in the
90's and is on track in doing so.
State Street has a strong franchise in place. Secular trends continue to fuel
our optimism about the future. We continue to benefit from increased
cross-border investment, the growth of retirement assets around the world, and
the increased scope and complexity of our customers' information needs. Based on
our current assessment, we expect double digit earnings per share growth in the
next few years.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Reference is made to Note G to the Consolidated Financial Statements on Page 9.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibit Index
Exhibit Number Page(s) of this Report
2 Acquisition agreement among State Street 25 - 74
Boston Corporation, dated September 27, 1994,
Kemper Financial Services, Inc. and DST
Systems, Inc. pertaining to the acquisition
of IFTC Holdings, Inc.
10 Material Contracts: Compensation Agreement 75 - 76
with J.R.Towers dated September 30, 1994.
15 Letter re: Unaudited interim 77
financial information
27 Financial Data Schedule 78
(b)Reports on Form 8-K
Two reports on Form 8-K dated July 19, 1994 and September 27, 1994,
respectively, relating to the acquisition of IFTC Holdings, Inc. were
electronically filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STATE STREET BOSTON CORPORATION
Date: November 10, 1994 By: /s/ George J. Fesus
-------------------------------------
George J. Fesus
Executive Vice President, Chief Financial
Officer and Treasurer
Date: November 10, 1994 By: /s/ Rex S. Schuette
-------------------------------------
Rex S. Schuette
Senior Vice President and Comptroller
<PAGE>
Exhibit 2
ACQUISITION AGREEMENT
among
STATE STREET BOSTON CORPORATION
and
KEMPER FINANCIAL SERVICES, INC.
and
DST SYSTEMS, INC.
September 27, 1994
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
EXCHANGE OF THE SHARES FOR STATE STREET STOCK
1.1. Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Acquisition Consideration . . . . . . . . . . . . . . . . . . 1
1.3. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Transaction Agreements. . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STATE STREET
2.1. Organization and Authority. . . . . . . . . . . . . . . . . . 3
2.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . 4
2.5. Investment Representation . . . . . . . . . . . . . . . . . . 4
2.6. State Street Stock. . . . . . . . . . . . . . . . . . . . . . 4
2.7. State Street Reports. . . . . . . . . . . . . . . . . . . . . 4
2.8. Financial Statements. . . . . . . . . . . . . . . . . . . . . 5
2.9. Absence of Material Adverse Changes . . . . . . . . . . . . . 5
2.10. Pooling. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11. Accuracy of Representations and Warranties . . . . . . . . . . 5
ARTICLE III
REPRESENTATIONS OF STOCKHOLDERS
3.1.A. Organization and Authority. . . . . . . . . . . . . . . . . 6
3.2.A. Authorization . . . . . . . . . . . . . . . . . . . . . . . 6
3.3.A. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4.A. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5.A. Intentionally Omitted . . . . . . . . . . . . . . . . . . . 7
3.6.A. Investment Representation . . . . . . . . . . . . . . . . . 7
3.7.A. Retention of Business . . . . . . . . . . . . . . . . . . . 7
3.8.A. DST Related Receivables . . . . . . . . . . . . . . . . . . 7
3.9.A. Certain Business Transactions . . . . . . . . . . . . . . . 7
3.10.A. Accuracy of Representations and Warranties . . . . . . . . . 7
3.11.A. JV Agreement . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1.B. Organization and Authority. . . . . . . . . . . . . . . . . 8
<PAGE>
3.2.B. Authorization . . . . . . . . . . . . . . . . . . . . . . . 8
3.3.B. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4.B. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5.B. Intentionally Omitted . . . . . . . . . . . . . . . . . . . 9
3.6.B. Investment Representation . . . . . . . . . . . . . . . . . 9
3.7.B. Retention of Business . . . . . . . . . . . . . . . . . . . 9
3.8.B. Kemper Related Receivables. . . . . . . . . . . . . . . . . 9
3.9.B. Certain Business Transactions . . . . . . . . . . . . . . . 9
3.10.B. Accuracy of Representations and Warranties . . . . . . . . 10
3.11.B. JV Agreement . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
REPRESENTATIONS OF THE STOCKHOLDERS REGARDING HOLDCO
AND IFTC
4.1. Organization and Authority. . . . . . . . . . . . . . . . . . 10
4.2. No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. Capitalization of Holdco and IFTC . . . . . . . . . . . . . . 11
4.4. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5. Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7. IFTC Organization, Authority and Authorization. . . . . . . . 12
4.8. IFTC Deposits; Securities . . . . . . . . . . . . . . . . . . 12
4.9. Financial Statements. . . . . . . . . . . . . . . . . . . . . 12
4.10. Books of Account . . . . . . . . . . . . . . . . . . . . . . 13
4.11. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.12. Absence of Material Adverse Changes. . . . . . . . . . . . . 14
4.13. Properties and Insurance . . . . . . . . . . . . . . . . . . 14
4.14. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.15. Employees and Benefits . . . . . . . . . . . . . . . . . . . 17
4.16. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.17. No Defaults under Contracts or Agreements. . . . . . . . . . 19
4.18. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 19
4.19. Brokers and Finders. . . . . . . . . . . . . . . . . . . . . 20
4.20. Regulatory Agreements. . . . . . . . . . . . . . . . . . . . 20
4.21. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.22. Environmental Matters. . . . . . . . . . . . . . . . . . . . 20
4.23. Absence of Certain Conditions. . . . . . . . . . . . . . . . 21
4.24. Representations and Warranties Regarding Investment
Company Clients . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1. Conduct Prior to Closing. . . . . . . . . . . . . . . . . . . 22
5.2. Consents and Approvals. . . . . . . . . . . . . . . . . . . . 24
5.3. Actions Prior to the Closing. . . . . . . . . . . . . . . . . 25
5.4. Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Current Information . . . . . . . . . . . . . . . . . . . . . 26
6.2. Access, Information and Confidentiality . . . . . . . . . . . 26
6.4. Noncompetition. . . . . . . . . . . . . . . . . . . . . . . . 28
6.5. Recommendation of IFTC. . . . . . . . . . . . . . . . . . . . 30
6.6. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.7. Press Releases. . . . . . . . . . . . . . . . . . . . . . . . 32
6.8. Employee Benefits and Other Matters . . . . . . . . . . . . . 32
6.9. Effect of Investigations. . . . . . . . . . . . . . . . . . . 33
6.10. Acquisition Proposals. . . . . . . . . . . . . . . . . . . . 33
6.11. Director Resignations. . . . . . . . . . . . . . . . . . . . 34
6.12. Notification of Certain Matters. . . . . . . . . . . . . . . 34
6.13. Preservation of Relationships. . . . . . . . . . . . . . . . 34
6.14. Change of Control. . . . . . . . . . . . . . . . . . . . . . 34
6.15. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation to Consummate
the Closing.. . . . . . . . . . . . . . . . . . . . . . . . 35
7.2. Conditions to Obligation of State Street to
Consummate the Closing. . . . . . . . . . . . . . . . . . . . . 36
7.3. Conditions to Obligation of the Stockholders to
Consummate the Closing. . . . . . . . . . . . . . . . . . . . . 37
7.4. Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VIII
INDEMNIFICATION AND REMEDIES
8.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.2. Stockholders' Indemnification Covenants . . . . . . . . . . . 39
8.3. State Street's Indemnification Covenants. . . . . . . . . . . 39
8.4. Tax Consequences of Indemnification Payments. . . . . . . . . 40
<PAGE>
8.5. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . . 41
8.6. Intentionally Omitted . . . . . . . . . . . . . . . . . . . . 41
8.7. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.8. Third Party Claims. . . . . . . . . . . . . . . . . . . . . . 41
8.9. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.10. Limitations on Indemnification Obligations . . . . . . . . . 43
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.2. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.3. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE X
GENERAL PROVISIONS
10.1. Survival of Representations, Warranties and
Agreements. . . . . . . . . . . . . . . . . . . . . . . . 46
10.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.3. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 48
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedules
2.2 Consents, Approvals, and Notifications
3.8A DST Related Receivables
3.8B Kemper Related Receivables
3.9A DST Related Agreements
3.9B Kemper Related Agreements
4.2 Conflicts
4.6 Litigation
4.8 IFTC Securities
4.9 Consolidated Financial Statements
4.12 Material Adverse Changes
4.13B Leases
4.13C Intellectual Property
4.13D Insurance
4.14 Taxes
4.15A Employment
4.15B Plan Disclosure
4.15C Pension Plans
4.15D Qualification
4.15E Contributions
4.15F Claims
<PAGE>
4.15G Welfare Plans
4.16 Contracts
4.20 Regulatory Agreements
4.21 Dividends
4.22 Environmental Matters
4.23 Out of Balance Customer Accounts
4.24 Investment Company Clients
5.1 Securities
5.1.1(b) Scheduled Compensation
5.1.1(g) Business of IFTC
6.5A DST Investment Companies
6.5B Advisory Affiliates of DST
6.5C Kemper Investment Companies
6.13A Five-year Services
6.13B Three-year Services
7.2.8 Elements
Above schedules are omitted from filing: A copy of any omitted schedule will be
provided supplementally to the Commission upon request.
<PAGE>
Exhibits
A. DST Agreement
B. Registration Rights Agreement
C. Form of Stockholder Legal Opinion
D. Form of Holdco and IFTC Legal Opinion
E. Lease
F-1 - F-2. Form of Amendments to Transfer Agency Agreement
G. Form Service Contract
H. Stockholder Tax Certificate
I. Form State Street Legal Opinion
J. State Street Tax Certificate
K. General Services Agreement
Above exhibits are omitted from filing: A copy of any omitted exhibit will
be provided supplementally to the Commission upon request.
<PAGE>
ACQUISITION AGREEMENT
Agreement (the "Agreement") made as of the 27th day of September, 1994 by
and among State Street Boston Corporation, a Massachusetts corporation ("State
Street"), Kemper Financial Services, Inc., a Delaware corporation ("Kemper") and
DST Systems, Inc., a Missouri corporation ("DST"). (Kemper and DST are referred
to collectively herein as the "Stockholders").
Preliminary Statement
Each of the Stockholders owns 50% of the issued and outstanding shares of
common stock, $10.00 par value per share (the "Shares") of IFTC Holdings, Inc.,
a Missouri corporation ("Holdco"), which, in turn, owns all of the issued and
outstanding shares of Investors Fiduciary Trust Company, a Missouri trust
company ("IFTC"), other than directors' qualifying shares.
State Street desires to acquire, and the Stockholders desire to exchange,
all of the Shares for shares of State Street common stock, subject to the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
EXCHANGE OF THE SHARES FOR STATE STREET STOCK
1.1. Exchange. Subject to and upon the terms and conditions of this
Agreement, at the closing of the transactions contemplated by Article I of this
Agreement (the "Closing"), the Stockholders shall sell, transfer, convey, assign
and deliver to State Street, and State Street shall purchase, acquire and accept
from the Stockholders, all of the Shares, free and clear of any claims, liens,
restrictions on transfer or voting or encumbrances with respect thereto, in
exchange for the Number of Shares (as defined below) of State Street Stock (as
defined below).
1.2. Acquisition Consideration.
(a) At the Closing, the Shares will be exchanged for that number of
shares at a value of $40.00 per share (such number of shares, subject to
adjustment as provided in Section 1.2(b) below, the "Number of Shares") of
State Street Common Stock, $1.00 par value per share ("State Street Stock")
equal to a valuation of $225 million (the "Acquisition Consideration"). The
Number of Shares initially shall be 5,625,000. One-half of the Number of
Shares shall be issued to each of Kemper and DST.
(b) The Number of Shares shall be adjusted (and rounded to the nearest
even share) as follows:
<PAGE>
(i) If the average of the daily high and low prices for shares of
State Street Stock during the thirty NASDAQ National Market System
trading days ending on the fifth business day prior to the Closing
hereunder (the "Average Price"), multiplied by the Number of Shares,
results in an aggregate value which is less than the Acquisition
Consideration minus $10 million, the Number of Shares shall be
increased so that the product of the increased Number of Shares and the
Average Price is an amount equal to the Acquisition Consideration minus
$10 million; or
(ii) If the Average Price multiplied by the Number of Shares results
in an aggregate value which is more than the Acquisition Consideration
plus $10 million, the Number of Shares shall be decreased so that the
product of the decreased Number of Shares and the Average Price is an
amount equal to the Acquisition Consideration plus $10 million;
provided, however, that in no event shall the Number of Shares be (i) greater
than the quotient of (A) the Acquisition Consideration minus $10 million and (B)
$36.00 or (ii) less than the quotient of (A) the Acquisition Consideration plus
$10 million and (B) $44.00.
(c) The per share prices set forth in Section 1.2(a) and (b) above
shall also be appropriately adjusted to reflect stock dividends or
distributions, stock splits or any similar events occurring between the date
of this Agreement and the Closing Date.
1.3. Closing. The Closing shall take place at the offices of Ropes & Gray,
One International Place, Boston, Massachusetts 02110, on such date within five
business days after the satisfaction or waiver of all conditions precedent set
forth in Article VII hereof as the parties may agree, or at such other place,
time or date as may be mutually agreed upon in writing by the parties (the
"Closing Date"). The transfer of the Shares by the Stockholders to State Street
shall be deemed to occur at 11:59 p.m., Central time, on the Closing Date.
1.4. Transaction Agreements. At the Closing, the parties thereto will
execute and deliver (i) agreements (x) amending and restating each of the
Portfolio Accounting and Information System Remote Service Agreement dated as of
January 2, 1983 between IFTC and DST Securities, Inc. in the form set forth as
Exhibit A hereto (the "DST Agreement"); and (y) amending the Services Agreement
dated as of September 1, 1992, as amended by the First Amendment to Services
Agreement dated as of April 15, 1993 in the form set forth as Exhibit F-1
("Exhibit F-1") hereto and (ii) the Registration Rights Agreement among State
Street, Kemper and DST in the form set forth as Exhibit B hereto (the
"Registration Rights Agreement", and, together with the DST Agreement, Exhibit
F-3, and all other agreements executed pursuant to this Agreement, the
"Transaction Agreements").
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STATE STREET
State Street represents and warrants to the Stockholders as follows:
2.1. Organization and Authority. State Street is a corporation duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and has full corporate power, right and authority
to own its properties and assets and to carry on its business as it is now being
conducted, to acquire the Shares and to enter into, and carry out its
obligations under, this Agreement and each agreement contemplated to be executed
in connection with this Agreement, including without limitation, the
Registration Rights Agreement. State Street is duly registered as a bank holding
company with the Board of Governors of the Federal Reserve (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended (the "BHC Act").
State Street has all governmental authorizations to own or lease its properties
and assets and to carry on its business as now being conducted. State Street
Bank and Trust Company, a Massachusetts chartered trust company ("SSBT"), is a
direct, wholly-owned, subsidiary of State Street.
2.2. Authorization. This Agreement has been, and the Registration Rights
Agreement when executed and delivered at Closing will be, duly authorized,
executed and delivered by State Street, and no further corporate proceedings on
the part of State Street are necessary to authorize this Agreement and the
transactions contemplated hereby, or will be necessary to authorize the
Registration Rights Agreement and the transactions contemplated thereby. This
Agreement is and, when executed and delivered the Registration Rights Agreement
will be, the legal, valid and binding obligations of State Street, enforceable
in accordance with their respective terms.
Neither the execution, delivery and performance of this Agreement or the
Registration Rights Agreement by State Street nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate, conflict with, or
result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of State Street under any of the terms, conditions or provisions of the
(x) charter documents or Bylaws of State Street, (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which State Street is a party or by which State Street may be
bound, or to which State Street or the properties or assets of State Street may
be subject, or (ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule or regulation applicable to State Street or to the
properties or assets of State Street.
Except as provided in Schedule 2.2, no notice to, filing with, authorization
of, exemption by, or consent or approval of, any regulatory authority is
necessary for the consummation of the transactions contemplated by this
<PAGE>
Agreement or the Registration Rights Agreement (other than filings required to
be made with the SEC in order to effect the registration of State Street Stock
contemplated by the Registration Rights Agreement).
2.3. Litigation. As of the date of this Agreement, there is no action, suit
or proceeding pending against, or to the knowledge of State Street threatened
against or affecting, State Street or any of its properties before any court or
arbitrator or any governmental body, agency or official which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated hereby or by the Transaction Agreements.
2.4. Brokers and Finders. Neither State Street nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
State Street in connection with this Agreement or the Transaction Agreements or
the transactions contemplated hereby or thereby, other than Goldman, Sachs &
Co., the fees and expenses of which will be paid by State Street. State Street
will be responsible for any such fees incurred by it or SSBT in connection with
the transactions contemplated hereby.
2.5. Investment Representation. State Street is acquiring the Shares from
the Stockholders for its own account and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same in violation of the Securities Act of 1933, as
amended (the "Securities Act"); and State Street has no present or contemplated
agreement, undertaking, arrangement, obligation or commitment providing for the
disposition thereof, other than the liquidating merger of Holdco into State
Street simultaneously with the Closing.
2.6. State Street Stock. The State Street Stock to be issued to the
Stockholders hereunder (i) has been duly authorized and reserved for issuance
and, when issued in accordance with this Agreement will be validly issued, fully
paid, non-assessable, free of pre-emptive rights, and not subject to any
restrictions on transfer (other than restrictions, if any, imposed by applicable
securities laws and this Agreement) or voting. The State Street Stock is the
only outstanding class of capital stock of State Street.
2.7. State Street Reports. State Street's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (the "1993 Form 10-K") and all documents
heretofore filed with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
since the filing of the 1993 Form 10-K (collectively, the "State Street
Reports") were filed in a timely manner and, when they were filed (or, if any
amendment with respect to any such document was filed, when such amendment was
filed), conformed in all material respects to the requirements of the Exchange
Act, and the published rules and regulations thereunder, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. Each of State Street and
<PAGE>
SSBT has filed all reports, registrations and statements, together with any
amendments to be made with respect thereto, that were required to be filed with
the Federal Reserve Board, and any other applicable federal, state, local or
foreign authorities (all such reports and statements are collectively referred
to herein as the "State Street Regulatory Reports"), except where a failure to
file would not have a Material Adverse Effect (as defined below) on State
Street. As of their respective dates, the State Street Regulatory Reports
complied, in all material respects, with the statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority with which they were
filed.
2.8. Financial Statements. The audited consolidated balance sheets of State
Street as of December 31, 1993 and 1992 and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the three years
ended December 31, 1993, 1992 and 1991, all as reported on by Ernst & Young, and
the unaudited consolidated balance sheet of State Street as of June 30, 1994 and
the related unaudited consolidated statements of income, changes in
stockholders' equity and cash flows for the six months ended June 30, 1994,
which are included in the State Street Reports, have been prepared in accordance
with generally accepted accounting principles consistently applied, and present
fairly the consolidated financial position, results of operations and cash flows
of State Street at the dates and for the periods stated therein.
2.9. Absence of Material Adverse Changes. Since December 31, 1993, there has
not been any material adverse change in the business, operations, properties,
assets, liabilities, or condition (financial or otherwise) (a "Material Adverse
Effect") of State Street.
2.10. Pooling. State Street was incorporated in 1970 and has never been a
subsidiary or division of another corporation nor been a part of an acquisition
which was later rescinded. Beginning June 24, 1992 (the "Commencement Date"),
and continuing through the date hereof, State Street had no direct or indirect
investment in Holdco or IFTC and no such transactions of this type are planned
prior to the Closing Date. The voting stock structure of State Street Stock has
not been altered or changed in the period beginning at the Commencement Date and
ending on the date hereof (other than exercises of outstanding stock options and
conversions of convertible notes and issuances of directors' qualifying shares),
and no such transactions of this type are planned prior to the Closing Date.
State Street has not had any treasury stock transactions during the period
beginning at the Commencement Date and none are planned during the period
between the Commencement Date and the Closing Date. The transaction contemplated
hereunder is to be effected and completed at the Closing Date all as set forth
in this Agreement. The State Street Stock to be issued in the transaction
contemplated hereunder is authorized but unissued stock of State Street with
rights identical to those of the currently outstanding shares of State Street
Stock.
2.11. Accuracy of Representations and Warranties. No representation or
warranty by State Street in this Agreement or the Schedules hereto (which are an
integral part hereof) is false or misleading in any material respect or contains
any untrue statement of a material fact or omits to state a material fact
<PAGE>
required to be stated therein, in light of the circumstances in which they were
made, necessary to make the statements therein not misleading.
ARTICLE III
REPRESENTATIONS OF STOCKHOLDERS
A. DST represents and warrants to State Street that:
3.1.A. Organization and Authority. DST is a corporation duly organized,
validly existing and in good standing under the laws of the State of Missouri,
and has full corporate power, right and authority to own its properties and
assets and to carry on its business as it is now being conducted and to enter
into and carry out its obligations under this Agreement and the Transaction
Agreements.
3.2.A. Authorization. This Agreement has been, and the Transaction
Agreements when executed and delivered at Closing will be, duly authorized,
executed and delivered by DST and no further corporate proceedings on the part
of DST are necessary to authorize this Agreement and the transactions
contemplated hereby, or will be necessary to authorize the Transaction
Agreements and the transactions contemplated thereby. This Agreement is and,
when executed and delivered, each of the Transaction Agreements will be, the
legal, valid and binding obligation of DST, in accordance with their respective
terms.
Neither the execution, delivery and performance of this Agreement or the
Transaction Agreements by DST, nor the consummation of the transactions
contemplated hereby or thereby, will (i) violate, conflict with, or result in a
breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
DST under any of the terms, conditions or provisions of (x) the charter
documents or Bylaws of DST, or (y) any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which DST
is a party or by which DST may be bound or to which DST or the properties or
assets of DST may be subject or (ii) violate any judgment, ruling order, writ,
injunction, decree, statute, rule or regulation applicable to DST or to the
properties or assets of DST.
Except as set forth on Schedule 2.2, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any regulatory
authority is necessary for the consummation of the transactions contemplated by
this Agreement or the Transaction Agreements (other than filings required to be
made with the SEC in order to effect the registration of State Street Stock
contemplated by the Registration Rights Agreement).
3.3.A. Title. DST has good title to the 30,000 shares of Holdco owned by it,
free and clear of any claim, lien, restrictions on transfer (other than
restrictions imposed by the JV Agreement (as hereinafter defined) which
restrictions shall not be in effect as of the Closing) or voting, or encumbrance
or preemptive rights with respect thereto. The shares of Holdco held by DST are
fully paid, validly issued and non-assessable.
3.4.A. Litigation. As of the date of this Agreement, there is no action,
suit or proceeding pending against, or to the knowledge of DST threatened
against or affecting, DST or any Affiliates (as defined in Section 6.4) of DST
or any of their respective properties before any court or arbitrator or any
governmental body, agency or official which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
hereby or by the Transaction Agreements.
3.5.A. Intentionally Omitted.
3.6.A. Investment Representation. DST is acquiring the shares of State
Street Stock for its own account and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same, and DST has no present or contemplated
agreement, undertaking, arrangement, obligation or commitment providing for the
distribution thereof, other than, in each case, distributions or sales in
compliance with the provisions of the Securities Act and the regulations
promulgated thereunder and the provisions of SEC Accounting Series Release No.
135 and the related amendments and interpretations thereto.
3.7.A. Retention of Business. Since May 31, 1994, neither DST nor its
Affiliates have solicited the institutional customers of IFTC to terminate their
relationship with IFTC or, by any systematic method, to transfer any assets
under custody from IFTC to any Stockholder or its Affiliates.
3.8.A. DST Related Receivables. Except as set forth on Schedule 3.8A and for
current amounts due arising in the ordinary course of business, there are no
amounts owing to Holdco or IFTC by DST or to DST by Holdco or IFTC and no such
amounts are shown as accounts receivable on the books and records of Holdco and
IFTC, respectively.
3.9.A. Certain Business Transactions. Schedule 3.9A sets forth all
agreements and relationships between IFTC and DST (the "DST Related Agreements")
material to the conduct of the business of IFTC. No services provided by DST to
IFTC other than the services provided pursuant to the DST Related Agreements are
required to conduct the business of IFTC.
3.10.A. Accuracy of Representations and Warranties. No representation or
warranty made by DST in this Agreement or the Schedules hereto (which are an
integral part hereof) is false or misleading in any material respect or contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein, in light of the circumstances in which they were
made, or necessary to make the statements therein not misleading.
<PAGE>
3.11.A. JV Agreement. DST has delivered to State Street a true and correct
copy of the Amended and Restated Agreement dated December 23, 1991 between DST
and Kemper, as in effect on the date hereof (the "JV Agreement"). All waivers
required under the JV Agreement to allow the execution and delivery of this
Agreement, the Transaction Agreements and the consummation of the transactions
contemplated hereby or thereby have been obtained and are in full force and
effect.
B. Kemper represents and warrants to State Street that:
3.1.B. Organization and Authority. Kemper is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full corporate power, right and authority to own its properties and
assets and to carry on its business as it is now being conducted and to enter
into and carry out its obligations under this Agreement and the Registration
Rights Agreement.
3.2.B. Authorization. This Agreement has been, and the Registration Rights
Agreement when executed and delivered at Closing will be, duly authorized,
executed and delivered by Kemper and no further corporate proceedings on the
part of Kemper are necessary to authorize this Agreement and the transactions
contemplated hereby, or will be necessary to authorize the Registration Rights
Agreement and the transactions contemplated thereby. This Agreement is and, when
executed and delivered, the Registration Rights Agreement will be the legal,
valid and binding obligation of Kemper, enforceable in accordance with their
respective terms.
Neither the execution, delivery and performance of this Agreement or the
Registration Rights Agreement by Kemper, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate, conflict with, or
result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Kemper under any of the terms, conditions or provisions of (x) the
charter documents or Bylaws of Kemper, or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Kemper is a party or by which Kemper may be bound or to
which Kemper or the properties or assets of Kemper may be subject or (ii)
violate any judgment, ruling order, writ, injunction, decree, statute, rule or
regulation applicable to Kemper or to the properties or assets of Kemper.
Except as set forth on Schedule 2.2, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any regulatory
authority is necessary for the consummation of the transactions contemplated by
this Agreement or the Transaction Agreements (other than filings required to be
made with the SEC in order to effect the registration of State Street Stock
contemplated by the Registration Rights Agreement).
<PAGE>
3.3.B. Title. Kemper has good title to the 30,000 shares of Holdco owned by
it, free and clear of any claim, lien, restrictions on transfer (other than
restrictions imposed by the JV Agreement which restrictions shall not be in
effect as of the Closing) or voting, or encumbrance or preemptive rights with
respect thereto. The shares of Holdco held by Kemper are fully paid, validly
issued and non-assessable.
3.4.B. Litigation. As of the date of this Agreement, there is no action,
suit or proceeding pending against, or to the knowledge of Kemper threatened
against or affecting, Kemper or any Affiliates of Kemper or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay any of the transactions contemplated hereby or by the
Registration Rights Agreement.
3.5.B. Intentionally Omitted.
3.6.B. Investment Representation. Kemper is acquiring the shares of State
Street Stock for its own account and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same and Kemper has no present or contemplated
agreement, undertaking, arrangement, obligation or commitment providing for the
distribution thereof, other than, in each case, distributions or sales in
compliance with the provisions of the Securities Act and the regulations
promulgated thereunder and the provisions of SEC Accounting Series Release No.
135 and the related amendments and interpretations thereto.
3.7.B. Retention of Business. Since May 31, 1994, neither Kemper nor its
Affiliates have solicited the institutional customers of IFTC to terminate their
relationship with IFTC or, by any systematic method, to transfer any assets
under custody from IFTC to any Stockholder or its Affiliates.
3.8.B. Kemper Related Receivables. Except as set forth on Schedule 3.8B, and
for current amounts due arising in the ordinary course of business, there are no
amounts owing to Holdco or IFTC by Kemper or to Kemper by Holdco or IFTC and no
such amounts are shown as accounts receivable on the books and records of Holdco
and IFTC, respectively.
3.9.B. Certain Business Transactions. Schedule 3.9B sets forth all
agreements and relationships between IFTC and Kemper (the "Kemper Related
Agreements") material to the conduct of the business of IFTC. No services
provided by Kemper to IFTC other than the services provided pursuant to the
Kemper Related Agreements are required to conduct the business of IFTC.
<PAGE>
3.10.B. Accuracy of Representations and Warranties. No representation or
warranty made by Kemper in this Agreement or the Schedules hereto (which are an
integral part hereof) is false or misleading in any material respect or contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein, in light of the circumstances in which they were
made, or necessary to make the statements therein not misleading.
3.11.B. JV Agreement. Kemper has delivered to State Street a true and
correct copy of the JV Agreement. All waivers required under the JV Agreement to
allow the performance of this Agreement, the Registration Rights Agreement and
the consummation of the transactions contemplated hereby or thereby have been
obtained and are in full force and effect.
ARTICLE IV
REPRESENTATIONS OF THE STOCKHOLDERS
REGARDING HOLDCO AND IFTC
Each of the Stockholders represents and warrants, severally and jointly, to
State Street as follows:
4.1. Organization and Authority. Holdco is a corporation duly organized,
validly existing and in good standing under the laws of the State of Missouri
and has full corporate power, right and authority to own or lease its properties
and to carry on its business as it is now being conducted. Holdco has all
necessary governmental authorizations to own or lease its properties and to
carry on its business as now being conducted in all respects material to the
business, operations, properties, assets, liabilities, or condition (financial
or otherwise) of Holdco.
4.2. No Conflicts. Neither the performance of this Agreement or the
Transaction Agreements by Holdco and IFTC nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate, conflict with, or
result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Holdco or IFTC under any of the terms, conditions or provisions of (x)
the charter documents or Bylaws of Holdco or IFTC, or (y) except as set forth on
Schedule 4.2, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation or to which Holdco or IFTC is
a party or by which Holdco or IFTC may be bound, or to which Holdco or IFTC or
the properties or assets of Holdco or IFTC may be subject or (ii) assuming the
completion of the items described on Schedule 2.2, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
Holdco or IFTC or to the properties or assets of Holdco or IFTC.
<PAGE>
4.3. Capitalization of Holdco and IFTC. The authorized capital stock of
Holdco consists of 60,000 shares of Common Stock, $10.00 par value per share,
all of which are validly issued and outstanding, fully paid and nonassessable,
free and clear of any claims, liens, restrictions on transfer (other than
restrictions imposed by the JV Agreement which restrictions, as of the Closing,
shall not be in effect) or voting or any other encumbrances or pre-emptive
rights with respect thereto. There are no other shares of capital stock or other
equity securities of Holdco outstanding and no outstanding options, warrants,
scrip, rights to subscribe to calls, commitments or agreements of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of capital stock of Holdco. The authorized capital stock of IFTC
consists of 60,000 shares of Common Stock, $10.00 par value per share (the "IFTC
Stock"), all of which are validly issued and outstanding, fully paid and
nonassessable, free and clear of any claims, liens, restrictions on transfer
(other than restrictions imposed by the JV Agreement or repurchase agreements
related to the directors' qualifying shares which restrictions, as of the
Closing, shall not be in effect) or voting or any other encumbrances or
pre-emptive rights with respect thereto. There are no other shares of capital
stock or other equity securities of IFTC outstanding and no outstanding options,
warrants, scrip, rights to subscribe to, calls, commitments or agreements of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of capital stock of IFTC.
4.4. Title. Holdco has good title to all of the issued and outstanding
shares of IFTC Stock (other than directors' qualifying shares) free and clear of
any claims, liens, restrictions on transfer (other than restrictions imposed by
the JV Agreement which restrictions, as of the Closing, shall not be in effect)
or voting, encumbrances or preemptive rights. The IFTC Stock is validly issued,
fully paid and non-assessable. Upon consummation of the transactions
contemplated by this Agreement, State Street will have acquired good title to
the Shares and, indirectly, the IFTC Stock held by Holdco, free and clear of any
claims, liens, restrictions on transfer or voting or any other encumbrances or
pre-emptive rights with respect thereto, except such as may be created by State
Street. No unreleased mortgage, trust deed, chattel mortgage, security
agreement, financing statement or other instrument encumbering any of the assets
of Holdco or IFTC has been recorded, filed, executed or delivered other than
carriers', warehouseman's, materialman's and mechanic's liens and other similar
liens arising in the ordinary course of business and which do not in the
aggregate have a Material Adverse Effect on Holdco or IFTC ("Permitted
Encumbrances").
Each of Holdco and IFTC has good title to the shares of Common Stock, $12.50
par value per share of UMB Financial Corporation (the "UMB Stock") held by it,
free and clear of any claims, liens, restrictions on transfer or voting or any
other encumbrances or pre-emptive rights with respect thereto. The UMB Stock is
classified for accounting and financial statement reporting purposes, as set
forth in Statement of Financial Accounting Standards No. 115, as "securities
available for sale" on the books and records of Holdco and IFTC, respectively.
4.5. Pooling. Holdco is not and has never been a division or more than 50%
subsidiary of any corporation nor been a part of an acquisition which was later
rescinded. IFTC is not and has never been a more than 50% subsidiary or division
<PAGE>
of any corporation other than Holdco since January 1, 1990 nor been a part of an
acquisition which was later rescinded. Neither the voting stock structure nor
the ownership of shares of Holdco and IFTC has been altered or changed in the
period beginning at the Commencement Date and ending on the date hereof (other
than issuances and repurchases of directors' qualifying shares), and no such
transactions of this type are planned prior to the Closing Date. Neither Holdco
nor IFTC has had any treasury stock transactions since the Commencement Date and
none are planned during the period between the Commencement Date and the Closing
Date (other than issuances and repurchases of directors' qualifying shares).
Each Stockholder owns an equal number of the outstanding shares of stock of
Holdco and, at the Closing, shall receive an equal number of shares of State
Street Stock. Neither of the Stockholders has entered into any agreement that
would restrict such Stockholder's voting rights with respect to the State Street
Stock to be issued pursuant to this Agreement. The transaction contemplated
hereunder is to be effected and completed at the Closing Date all as set forth
in this Agreement.
4.6. Litigation. Except as set forth on Schedule 4.6, neither Holdco nor
IFTC is a party to any claim, action, suit, investigation or proceeding, pending
or to the knowledge of the Stockholders, threatened, nor is it subject to any
order, judgment or decree, which would have a Material Adverse Effect on Holdco
or IFTC.
4.7. IFTC Organization, Authority and Authorization. IFTC is a trust company
duly organized, validly existing and in good standing under the laws of the
State of Missouri. IFTC has the full power, right and authority to own its
properties and assets and to carry on its business as it is now being conducted.
IFTC is not required to qualify to do business in any state or foreign
jurisdiction where not already so qualified, except where a failure to so
qualify would not have a Material Adverse Effect on IFTC.
4.8. IFTC Deposits; Securities. The deposits of IFTC are insured by the
Federal Deposit Insurance Corporation ("FDIC"), to the extent provided by law.
Schedule 4.8 attached hereto sets forth all securities, (including partnership
interests) including the maturity dates thereof, other than securities held in a
fiduciary or trust or custodial capacity, owned by IFTC as of August 31, 1994
and there have been, as of the date of this Agreement, no material changes in
such information.
4.9. Financial Statements. The audited consolidated balance sheets of Holdco
as of December 31, 1993 and December 31, 1992, and the related consolidated
statements of income, changes in stockholders' equity and statements of cash
flows for the years ended December 31, 1993 and 1992, and IFTC's audited balance
sheet as of December 31, 1991 and the related statements of income and retained
earnings and statements of cash flows for the year ended December 31, 1991, all
as reported on by Ernst & Young (the "Audited Financials"), and the unaudited
consolidated statement of financial condition of Holdco as of June 30, 1994 and
the related unaudited consolidated statements of income for the six-month period
then ended (the "1994 Financials" and, collectively with the Audited Financials,
the "Consolidated Financial Statements"), have been prepared in accordance with
<PAGE>
generally accepted accounting principles, consistently applied, and present
fairly the consolidated financial position, results of operations and cash flows
of Holdco (and the financial position, results of operations and cash flows of
IFTC as of and for the year ended December 31, 1991) at the dates, and for the
periods, stated therein (other than cash flows of Holdco for the six months
ended June 30, 1994). In the case of the 1994 Financials, all adjustments,
consisting only of normal recurring items (which are necessary for a fair
statement of the results of operations of Holdco for the six months ended June
30, 1994), have been made. The Consolidated Financial Statements are attached
hereto as Schedule 4.9. The value of the investment securities portfolio of
Holdco and IFTC classified as available for sale in the Consolidated Financial
Statements, together with the net unrealized gain (loss) on such portfolio
included in stockholders equity was, in the judgment of the management of Holdco
and IFTC, a fair reflection of the value of securities as of the date thereof
(i) under the published standards of the applicable regulatory authorities and
(ii) under generally accepted accounting principles, and, as of the date hereof,
no facts have come to the attention of management of Holdco and IFTC which would
cause a material adverse change in the amount of such net unrealized gain (loss)
for the investment securities portfolio classified as available for sale in the
Consolidated Financial Statements. Since June 30, 1994, there has been no
adjustment included in the net unrealized gain (loss) included in the
stockholders equity that would reflect a permanent impairment of the value of
such securities. Between December 31, 1993 and the date hereof, neither Holdco
nor IFTC has incurred any obligation or liability (contingent or otherwise) that
is material, or that when combined with all similar obligations or liabilities
would be material, to Holdco or IFTC, other than liabilities reflected on the
1994 Financials or arising in the ordinary course of business since June 30,
1994 or reflected on Schedules 4.6, 4.12, 4.14, 4.20 or 4.23 to this Agreement.
4.10. Books of Account. The books of account of Holdco and IFTC are each
maintained, in all material respects, in compliance with all applicable legal
and accounting requirements.
4.11. Reports. Each of Holdco and IFTC has filed
all reports, registrations
and statements, together with any amendments required to be made with respect
thereto, that were required to be filed with (i) the FDIC, (ii) the Missouri
Division of Finance, and (iii) any applicable federal, state, local or foreign
authorities, (all such reports and statements are collectively referred to
herein as the "IFTC Reports"), except where a failure to file would not have a
Material Adverse Effect on Holdco or IFTC, respectively. As of their respective
dates, the IFTC Reports complied, in all material respects, with the statutes,
rules, regulations and orders enforced or promulgated by the regulatory
authority with which they were filed. To the extent the IFTC Reports relate to
taxes, this Section 4.11 shall not apply, it being intended that the
representation regarding taxes is set forth in Section 4.14.
4.12. Absence of Material Adverse Changes. Except as set forth in Schedule
4.12, since December 31, 1993, there has not been any Material Adverse
Effect on Holdco or IFTC.
<PAGE>
4.13. Properties and Insurance.
(a) Except (i) as may be reflected in the 1994
Financials, (ii) for any lien for current taxes and not yet delinquent,
(iii) for pledges to secure deposits of states, municipalities or fiduciary
customers, and (iv) for liens, security interests, claims, charges, options
or other encumbrances and imperfections to title as do not materially affect
the value of personal or real property reflected in the 1994 Financials or
acquired since June 30, 1994 and which do not, individually or in the
aggregate, materially interfere with or impair the present and continued use
of such property, Holdco or IFTC, as the case may be has good title, free
and clear of any liens, claims, charges, options or other encumbrances, to
all of the personal property reflected in the 1994 Financials, and all
personal and real property acquired since the date of the 1994 Financials
other than, in each case, property disposed of in the ordinary course of
business.
(b) Schedule 4.13B attached hereto sets forth a list as of the date
hereof of all leases of real property, identifying separately each lease
(including lease amendments and subleases), to which Holdco or IFTC is a
party (collectively, the "Leases"). The Leases are in full force and effect
and neither Holdco nor IFTC has received a notice of default or termination
with respect to such Leases. There has not occurred any event which has not
been cured which would constitute a breach by Holdco or IFTC of, or default
by Holdco or IFTC in, the performance of any covenant, agreement or
condition contained in any Lease, the result of which breach or default
would materially interfere with or impair the present and continued use of
the property subject to such Lease. The Leases constitute all the real
property used in the conduct of the current business of Holdco or IFTC.
Neither Holdco nor IFTC owns any real property.
(c) Schedule 4.13C attached hereto sets forth a list of all registered
trademarks and service marks and registered copyrights used by IFTC in the
conduct of its business the loss of the use of which, individually or in the
aggregate, would have a Material Adverse Effect on Holdco or IFTC. There are
no patents or patent applications owned by IFTC. All of the foregoing are
owned by or validly licensed to IFTC. IFTC has not received a notice of any
claim that any such trademark, service mark, copyright, or patent is not
valid or enforceable by its purported owner, or infringes upon any
trademark, service mark, trade name, copyright, patent or intellectual
property right of any third party, except where such claims, individually or
in the aggregate, would not have a Material Adverse Effect on IFTC. IFTC
owns, licenses or has the contractual right to use all computer software
currently used by it and has the right to use such software without
infringing upon the intellectual property rights (including trade secrets
rights) of the party providing the software, or to the knowledge of
Stockholders, any third party, except where the failure to own or have the
right to use such software would not individually, or in the aggregate, have
a Material Adverse Effect on IFTC. Such computer software together with
other computer software validly licensed to IFTC constitutes all of the
computer software necessary to conduct its business in the manner heretofore
conducted. Schedule 4.13C sets forth all licenses of intellectual property
<PAGE>
to which IFTC is a party, either as licensee or licensor. Consummation of
the transactions contemplated hereby will not result in an impairment of the
legal rights of IFTC to any of the intellectual property rights or software
referred to above, the effect of which would have a Material Adverse Effect
on IFTC.
(d) Schedule 4.13D attached hereto sets forth a list of all insurance
policies currently insuring Holdco or IFTC and the coverage amounts,
deductible amounts, expiration date, insurer, premium and policy owner of
such insurance policies. Neither Holdco nor IFTC nor, to the knowledge of
the Stockholders, any other policy owner, is in default with respect to any
such insurance policy.
4.14. Taxes.
(a) Except as set forth on Schedule 4.14, Holdco and IFTC (1) have
filed on a timely basis with the appropriate authorities all Tax Returns of
or which include Holdco or IFTC which are required to be filed on or before
the date of this Agreement, which Tax Returns are true, correct and complete
in all respects, (2) have paid on a timely basis to the appropriate
authorities all Taxes required to be paid on or before the date of this
Agreement, and (3) have timely and properly collected or withheld, paid over
and reported all Taxes required to have been collected or withheld by it on
or before the date of this Agreement.
(b) Except as set forth on Schedule 4.14, (1) no Taxing authority has
asserted in writing to Holdco and IFTC any adjustment that could result in
an additional Tax for which Holdco or IFTC is or may be liable, (2) there is
no pending audit, examination, investigation, dispute, proceeding or claim
for which Holdco or IFTC has received notice (collectively, "Proceeding")
relating to any Tax for which Holdco or IFTC is or may be liable, (3) no
statute of limitations with respect to any Tax for which Holdco or IFTC is
or may be liable has been waived or extended, (4) the due date of any Tax
Returns that Holdco or IFTC is required to file has not been extended, (5)
Holdco or IFTC is not party to any tax sharing or tax allocation agreement,
arrangement or understanding, and (6) Holdco and IFTC have engaged in no
deferred intercompany transactions which would be taken into account as a
result of the transactions occurring at the Closing.
(c) Except as set forth on Schedule 4.14, neither Holdco nor IFTC is a
party to any contract, agreement, plan or arrangement that, individually or
collectively, could give rise to any payment that would not be deductible by
reason of Section 162(m)and 280G of the Code.
(d) For all taxable years beginning January 1, 1980 and ending on or
before December 31, 1991, IFTC filed separate federal income Tax Returns.
For its taxable year ended December 31, 1992, Holdco included IFTC in its
consolidated federal income Tax Return and its consolidated Missouri income
<PAGE>
Tax Return. Except for such consolidated Missouri income Tax Return, Holdco
and IFTC have filed separate state, local or foreign Tax Returns and
separate federal employment and information Tax Returns for reporting
periods beginning after December 31, 1979 and ending prior to the date of
this Agreement (taking into account extensions of time to file such
returns). Except as set forth on Schedule 4.14, IFTC (1) does not have and
has not had any subsidiaries, (2) after December 31, 1979, has not been a
member of an affiliated group filing a consolidated federal income Tax
Return other than the affiliated group consisting of Holdco and IFTC, and
(3) is not liable for the Taxes of any person other than Holdco under
Treasury Regulation 1.1502-6 (or any similar provision of state, local, or
foreign law) as a transferee or successor, by contract or otherwise.
(e) The aggregate reserve for Taxes including deferred tax reserves
included in the net unrealized gain (loss) within stockholders equity shown
on the books and records of Holdco and IFTC is adequate to cover the
aggregate liability of Holdco and IFTC, for all Taxes arising with respect
to all periods prior to the date hereof. The aggregate reserve for Taxes
including deferred tax reserves included in the net unrealized gain (loss)
within stockholders equity shown on the books and records of Holdco and IFTC
at the Closing Date will be adequate to cover the aggregate liability of
Holdco and IFTC, for all Taxes arising with respect to all periods between
the date hereof and ending immediately prior to the Closing.
(f) Intentionally Omitted.
(g) For purposes of this Agreement, a "Tax" shall mean any federal,
state, local, foreign, or other tax, fee, levy, assessment or other
governmental charge, including without limitation, any income, franchise,
gross receipts, property, sales, use, services, value added, withholding,
social security, estimated, accumulated earnings, alternative or add-on
minimum, transfer, license, privilege, payroll, profits, capital stock,
employment, unemployment, excise, severance, stamp, occupancy, customs or
occupation tax, and any interest, additions to tax and penalties in
connection therewith.
(h) For purposes of this Agreement, "Tax Returns" shall mean all
returns, amended returns, declarations, reports, estimates, information
returns and statements regarding Taxes which are or were filed or required
to be filed under applicable law, whether on a consolidated, combined,
unitary or separate basis.
4.15. Employees and Benefits.
(a) Litigation. Except as set forth on Schedule 4.15A there are no
current employment related litigation and claims pending or, to the
knowledge of the Stockholders, threatened against Holdco or IFTC. Holdco and
IFTC are in material compliance with applicable federal and state, local or
foreign laws, regulations, and orders respecting employment and employment
<PAGE>
practices. There are no labor or collective bargaining agreements, contracts
or understandings with a labor union or labor organization which are binding
upon Holdco or IFTC. Neither Holdco nor IFTC as of the date hereof has been
notified that it is the subject of a proceeding asserting it has committed
an unfair labor practice or seeking to compel it to bargain with any labor
organization as to wages and conditions of employment, nor to the knowledge
of the Stockholders as of the date hereof is any such proceeding threatened,
nor as of the date hereof is there any pending or, to the knowledge of the
Stockholders, threatened strike or other labor dispute by employees of
Holdco or IFTC, nor as of the date hereof are the Stockholders aware of any
activity involving any such employees seeking to certify a collective
bargaining unit or engaging in any other union organizational activity, and
each of the foregoing shall be true as of the Closing Date. Except for IFTC
Plans (as defined below) and employment, consulting, retirement and
severance agreements with individuals listed on Schedule 4.15A (the
"Individual Agreements") or as otherwise provided on Schedule 4.15A, IFTC
has no obligation, contingent or otherwise, under any employment,
consulting, retirement or severance agreements which would require Holdco or
IFTC to make annual payments or accruals for any employee or former
employee. Holdco has no employees.
(b) Plan Disclosure. Schedule 4.15B sets forth all Employee Plans that
are maintained or otherwise contributed to by IFTC for the benefit of its
employees or under which IFTC has or may have any material liability (an
"IFTC Plan"), as well as all plans, agreements, policies and arrangements
that would be IFTC Plans if the term "employee" were construed to include
outside directors, consultants or other independent contractors who provide
services to or for the benefit of IFTC. Schedule 4.15B also designates each
IFTC Plan (a "Holdco Plan") that is sponsored or maintained or otherwise
contributed to for the benefit of the employees of IFTC by DST in addition
to or in lieu of IFTC, or which any entity other than IFTC is a
participating employer. For purposes of this Agreement, the term "Employee
Plan" means any plan, program, agreement, policy or arrangement (a "plan"),
whether or not reduced to writing, that is: (i) a welfare benefit plan (a
"Welfare Plan") within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) a pension
benefit plan within the meaning of Section 3(2) of ERISA; (iii) a stock
bonus, stock purchase, stock option, restricted stock, stock appreciation
right or similar equity-based plan; or (iv) any other deferred-compensation,
retirement, welfare- benefit, bonus, incentive or fringe-benefit plan. With
respect to each IFTC Plan, IFTC or Holdco has provided to State Street
accurate, current and complete copies of each of the following: (1) where
the plan has been reduced to writing, the plan document together with all
amendments; (2) where the plan has not been reduced to writing, a written
summary of all material plan terms; (3) where applicable, copies of any
trust agreements, custodial agreements, insurance policies, administration
agreements and similar agreements, and investment management or investment
advisory agreements; (4) copies of any summary plan descriptions, employee
handbooks or similar employee communications; (5) in the case of any plan
<PAGE>
that is intended to be qualified under Section 401(a) of the Code, a copy of
the most recent determination letter from the IRS and any related
correspondence, including a copy of the request for such determination; (6)
in the case of any plan for which Forms 5500 are required to be filed, a
copy of the three most recently filed Forms 5500, with schedules attached;
and (7) copies of any notices, letters or other correspondence from the
Internal Revenue Service or the Department of Labor within the past six
calendar years relating to an audit or penalty assessment.
(c) Pension Plans. Except as specified in Schedule 4.15C, neither IFTC
nor any corporation, trust, partnership or other entity that would be
considered as a single employer with IFTC under Section 4001(b)(1) of ERISA
or Sections 414(b), (c), (m) or (o) of the Code (a "Related Entity") has
ever maintained or been required to contribute to any Employee Plan subject
to Part 3 of Title I, or Title IV, of ERISA, or Section 412 of the Code.
(d) Plan Qualification; Plan Administration; Certain Taxes and
Penalties. Except as set forth in Schedule 4.15D, (i) each IFTC Plan has
been established and administered in compliance with its terms and the
applicable provisions of ERISA and the Code in all material respects; (ii)
nothing has occurred to subject IFTC to an excise tax under Chapter 43 of
the Code that would have a Material Adverse Effect on IFTC; (iii) each IFTC
Plan that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter as to its qualification or has an
application for a favorable determination pending before the IRS as to which
all necessary steps to obtain such favorable determination have been taken
and as to which the Stockholders have no knowledge that Holdco will not be
able to so obtain; (iv) no "prohibited transaction" has occurred with
respect to any IFTC Plan that would have a Material Adverse Effect on IFTC.
(e) All Contributions And Premiums Paid. Except as specified in
Schedule 4.15E, all required contributions to and premium payments or
assessments on account of each IFTC Plan have been made or, if not yet due,
are reflected as accruals on the books and records of IFTC.
(f) Claims. Schedule 4.15F sets forth each and every pending or, to
the knowledge of the Stockholders, threatened lawsuit, claim or other
controversy, involving or affecting IFTC or Holdco, relating to an IFTC
Plan, other than claims for benefits in the normal course.
(g) Retiree Benefits; Certain Welfare Plans. Except as described in
Schedule 4.15G and other than as required under Section 601 et seq. of
ERISA, no IFTC Plan that is a Welfare Plan provides benefits or coverage
following retirement or other termination of employment. Nothing has
occurred with respect to any Employee Plan described in Section 4980B of
the Code that could subject IFTC to a tax under Section 4980B of the Code.
<PAGE>
No Welfare Plan is funded through or associated with a trust or similar
funding arrangement. No event has occurred that could result in a loss of
any deduction material to IFTC under Section 162(n) of the Code.
4.16. Contracts. Except for contracts, commitments, plans, agreements and
licenses appearing on Schedule 4.16 or any other Schedule to this Agreement,
neither Holdco nor IFTC is on the date hereof a party to or subject to:
(a) any contract or agreement or a series of related contracts
or agreements not fully performed for the purchase for its own account
of any commodity, material, services or equipment, including without
limitation fixed assets, for a price in excess of $100,000;
(b) any contract containing covenants limiting the
freedom of Holdco or IFTC to compete in any line of business
or with any person or entity;
(c) any license agreement (as licensor or licensee) providing for
future payments in excess of $100,000 which by its terms does not terminate
or is not terminable without penalty by Holdco or IFTC upon notice of 60
days or less;
(d) any indenture, mortgage, promissory note, loan agreement, guaranty
or other agreement or commitment for the borrowing of money, by Holdco or,
except in the ordinary course of business, by IFTC; or
(e) any other contract or agreement or a series of related contracts
or agreements which creates future payment obligations of Holdco or IFTC, in
excess of $100,000 and which by its terms does not terminate or is not
terminable without penalty by Holdco or IFTC upon notice of 60 days or less,
except contracts or agreements entered into by IFTC in the ordinary course
of business.
4.17. No Defaults under Contracts or Agreements. Neither
IFTC nor Holdco nor, to the knowledge of the Stockholders, any other party
thereto, is in default under any material lease, contract, mortgage, promissory
note, deed of trust, loan, guaranty or other agreement to which Holdco or IFTC
is party, except where such default would not interfere with or otherwise impair
the value to Holdco or IFTC of such lease, contract, mortgage, promissory note,
deed of trust, loan, guaranty or other agreement.
4.18. Compliance with Laws. Each of Holdco and IFTC has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as presently conducted in all material respects; such
permits, licenses, certificates of authority, registrations, orders and
approvals are in full force and effect in all material respects. The conduct of
its business by Holdco and IFTC does not violate or infringe, any applicable
<PAGE>
domestic (federal, state or local) or foreign law, statute, ordinance, license
or regulation now in effect in any material respect.
4.19. Brokers and Finders. Neither the Stockholders, Holdco, IFTC nor any of
their officers, directors or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted, directly or
indirectly, for the Stockholders, Holdco or IFTC, in connection with this
Agreement, the Transaction Agreements or the transactions contemplated hereby or
thereby other than Kemper Securities, Inc., the fees and expenses of which will
be paid by Kemper. The Stockholders will be responsible for any such fees
incurred by the Stockholders, Holdco or IFTC in connection with the transactions
contemplated hereby.
4.20. Regulatory Agreements. Except as set forth in Schedule 4.20, IFTC (a)
is not a party to any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order, or condition of any
regulatory order or decree or similar action (other than exemptive orders) with
or by, or has been required to adopt any board resolution by the Federal Reserve
Board, the FDIC or the Missouri Division of Finance or (b) is a party to any
material assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order, or condition of any
regulatory order or decree or similar action with or by any other federal,
state, local or foreign regulatory authority.
4.21. Dividends. Between the Commencement Date and the date hereof, except
as set forth on Schedule 4.21, IFTC has not declared or paid any dividend or
other distribution on capital stock to Holdco and Holdco has not declared or
paid any dividend or other distribution on capital stock to the Stockholders.
4.22. Environmental Matters. Except as set forth on Schedule 4.22, there is
no legal, administrative, arbitral or other action, suit or proceeding or, to
the knowledge of the Stockholders, governmental investigation of any nature
seeking to impose, or that could result in the imposition, on Holdco or IFTC of
any liability arising under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
pending or, to the knowledge of the Stockholders, threatened against Holdco or
IFTC, which liability could reasonably be expected to have a Material Adverse
Effect on Holdco or IFTC; and neither Holdco nor IFTC is a party to or bound by
any agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
4.23. Absence of Certain Conditions. Except as set forth in Schedule 4.23,
there exists no material "out of balance" or similar condition with respect to
any customer account maintained by IFTC.
<PAGE>
4.24. Representations and Warranties Regarding Investment Company Clients.
(a) Definition of Investment Company. As used in this Agreement, the
term "Investment Company" shall have the meaning provided in the Investment
Company Act of 1940, as amended (the "Investment Company Act"), provided
that for purposes of this Agreement the term Investment Company shall
include any series thereof and any person that would be an investment
company, as defined in that Act, but for the exemption contained in Section
3(c)(1), Section 3(c)(3), Section 3(c)(11) or Rule 3a-7 of the Investment
Company Act.
(b) Service Contracts and Investment Companies. Schedule 4.24 lists (i)
all of the Investment Companies to which IFTC provides services on the date
hereof (together with any such Investment Company for which such services
are to be provided after the date hereof pursuant to binding contracts,
"Investment Company Clients"), (ii) each contract or agreement, and all
amendments thereto, in effect on the date hereof relating to IFTC's
rendering of Custody Services (as defined in Section 6.4) to any person
(together with any such contract or agreement entered into after the date
hereof, the "Service Contracts"); and (iii) the assets under custody for
each of the Investment Company Clients, at May 31, 1994. IFTC is in material
compliance with the terms of each Service Contract, is not currently in
default under any of the material terms of any Service Contract, and each
Service Contract is in full force and effect with respect to the Investment
Company Client and IFTC and no notice to terminate any such Service Contract
has been received by IFTC. Except as set forth in the Service Contracts, no
consent to assignment is required under the terms of any Service Contract as
a result of the transactions contemplated hereby; and, other than with
respect to the designated Service Contracts set forth on Schedule 4.24, no
consent is required under any Service Contract in order for SSBT to be named
as sub-custodian thereunder. True and correct copies of each Service
Contract, including a current fee schedule, have been made available to
State Street and there are no other terms oral or otherwise that modify the
terms of the Service Contracts so furnished in any way that would materially
and adversely affect the value to IFTC of such Service Contract.
(c) Fiduciary Activities. Neither IFTC nor, to the
knowledge of the Stockholders, any director, officer or
employee of IFTC, has committed any material breach of trust
with respect to any fiduciary account.
(d) Transfer Agent. IFTC is registered as a transfer agent under the
Exchange Act.
<PAGE>
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1. Conduct Prior to Closing.
5.1.1. The Stockholders hereby covenant and agree with State Street,
that, prior to the Closing, unless the prior written consent of State Street
shall have been obtained, and except as otherwise contemplated herein, the
Stockholders will cause each of Holdco and IFTC to operate its business, in
all material respects, only in the usual, regular and ordinary course and
will cause each of Holdco and IFTC to use its reasonable efforts to preserve
intact its business organization and assets and maintain its rights and
franchises in all respects material to the business, operations, property,
assets, liabilities, or condition (financial or otherwise) of Holdco and
IFTC, respectively; provided, that, Holdco and IFTC shall each consult with
State Street with respect to its investment policies prior to Closing. From
the date hereof until the Closing, each of the Stockholders covenants and
agrees that, except as otherwise provided in Schedule 2.2 or elsewhere in
this Agreement, it will not permit either Holdco or IFTC to do or agree or
commit to do, without the prior written consent of State Street, any of the
following:
(a) incur or assume obligations for borrowed money other than in
the ordinary course of business;
(b) other than in accordance with existing policies and scheduled
increases described on Schedule 5.1.1(b), (i) grant any increase
in compensation to its employees, or to its officers or directors;
effect any change in retirement benefits to any employee or officer
(unless any such change shall be required by applicable law); or
(ii) enter into any employment, severance or similar agreements
or arrangements with any director, officer or employee;
(c) purchase, redeem or otherwise acquire any shares of capital
stock of Holdco or IFTC, or declare or pay any dividend or distribution
other than, after consultation with State Street, a dividend of the UMB
Stock held by IFTC from IFTC to Holdco;
(d) purchase or otherwise acquire any substantial portion of the
assets, or any class of stock of any corporation, bank or business or
any foreign debt instruments for IFTC's own account (other than in
accordance with IFTC's investment policies after consultation with
State Street); merge into any other corporation or bank or permit any
other corporation or bank to merge into it or consolidate with any
other corporation or bank; liquidate, sell, dispose of, or encumber any
assets or acquire any assets, other than in the ordinary course of
business; or issue any share of its capital stock or permit any share
<PAGE>
of its capital stock held in its treasury to become outstanding except
in connection with the issuance of directors qualifying shares as
required by law which shall be issued subject to repurchase agreements
consistent with past practice;
(e) issue or grant any option, warrant, conversion or stock
appreciation right in respect of the capital stock of Holdco or IFTC
Stock;
(f) propose or adopt any amendments to its charter or Bylaws;
(g) enter into any type of business materially different from the
business as it is conducted by Holdco or IFTC as of the date of this
Agreement (as described on Schedule 5.1.1(g) hereto) or create or
organize any new subsidiary of Holdco or IFTC or enter into or obtain a
financial interest in any joint venture or partnership;
(h) propose or adopt any material changes to the accounting principles
used by Holdco and IFTC except as required by generally accepted
accounting principles or regulatory requirements, and then only upon
notice to State Street;
(i) except on an arm's length basis in the ordinary course of business
enter into any agreement or transactions with the Stockholders or any
of their Affiliates (other than Affiliated Investment Companies) or
make any material amendment or modification to any such agreement,
except as contemplated by this Agreement or the Transaction Agreements;
(j) except, after consultation with State Street, for agreements with
new funds or series of Investment Companies that are IFTC Customers
where such new funds or series would be added to an existing Service
Contract or where such new funds or series would execute a new
agreement in substantially the same form as the existing Service
Contract of such Investment Company, enter into any Service Contract
for the provision of Custody Services which is not substantially in the
form of Exhibit G hereto; or
(k) agree or commit to do any of the foregoing.
5.1.2. Schedule 4.8 lists certain securities
currently held by IFTC and Holdco as of August 31, 1994. To the extent
neither State Street nor SSBT is or, following the Closing, IFTC will be,
permitted under applicable law to hold any of such securities, upon written
request of State Street such securities shall be disposed of in an orderly
manner prior to the Closing. Holdco shall provide to State Street in writing
an update to Schedule 4.8, including the cost and fair market value of such
securities, at least forty-five days prior to Closing and State Street shall
give written notice to the Stockholders at least twenty days prior to
Closing as to which of those securities, if any, must, pursuant to this
<PAGE>
Section 5.1.2, be disposed of prior to Closing; provided that in the event
the Closing does not occur, State Street will reimburse IFTC promptly upon
request for reasonable expenses and losses incurred in connection with such
disposition, unless the Closing does not occur due to a breach of this
Agreement by the Stockholders.
5.2. Consents and Approvals. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to cooperate with the others and use
all reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws, regulations and contractual arrangements to consummate and make effective
the transactions contemplated by this Agreement and the Transaction Agreements,
including, without limitation, using reasonable efforts to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby and thereby.
The Stockholders and State Street hereby covenant and agree to take no action
(a) which would render any of their representations and warranties contained
herein untrue at and as of the Closing except as otherwise contemplated herein
or (b) which would materially and adversely affect the ability of any of them to
satisfy any of the conditions set forth in Article VII, including without
limitation the ability to obtain any necessary approvals of governmental
authorities required for the transactions contemplated hereby or by the
Transaction Agreements or materially increase the period of time necessary to
obtain such approvals; provided, however, that, prior to Closing, State Street
will not seek to prevent the Stockholders from taking any action, or causing
IFTC to take any action, that the Stockholders reasonably deem necessary to
confirm that neither the Federal Reserve Board, the FDIC nor the Missouri
Division of Finance will take any enforcement action against the Stockholders,
Holdco, IFTC or Conseco, Inc. with respect to, in the case of the Federal
Reserve Board, a loss of the exception provided in 12 U.S.C. [Section Mark]
1841(c)(2)(I) or, in the case of the FDIC, violations of the federal Change in
Bank Control Act, or in the case of the Missouri Division of Finance, violations
of Missouri bank regulatory law, in each case, arising out of the acquisition of
the parent of Kemper by Conseco, Inc. The Stockholders shall provide written
notice to State Street of any actions to be taken pursuant to the foregoing
proviso at least ten days prior to the taking of such action. In the event that
such action results in the inability of the Stockholders to satisfy any of the
conditions to Closing set forth in Article VII hereof, State Street may
terminate this Agreement in accordance with the provisions of Section 9.1
hereof. If State Street does not so elect to terminate, any such condition to
Closing shall be deemed to have been waived.
5.2.1. State Street, with the cooperation of Holdco, IFTC and the
Stockholders, shall prepare and file, provide advance copies to and consult
with the Stockholders regarding, all notices, applications, correspondence,
and other filings in connection with the approvals and notifications set
forth on Schedule 2.2 hereto. The Stockholders will provide advance copies
to and consult with State Street regarding all notices, applications,
correspondence and other filings made with bank regulatory authorities
relating to the exception provided in 12 U.S.C. [Section Mark] 1841(c)(2)(I)
and issues under the federal Change in Bank Control Act or Missouri bank
<PAGE>
regulatory law in each case arising out of the acquisition of the parent
of Kemper by Conseco, Inc.
5.2.2. To the extent that deposit or other accounts maintained by IFTC
pursuant to such Service Contract may not be transferred without the consent
or approval of another party thereto, upon the reasonable request of State
Street, the Stockholders shall cause IFTC to use all reasonable efforts to
obtain any such consent or to amend the agreement such that no consent is
required.
5.2.3. Prior to Closing, the Stockholders and IFTC, at the request of
and in cooperation with State Street, shall obtain all required consents to
the appointment of SSBT as sub-custodian under IFTC's existing Service
Contracts with the Affiliated Investment Companies.
5.3. Actions Prior to the Closing.
(a) Prior to the Closing, at State Street's request, IFTC will take all
actions necessary to comply with the provisions of applicable law and to
obtain the approvals set forth on Schedule 2.2.
(b) If any of the actions described in Section 5.3(a) are effected
prior to Closing and this Agreement is terminated in accordance with Article
IX hereof, State Street, Holdco and the Stockholders shall cooperate with
each other and use reasonable best efforts to reverse such changes and
restore the business of IFTC to its pre-existing form; provided that in the
event the Closing does not occur, State Street will reimburse promptly upon
the request of IFTC, reasonable expenses and losses incurred by IFTC in
connection with such actions, unless the Closing does not occur due to a
breach of this Agreement by the Stockholders.
(c) Prior to the Closing, each of (i) the Investment Advisory Agreement
dated as of January 1, 1994 between Kemper Asset Management Company and
IFTC, (ii) the Rate Risk Analyst Agreement dated as of June 1, 1993 between
Smith Breeden Associates, Inc. ("Smith Breeden") and IFTC; and (iii) the
Fixed Income Portfolio Advisory Agreement dated as of June 1, 1993 between
Smith Breeden and IFTC shall be terminated, without cost to State Street,
Holdco or IFTC.
(d) At or prior to the Closing, the JV Agreement shall be terminated
without cost to State Street, Holdco or IFTC.
(e) Not more than 30 days prior to the Closing, (x) Holdco and IFTC
shall have billed the Stockholders and their Affiliates for all amounts due
and payable to Holdco or IFTC, and the Stockholders and their Affiliates
shall have billed Holdco and IFTC for all amounts due and payable to the
Stockholders and their Affiliates, and (y) immediately prior to the Closing,
<PAGE>
no amounts shall be due and owing to Holdco or IFTC from the Stockholders or
their Affiliates, and no amounts shall be due and owing to either of the
Stockholders and their Affiliates from Holdco or IFTC, in each case other
than such amounts in the ordinary course of business and not more than 60
days overdue.
5.4. Control. It is the intention of the parties that nothing contained in
this Agreement shall be construed to provide State Street with direct or
indirect control of IFTC under 12 U.S.C. [Section Mark] 1841(c)(2)(I).
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Current Information. Unless restricted by law, during the period from
the date of this Agreement to the Closing, the Stockholders on the one hand and
State Street on the other hand will cause one or more of its representatives to
confer on a regular and frequent basis with representatives of the other party
with respect to the status of the ongoing operations of IFTC and State Street.
Each party will promptly notify the other party of any material change in the
normal course of its business or in the operation of its properties and, to the
extent permitted by applicable law, of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of material litigation involving
such party which would, in any manner, challenge, prevent, alter or materially
delay any of the transactions contemplated hereby or by the Transaction
Agreements, and each party will keep the other party fully informed with respect
to such events. Each party will also notify the other party of the status of
regulatory applications and third party consents related to the transactions
contemplated hereby.
6.2. Access, Information and Confidentiality.
(a) The Stockholders shall ensure that upon reasonable notice, IFTC
shall afford to State Street and its representatives (including, without
limitation, officers and employees of State Street and their authorized
agents, counsel, accountants and other professionals retained) such access
during normal business hours throughout the period prior to the Closing
Date to its books, records (including, without limitation, tax returns and
appropriate work papers of independent auditors under normal professional
courtesy), properties, personnel, customers and to such other information
related to the transactions contemplated herein as State Street may
reasonably request, unless restricted by law.
(b) Upon reasonable notice, State Street shall provide to the
Stockholders and their representatives (including, without limitation,
officers and employees of the Stockholders and their authorized agents,
counsel, accountants and other professionals retained) such access during
<PAGE>
normal business hours, throughout the period prior to Closing Date to its
personnel with respect to information related to the transactions
contemplated herein as the Stockholders may reasonably request, unless
restricted by law.
(c) Each party to this Agreement shall hold, and shall cause its
respective subsidiaries and their directors, officers, employees, agents,
consultants and advisors to hold, in strict confidence, unless disclosure to
a banking or other regulatory authority is necessary in connection with any
necessary regulatory approval or unless compelled to disclose by judicial or
administrative process or, in the written opinion of its counsel, by other
requirement of law or the applicable requirements of any regulatory agency
or relevant stock exchange, all non-public records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") concerning the other parties or Holdco or IFTC (or, if
required under a contract with a third party, such third party) furnished it
by such other party (or Holdco or IFTC) or its representatives pursuant to
this Agreement, including without limitation the provisions of Section 6.12,
(except to the extent that such information can be shown to have been (a)
previously known by such party on a non- confidential basis, (b) in the
public domain through no fault of such party or (c) later lawfully acquired
from other sources by the party to which it was furnished or by Holdco or
IFTC), and none of the parties (nor Holdco or IFTC) shall release or
disclose such Information to any other person, except its auditors,
attorneys, financial advisors, bankers, other consultants and advisors and,
to the extent permitted above, to bank regulatory authorities. In the event
that a party to this Agreement becomes compelled to disclose any Information
in connection with any necessary regulatory approval or by judicial or
administrative process, such party shall provide the party who provided such
Information (the "Disclosing Party"), with prompt prior written notice of
such requirement so that the Disclosing Party may seek a protective order or
other appropriate remedy and/or waive the terms of the Confidentiality and
Nondisclosure Agreement dated as of May 31, 1994, as amended, between State
Street, Holdco, the Stockholders and IFTC (as so amended, the
"Confidentiality Agreement"). In the event that such protective order, other
remedy or waiver is not obtained, only that portion of the Information which
is legally required to be disclosed shall be so disclosed. In addition, all
information furnished to State Street and its advisors, representatives,
directors and officers, and all analyses, compilations, data, studies or
other documents prepared by State Street or its advisors or representatives
containing or based in whole or in part on any such furnished information or
reflecting State Street's review of, or interest in, IFTC (the "Evaluation
Material") shall be used solely as set forth and permitted by the
Confidentiality Agreement. In the event of the termination of this
Agreement, State Street shall return or destroy all Evaluation Material
(including copies thereof) pursuant to the terms of the Confidentiality
Agreement and otherwise comply with the terms and provisions of the
Confidentiality Agreement. The terms and provisions of the Confidentiality
Agreement (except as they apply to employees of IFTC) shall survive the
Closing.
<PAGE>
6.3. Intentionally Omitted.
6.4. Noncompetition.
(a) For a period of five years following the Closing Date, neither of
the Stockholders nor any of their Affiliates, (i) will solicit IFTC's
employees or will solicit any customer of IFTC who is a customer of IFTC as
of the date hereof or on the Closing Date or any customer of IFTC during
such five-year period (collectively, the "IFTC Customers")or seek to
persuade any such employee or customer to terminate their relationship with
IFTC; (ii) will provide services to any IFTC Customer of the type
theretofore provided to such IFTC Customer by IFTC, including without
limitation Custody Services, or provide Custody Services to any Affiliated
Investment Company of either DST or Kemper (as defined in Section 6.5),
whether or not such Affiliated Investment Company is a IFTC Customer; (iii)
will assist any IFTC Customer in internalizing a function previously
received from IFTC (unless requested by IFTC after the Closing); or (iv)
will seek to merge, consolidate, transfer all or substantially all the
assets of any Affiliated Investment Company into any entity that is not or
does not become at the time of such transaction an IFTC Customer, a customer
of any Affiliate of IFTC or an Affiliated Investment Company; provided that
no violation of the covenant in 6.4(a)(iv) will occur with respect to one
transaction per annum for each Stockholder involving an Affiliated
Investment Company where the assets under custody to be lost by IFTC are
less than $100 million in each such transaction or a transaction of the type
referred to in Section 6.4(a)(iv) which is consented to by State Street; and
provided, further that this Section 6.4(a) shall not prevent (x) the
Stockholders and their Affiliates from engaging in the Reserved Business or
in offering or providing the Reserved Business to an IFTC Customer which has
terminated receiving such services from IFTC so long as such Stockholder
offering or providing such Reserved Business has not solicited or encouraged
(except as permitted by Section 6.5 hereof) such IFTC Customer to terminate
receiving such services from IFTC; or (y) DST from providing portfolio
accounting services to any person other than an IFTC Customer who receives
portfolio accounting services from IFTC as of the date hereof; or (z) DST
from providing portfolio accounting services to an IFTC Customer who
receives portfolio accounting services from IFTC as of the date hereof, if
such IFTC Customer has ceased receiving such services from IFTC and has used
a provider of such services other than DST or any affiliate of DST for at
least one year thereafter before DST agrees to provide such services to such
IFTC Customer.
(b) Notwithstanding the provisions of Section 6.4(a), if, but only if
in connection with the exercise of its fiduciary duties to an Affiliated
Investment Company, a Stockholder or its Advisory Affiliate is not able to
comply with the provisions of Section 6.5(a) with respect to such Affiliated
Investment Company, such Stockholder or its Advisory Affiliate may, after
<PAGE>
prior written notice to State Street, recommend that such Affiliated
Investment Company terminate its relationship with IFTC.
(c) If any of the restrictions set forth in Section 6.4(a) should, for
any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforcement of the remainder of such
restrictions and covenants shall not thereby be adversely affected. Each of
the Stockholders, and State Street agree that, if any provision of this
Section 6.4 should be adjudicated to be invalid or unenforceable, such
provision shall be deemed deleted herefrom with respect, and only with
respect, to the operation of such provision in the particular jurisdiction
in which such adjudication was made; provided, however, that to the extent
any such provision may be made valid and enforceable in such jurisdiction by
limitations on the scope of the activities, geographical area or time period
covered, the Stockholders and State Street agree that such provision instead
shall be deemed limited to the extent, and only to the extent, necessary to
make such provision enforceable to the fullest extent permissible under the
laws and public policies applied in such jurisdiction.
(d) For purposes of this Agreement:
"Affiliate" (unless the context otherwise requires) of
any person shall mean with respect to DST, Janus Capital Corporation and
from such time as DST or its Affiliates own at least 50% of Berger
Associates, Inc., Berger Associates, Inc. and, with respect to Kemper, DST,
or State Street, any person directly or indirectly controlling, controlled
by or under common control with such other person, except that none of
Conseco, Inc. or its subsidiaries as of the date hereof shall be an
Affiliate of Kemper.
"Custody Services" shall mean the provision of safekeeping and/or
related services to institutional clients with respect to their cash,
securities or other assets, including but not limited to (i) custody and
safekeeping of assets, (ii) related settlement of securities transactions
and reporting thereof, (iii) related determination and collection of income
on securities, (iv) related cash disbursements and reporting cash
transactions, (v) maintenance of investment ledgers and position and income
reports, including account ledgers, statements of account, asset status
lists and investment reviews and (vi) all portfolio accounting services
including but not limited to the financial and tax recordkeeping related to,
income, disbursements, corporate actions, interest, dividends and expenses
of Investment Companies including but not limited to the calculation of
total assets, net assets, net asset value per share or unit, the preparation
of financial statements and related functions ("Fund Accounting Services");
provided, that, Custody Services provided to Investment Companies affiliated
with Kemper and Investment Companies affiliated with the Janus Capital
Corporation shall not include Fund Accounting Services; and provided,
further that Custody Services shall not include the provision of the
services ("Services") described in the following clauses (A)-(D) by either
of the Stockholders or its Affiliates that is a broker-dealer registered as
<PAGE>
such with the SEC: (A) securities or commodities accounts, (B) execution
services of any sort, (C) other than to Investment Companies, custodial and
related services customarily associated with the securities brokerage and
clearing businesses, including without limitation in each case all services
of the type currently provided by Kemper Clearing Corp., and (D) securities
and commodities quotation services and data processing, telecommunications
and related services of the type currently provided by Beta Systems, Inc.
"Reserved Business" shall mean the provision of (i) Transfer Agent
Services and Services to IFTC Customers and others, whether directly or
through subcontract arrangements and (ii) the TRAC-2000[TM] or KemFlex
systems for retirement plan participant recordkeeping and compliance.
"Transfer Agent Services" shall mean any or all of the services,
functions or activities of a transfer agent, on a remote or a full-service
basis including but not limited to the functions of dividend disbursing
agent, registrar, and shareholder liaison functions, and (i) the
maintenance, updating and reporting of shareholder or equivalent ownership
of shares, units or partnership interests in such accounts, (ii) the
preparation and input of all orders for purchases, exchanges, redemptions
and transfers of such shares, units or partnership interests and any
reconciliations, settlements and mailings relating thereto, (iii) responding
to inquiries from existing and prospective shareholders, unitholders,
partners, or broker-dealers, (iv) reconciling all internal accounts, such as
incoming cash and settlement wires, (v) tax preparation, materials or
reports for shareholders, unitholders or partners, and reporting and
compliance in connection therewith,(vi) recordkeeping for shareholders,
unitholders or partners in accordance with applicable law, rules and
regulations, (vii) workflow management, (viii) activities relating to proxy
solicitation and tabulation, (ix) escheatment accounting and reporting, (x)
fulfillment services, (xi) forms design, (xii) printing and mailing, (xiii)
bank account reconciliation, (xiv) blue sky compliance, and (xv) exchange or
conversion agent.
(e) Allocation of Purchase Price. For federal, state, and local income tax
purposes, State Street and the Stockholders hereby agree that no portion of
the Acquisition Consideration shall be allocated to the covenants
contained in Section 6.4 or Section 6.5 hereof.
6.5. Recommendation of IFTC.
(a) To the extent consistent with its fiduciary duties and other
applicable law, until the fifth anniversary of the Closing Date,
(i) with respect to the Investment Companies listed on Schedule
6.5A for which DST or any of its affiliates listed on Schedule 6.5B
(the "Advisory Affiliates") serves as investment advisor, DST or
<PAGE>
the appropriate Advisory Affiliate shall recommend IFTC and use
its reasonable best efforts to ensure the continuation or appointment
of IFTC as the provider of Custody Services (including the provision
of Custody Services by a subcustodian appointed by IFTC) of such
Investment Company's assets; DST or the appropriate Advisory Affiliate
shall recommend IFTC as the provider of Custody Services (including
the provision of Custody Services by a subcustodian appointed by IFTC)
to each Investment Company which is a new start-up Affiliated
Investment Company (as hereinafter defined) created by an Advisory
Affiliate after the date of this Agreement; and
(ii) with respect to the Investment Companies listed on Schedule
6.5C for which Kemper serves as investment advisor, Kemper shall
recommend IFTC and use its reasonable best efforts to ensure the
continuation or appointment of IFTC as the provider of Custody
Services (including the provision of Custody Services by a
subcustodian appointed by IFTC) of such Investment Company's assets;
and Kemper shall recommend IFTC as the provider of Custody Services
(including the provision of Custody Services by a subcustodian
appointed by IFTC) to each Investment Company which becomes an
Affiliated Investment Company after the date of this Agreement.
An Affiliated Investment Company with respect to DST shall mean an
Investment Company having DST or an Advisory Affiliate as its investment advisor
and a distributor or principal underwriter of which is a principal underwriter
of one or more of the Investment Companies listed on Schedule 6.5A, and an
Affiliated Investment Company with respect to Kemper shall mean an Investment
Company having Kemper as its investment advisor, sponsor, or depositor and
Kemper or a subsidiary of Kemper as its distributor or principal underwriter.
(b) DST hereby agrees that it will not sell substantially all the
assets or stock or allow a merger of DST or any of DST's Advisory Affiliates
unless the transferee agrees in writing that for the remaining balance of
the five year period commencing with the Closing Date, it will (i) not
provide Custody Services to any Affiliated Investment Company of the
acquired DST Advisory Affiliate other than services provided by such
transferee at the time of such sale or merger; (ii) not seek to merge,
consolidate, or transfer all or substantially all the assets of any
Affiliated Investment Company if the result of such transaction is that IFTC
will no longer provide Custody Services to such Affiliated Investment
Company of DST or the acquired DST Advisory Affiliate, as the case may be;
and (iii) be bound by the provisions of Section 6.5 as respects the
Affiliated Investment Companies of the acquired Advisory Affiliate existing
at the time of such sale or merger.
(c) Kemper hereby agrees that it will not sell substantially all the
assets or stock or allow a merger of Kemper unless the transferee agrees, in
writing that for the remaining balance of the five year period commencing
with the Closing Date, it will (i) not provide Custody Services to any
<PAGE>
Kemper Affiliated Investment Company other than services provided by such
transferee at the time of such sale or merger; (ii) not seek to merge,
consolidate, transfer all or substantially all the assets of any Affiliated
Investment Company if the result of such transaction is that IFTC will no
longer provide Custody Services to such Affiliated Investment Company; and
(iii) be bound by the provisions of Section 6.5 as respects the Kemper
Affiliated Investment Companies existing at the time of such sale or merger.
(d) The provisions of Section 6.5 shall only apply to Investment
Companies and series thereof registered under the Investment Company Act.
(e) The provisions of Section 6.5 shall not apply to Custody Services
with respect to assets located outside of the United States and cash items
related thereto.
6.6. Expenses. The Stockholders, Holdco, IFTC and State Street each shall
pay their own expenses incident to preparing for, entering into and carrying out
this Agreement and the Transaction Agreements, including legal and accounting
fees and expenses.
6.7. Press Releases. State Street and the Stockholders will consult with
each other as to the form, substance and timing of any press release or other
public disclosure of matters related to this Agreement, the Transaction
Agreements or any of the transactions contemplated hereby or thereby and no such
press release or other public disclosure shall be made without the consent of
the other party, which shall not be unreasonably withheld or delayed; provided,
however, that either party may make such disclosures as are required by law
after making reasonable efforts in the circumstances to consult in advance with
the other party.
6.8. Employee Benefits and Other Matters.
(a) In General. Except as otherwise provided in this Agreement, or as
otherwise agreed by DST and State Street, each Holdco Plan shall terminate
as to IFTC and each employee employed by IFTC as of and after the Closing,
and neither State Street nor IFTC will thereafter have any liability with
respect thereto other than those liabilities reflected on the Consolidated
Financial Statements or, as to such liabilities accruing after June 30,
1994, are accrued on the books and records of Holdco and IFTC in the
ordinary course of business the amount of which accruals shall be paid to
DST as promptly as practicable after such Holdco Plan terminates as to
IFTC.
(b) Future Benefits. To the extent State Street wishes to provide
employees of IFTC with benefits similar to those provided by IFTC as of the
Closing, State Street, at its own expense, may request the Stockholders to
use their reasonable best efforts to take any one or more of the actions set
forth in (i) and (ii) below, with respect to any one or more Holdco Plan,
and Stockholders shall comply, using their reasonable best efforts, with
such requests:
<PAGE>
(i) Where benefits are provided through an insurance or reinsurance
contract or policy, HMO agreement, or similar agreement, (A) to take
all steps necessary to cause separate insurance or reinsurance
contracts or policies, HMO agreements, or similar agreements to be
established solely in the name of IFTC on terms substantially similar
to those in effect as of the Closing Date, or, if State Street directs,
(B) to take all steps necessary in order for IFTC to continue to
participate in any employee benefit plan in which IFTC's employees
currently participate for a period specified by State Street at a cost
that is substantially similar to what IFTC and its employees would have
paid had IFTC remained a participant in such plan or that is otherwise
mutually agreed upon by State Street and DST.
(ii) Where benefits are provided through a Holdco Plan intended to be
qualified under Code section 401(a), to take all steps necessary to
transfer assets in respect of IFTC employees to be transferred to a
separate trust established by IFTC or State Street in a manner
consistent with the Code and ERISA at such time after the Closing as
State Street shall direct.
6.9. Effect of Investigations. No investigation by the parties hereto made
heretofore or hereafter, whether pursuant to this Agreement or otherwise, shall
affect the representations and warranties of the parties which are contained
herein and each such representation and warranty shall survive such
investigation.
6.10. Acquisition Proposals. Each of the Stockholders agrees that neither it
nor its Affiliates nor any of the respective officers and directors of the
Stockholders or any such Affiliates shall, and the Stockholders shall direct and
use their best efforts to cause their employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by any Stockholder and the directors, officers and employees of IFTC
and Holdco) not to, initiate, solicit or encourage, directly or indirectly, any
enquiries or the making of any proposal or offer with respect to a merger,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, Holdco or IFTC
(any such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. Each Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing, and such
Stockholder will take the necessary steps to inform the appropriate individuals
or entities referred to in the first sentence hereof of the obligations
undertaken in this Section 6.10, and such Stockholder will notify State Street
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with either Stockholder.
<PAGE>
6.11. Director Resignations. The Stockholders shall obtain the director
resignations referred to in Section 7.2.6.
6.12. Notification of Certain Matters. The Stockholders shall give prompt
notice to State Street of: (i) any notice of, or other communication relating
to, a default or event that, with notice or lapse of time or both, would become
a default, received by either of them or IFTC subsequent to the date of this
Agreement and prior to the Closing Date, under any material contract; (ii) any
event, transaction or incident which, had it existed or occurred prior to the
date of this Agreement, would have constituted a breach of the representations
and warranties of the Stockholders contained herein; and (iii) any Material
Adverse Effect on IFTC. To the extent a party acknowledges in reasonable detail
by notice to the other parties at least five business days prior to the Closing
its inability to satisfy the condition set forth in Section 7.2.1 or 7.3.1, as
the case may be, and thereafter if the Closing occurs, then the party receiving
such notice shall be deemed to have waived its rights and claims, if any, with
respect to such failure under this Agreement.
6.13. Preservation of Relationships. State Street hereby agrees to make
available to or for the benefit of the Stockholders, either directly or
indirectly through one of its Affiliates, the same services, set forth on
Schedule 6.13A, provided by IFTC to or for the benefit of the Stockholders
during the six-month period ended June 30, 1994 for a period of five years from
the Closing Date. State Street also hereby agrees to make available, or cause
IFTC to make available, to the Stockholders, either directly or indirectly,
those services provided to or for the benefit of the Stockholders which are set
forth on Schedule 6.13B for a period of three years from the Closing Date.
6.14. Change of Control. In the event of a change of control occurring prior
to the fifth anniversary of the Closing, such that any person or entity, other
than an entity which is a bank or a bank holding company or any Affiliates
thereof immediately prior to such change of control, controls more than 50% of
the State Street Stock, either Stockholder may terminate its obligations under
Sections 6.4 and 6.5 hereof, as such obligations relate to its Affiliated
Investment Companies, upon providing a notice to State Street with respect to
such termination.
6.15. Taxes.
(a) Holdco shall file consolidated federal income Tax Returns and
consolidated Missouri income Tax Returns including IFTC for the year ended
December 31, 1993, for the year ended December 31, 1994 (if the Closing
occurs after that date), and for the short year ending on the Closing Date
(whenever the Closing occurs), and Holdco and IFTC shall each file all
separate Tax Returns required to be filed by each of them for any period;
provided, however, that the Stockholders shall have no liability for any
failure of Holdco or IFTC to file any Tax Return whose due date (including
extensions) is after the Closing Date. Except to the extent the regulations
adopted by Treasury Decision 8560 require otherwise, the income of Holdco
<PAGE>
and IFTC included in any Tax Return for a period ending on the Closing Date
shall be determined by closing the books of Holdco and IFTC as of the end of
the Closing Date. All Holdco and IFTC federal and state income, bank
franchise and earnings, Tax Returns filed after the Closing for any periods
ending on or prior to the Closing Date shall be prepared by Ernst & Young
and shall be prepared consistent with past practice. No Tax Return or
application filed after the date of this Agreement and prior to Closing
shall change, or request any change in any method of accounting of IFTC
unless State Street consents in writing, which consent shall not be
unreasonably withheld.
(b) The Stockholders acknowledge that, immediately after the Closing,
State Street intends that Holdco will be merged into State Street.
ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation to Consummate
the Closing. The respective obligations of each party to
consummate the Closing shall be subject to the fulfillment or
waiver at or prior to the Closing of the following conditions:
(a) The regulatory approvals set forth on Schedule 2.2 in connection
with the purchase contemplated by this Agreement, the Transaction Agreements
and the transactions contemplated hereby and thereby shall have been
obtained without any condition which would have a Material Adverse Effect on
State Street; all conditions required to be satisfied prior to the Closing
imposed by the terms of such approvals shall have been satisfied; all
waiting periods relating to such approvals shall have expired; and all
notifications to any regulatory authorities that are required shall have
been made.
(b) None of State Street, SSBT, the Stockholders, Holdco or IFTC shall
be subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of the
transactions contemplated by this Agreement or the Transaction Agreements.
(c) The Transaction Agreements shall have been executed and delivered
by the parties thereto.
(d) The parties hereto shall each have received an opinion of its
counsel in form and substance reasonably satisfactory to it that the
transactions contemplated hereby will qualify as tax-free under Section
368 of the Code.
<PAGE>
7.2. Conditions to Obligation of State Street to
Consummate the Closing. The obligations of State Street to consummate the
Closing shall be subject to the fulfillment or waiver at or prior to the Closing
of the following additional conditions:
7.2.1. Representations and Warranties. The representations and
warranties of the Stockholders set forth in Articles III and IV hereof shall
be true and correct in all material respects (except for such
representations and warranties which are qualified by their terms by
reference to materiality or a Material Adverse Effect, which representations
and warranties as so qualified shall be true and correct in all respects),
as of the Closing, as if made at and as of the Closing, and State Street
shall have received a signed certificate which is to the knowledge of a
principal executive officer of each of the Stockholders to that effect;
provided, however, that it is understood and agreed that no representation
and warranty contained in Section 4.14 shall be considered untrue and
incorrect unless such inaccuracy would have a Material Adverse Effect on
Holdco and IFTC taken as a whole.
7.2.2. Performance of Obligations. The Stockholders shall have
performed and complied in all material respects with all obligations
required to be performed or complied with by each of them under this
Agreement and the Transaction Agreements prior to the Closing, and State
Street shall have received a signed certificate which is to the knowledge of
a principal executive officer of each of the Stockholders to that effect.
7.2.3. Absence of Material Change. Other than events to which State
Street provides its consent resulting from obtaining the regulatory
approvals set forth on Schedule 2.2, there shall not have been a Material
Adverse Effect on Holdco or IFTC since December 31, 1993, and State Street
shall have received a signed certificate which is to the knowledge of a
principal executive officer of each of the Stockholders to that effect.
7.2.4. No Dividends or Distributions. Holdco shall not have made any
dividends or distributions to the Stockholders since March 31, 1994, and
State Street shall have received a signed certificate of a principal
executive officer of each of the Stockholders to that effect.
7.2.5. Customer Base. Between May 31, 1994 and the Closing, IFTC
Customers shall not have terminated, or given notice to terminate, Service
Contracts (other than with Affiliated Investment Companies) relating to
customer assets which represented assets under custody equal to
$13,041,416,695, provided, that in determining compliance with this
condition, assets under custody received from customers new to IFTC after
May 31, 1994 may be used to offset losses of assets, under custody; and
State Street shall have received a signed certificate which is to the
knowledge of a principal executive officer of each of the Stockholders to
that effect.
<PAGE>
7.2.6. Resignations of Directors and Officers. The members of the Board
of Directors of Holdco and IFTC and the officers of Holdco shall have
delivered (i) resignations dated as of the Closing Date in form and
substance reasonably satisfactory to State Street and (ii) certificates
representing their shares of IFTC Stock, endorsed in blank.
7.2.7. Legal Opinions. State Street shall have received a legal opinion
dated the Closing, from counsel of the Stockholders, Holdco and IFTC with
respect to the transactions contemplated herein and in the Transaction
Agreements in substantially the forms as set forth in Exhibits C and D
hereto.
7.2.8. Other Agreements. Each of (i) the Lease between IFTC and DST,
substantially in the form attached hereto as Exhibit E and (ii) the
amendment to the Service Agreements between Kemper and IFTC relating to the
provision by Kemper of Transfer Agent Services as an agent of IFTC,
substantially in the form attached hereto as F-2; (iii) sufficient
documentation in accordance with the terms described on Schedule 7.2.8
memorializing Kemper's obligations to IFTC with respect to the non resident
alien status of certain IFTC Customers as disclosed as item 9 on Schedule
4.14 shall have been executed and delivered by Kemper and IFTC in form and
substance reasonably satisfactory to State Street; and (iv) the General
Services Agreement between DST and IFTC in the form attached hereto as
Exhibit K.
7.2.9. Affiliated Investment Company. No Affiliated Investment Company
shall have terminated (nor shall notice to terminate have been received with
respect to) any agreement, understanding or relationship with IFTC relating
to the provision of portfolio accounting and custody services currently
provided by IFTC to such Affiliated Investment Company and either
internalized such function or entered into similar arrangements with another
provider of such services.
7.2.10. Tax Certificate. The Stockholders shall have executed and
delivered to State Street a certificate with respect to the transactions
contemplated hereby, dated as of the Closing Date, in substantially the
form set forth as Exhibit H hereto.
7.2.11. Intentionally Omitted.
7.2.12. United Missouri Bank. Since September 15, 1994, IFTC shall not
have taken any action to amend its existing contractual service
arrangements with United Missouri Bank, N.A. without the prior written
consent of State Street.
7.3. Conditions to Obligation of the Stockholders to
Consummate the Closing. The obligations of the Stockholders to consummate the
Closing shall be subject to the fulfillment or waiver at or prior to the Closing
of the following additional conditions:
<PAGE>
7.3.1. Representation and Warranties. The representations and
warranties of State Street set forth in Article II hereof shall be true and
correct in all material respects (except for such representations and
warranties which are qualified by their terms by reference to materiality or
a Material Adverse Effect, which representations and warranties as so
qualified shall be true and correct in all respects) as of the Closing as
though made at and as of the Closing, except as otherwise consented to in
writing by the Stockholders and the Stockholders shall have received a
signed certificate which is to the knowledge of a principal executive
officer of State Street and is to that effect.
7.3.2. Performance of Obligations. State Street shall have performed
and complied in all material respects with all obligations required to be
performed or complied with by it under this Agreement and the Transaction
Agreements prior to the Closing, and the Stockholders shall have received a
signed certificate which is to the knowledge of a principal executive
officer of State Street and is to that effect.
7.3.3. Absence of Material Change. There shall not have been a Material
Adverse Effect on State Street since December 31, 1993, and the Stockholders
shall have received a signed certificate which is to the knowledge of a
principal executive officer of State Street and is to that effect.
7.3.4. Legal Opinion. The Stockholders shall have received a legal
opinion dated the Closing from counsel to State Street, with respect to the
transactions contemplated herein and in substantially the form as set forth
as Exhibit I hereto.
7.3.5. Tax Certificate. State Street shall have executed and delivered
to Holdco and the Stockholders a certificate with respect to the
transactions contemplated hereby, dated as of the Closing Date, in
substantially the form set forth as Exhibit J hereto.
7.4. Best Efforts. From the date hereof until the Closing Date, each of the
parties agrees to take or use its reasonable best efforts to cause to be taken
all actions necessary to satisfy the conditions to the Closing set forth in this
Article VII; provided, however, that this Section 7.4 shall not be deemed to
require the Stockholders to remedy or dispose of any matters disclosed by either
of them pursuant to Section 6.12.
<PAGE>
ARTICLE VIII
INDEMNIFICATION AND REMEDIES
8.1. General. From and after the Closing, the parties shall indemnify each
other as provided in this Article VIII. Notwithstanding anything to the contrary
in this Article VIII or elsewhere in this Agreement, the Stockholders and State
Street hereby each acknowledge that in the event of the breach by the
Stockholders or State Street or any of their Affiliates of any of the covenants
made by them in this Agreement, money damages would be an inadequate remedy.
Accordingly, without prejudice to the rights of the parties also to seek
indemnification or other remedies, the parties may seek, and the parties
acknowledge and covenant that neither they nor their Affiliates will contest the
propriety and availability of, injunctive or other equitable relief in any
proceeding which a party hereto may bring to enforce any covenant in this
Agreement on its express and explicit terms. No waiver of any breach of any
covenant in this Agreement shall be implied from any forbearance or failure of a
party to take action thereon.
8.2. Stockholders' Indemnification Covenants. The Stockholders shall
severally, with respect to each of their representations and warranties in
Article III hereof, and jointly and severally, with respect to all other claims
for indemnification hereunder, indemnify, save and keep State Street, SSBT,
their directors, officers and controlling persons, Holdco and IFTC and their
successors and assigns, harmless against and from all liabilities, demands,
claims, actions or causes of action, assessments, losses, fines, penalties,
costs (including reasonable attorneys' and expert witness fees), damages and
expenses, including, without limitation, those asserted by any federal, state,
local or foreign governmental entity, third party, or former or present
employee, (herein referred to collectively as "Losses"), sustained or incurred
by State Street, SSBT any such director, officer or controlling person, Holdco,
IFTC, or their respective successors or assigns to the extent any such Loss
arises out of or by virtue of
(i) any inaccuracy in a representation or warranty made by the
Stockholders to State Street herein (as such representation or warranty
would read if all qualifications as to materiality were deleted from
it); and
(ii) the breach or nonfulfillment of, or noncompliance with, any
covenant or agreement of the Stockholders (including those covenants
and agreements referring to their Affiliates) made by the Stockholders
herein.
8.3. State Street's Indemnification Covenants. State Street shall indemnify,
save and keep the Stockholders, their directors, officers and controlling
persons and their successors and assigns, harmless against and from all Losses
sustained or incurred by the Stockholders, any such director, officer and
controlling person or their successors or assigns, to the extent such Loss
arises out of or by virtue of
<PAGE>
(i) any inaccuracy in a representation or warranty made by State
Street to the Stockholders herein (as such representation or warranty
would read if all qualifications as to materiality were deleted from
it); and
(ii) the breach or nonfulfillment of, or noncompliance with, any
covenant or agreement of State Street (including those covenants and
agreements referring to its Affiliates) made by State Street herein.
Any payments made by State Street pursuant to this Section 8.3 as such payments
may be adjusted pursuant to Section 8.4 shall be made through the issuance of
shares of State Street Stock at a per share value equal to the Acquisition
Consideration divided by the Number of Shares. All shares of State Street Stock
issued to the Stockholders pursuant to this Section 8.3 shall be "Registrable
Securities" as defined in the Registration Rights Agreement.
8.4. Tax Consequences of Indemnification Payments.
(a) The amount of any indemnity payment required to be made pursuant to
Sections 8.2 or 8.3 hereof shall be adjusted as follows to make the Indemnified
Party whole on an after-tax basis:
(i) To the extent that an Indemnified Party will realize any Tax
benefit or will suffer any Tax detriment as a result of (x) the payment
or accrual of a Loss that is indemnified by the Indemnifying Party
pursuant to this Article VIII, or (y) the receipt of an indemnity
payment in connection therewith, the amount of such indemnification
payment shall be:
(A) increased by the sum of the net present values of all Tax
detriments that will be suffered by the Indemnified Party, and
(B) decreased by the sum of the net present values of all Tax
benefits that will be realized by the Indemnified Party.
(ii) In making determinations under Section 8.4(a)(i), the following
rules shall apply:
(A) The determination under Section 8.4(a)(i) shall be made as of
the due date (determined without regard to extensions) of the
federal income Tax Return of the Indemnified Party for the year
in which the Loss subject to indemnification under Sections 8.2 or
8.3 occurs;
(B) A Tax benefit realized or a Tax detriment suffered in a
particular tax year will be deemed to be realized or suffered for
purposes of this Section 8.4 on the due date (determined without
<PAGE>
regard to extensions) of the federal income Tax Return of the
Indemnified Party for that year;
(C) Benefits and detriments will be discounted annually at a
discount rate equal to the Mid-Term Applicable Federal Rate under
Code Section 1274(d) on the date the Loss subject to indemnification
under Sections 8.2 or 8.3 was incurred.
(b) As soon as possible after a claim has been made under Sections 8.2 or
8.3, the Indemnified Party shall provide a notice (the "Notice") certified by
its independent auditors to the Indemnifying Party stating the adjustment, if
any, required under this Section 8.4 to the indemnification payment claimed
under Sections 8.2 or 8.3. The calculations set forth in the Notice shall be
presumed to be correct and binding on the parties absent manifest error.
(c) The Indemnified Party shall use all reasonable efforts to maximize any
Tax benefit or minimize any Tax detriment that might affect any indemnity
payment under this Article VIII.
(d) All indemnity payments made pursuant to this Article VIII not resulting
in a Tax detriment to the Indemnified Party under Section 8.4(a)(i)(A) shall be
treated for Tax purposes as adjustments to the Acquisition Consideration if paid
by State Street and deemed to be a contribution to capital if paid by the
Stockholders.
8.5. Direct Claims. With respect to claims by the parties for
indemnification hereunder other than a Third Party Claim, the Indemnified Party
shall use reasonable efforts promptly to notify the Indemnifying Party of such
claims, but, subject to Section 8.10(a), failure of the Indemnified Party so to
give notice to the Indemnifying Party shall not affect the rights of Indemnified
Party to indemnification hereunder, except if (and then only to the extent that)
the Indemnifying Party incurs additional expenses or the Indemnifying Party is
actually prejudiced by reason of such failure to give timely notice.
8.6. Intentionally Omitted.
8.7. Subrogation. The party against whom a claim for indemnification has
been asserted ("Indemnifying Party") shall not be entitled to require that any
action be brought against any other person before action is brought against it
hereunder by the party being indemnified hereunder ("Indemnified Party") and the
Indemnifying Party shall not be subrogated to any right of action until it has
paid in full or successfully defended against the claim for which
indemnification is sought and shall be subrogated to any such right of action
once it has been paid in full or successfully defended against the claim for
which indemnification is sought.
8.8. Third Party Claims. Forthwith following the receipt of notice of a
claim, action or proceeding brought by a third party, which a party claims is
subject to indemnification under this Article VIII (a "Third Party Claim"), the
<PAGE>
party receiving the notice of the Third Party Claim shall notify the other party
of its existence. Subject to Section 8.10(a), the failure to give such notice
shall not affect the right of the Indemnified Party to indemnity hereunder
unless such failure has materially and adversely affected the rights of the
Indemnifying Party. Subject to the remaining provisions of this Section 8.8, if
an Indemnified Party is entitled to indemnification against a Third Party Claim,
the Indemnified Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to defend against and settle any litigation, at such time
and upon such terms as the Indemnified Party deems fair and reasonable, provided
that at least ten (10) days prior to any such settlement, written notice of its
intention to settle is given to the Indemnifying Party. As long as the
Indemnified Party retains its right to defend and (except as hereinafter
provided) settle a Third Party Claim as hereinabove provided, the Indemnified
Party shall be reimbursed by the Indemnifying Party for the reasonable
attorneys' fees and other reasonable expenses of defending the Third Party Claim
which are incurred from time to time, forthwith following the presentation to
the Indemnifying Party of itemized bills for said reasonable attorneys' fees and
other reasonable expenses. The Indemnified Party may also at any time, upon
reasonable notice, tender the defense of a Third Party Claim to the Indemnifying
Party. Notwithstanding the foregoing, if:
8.8.1. the defense of a Third Party Claim is so tendered and such
tender is accepted without qualification by the Indemnifying Party; or
8.8.2. within sixty (60) days after the date on which written notice of
a Third Party Claim has been given pursuant to this Section 8.8, the
Indemnifying Party shall acknowledge without qualification its
indemnification obligations as provided in this Section 8.8 in writing to
the Indemnified Party;
then the Indemnified Party shall not have the right to defend or settle such
Third Party Claim and the Indemnifying Party shall have the sole right to
contest, defend, litigate and settle the Third Party Claim, and all expenses
(including without limitation attorney's fees) incurred by the Indemnifying
Party in connection therewith shall be paid by the Indemnifying Party and shall
not be subject to the minimum dollar amount of $1,500,000 contained in Sections
8.10(b) and (c) and the minimum dollar amount of $10,000 contained in Section
8.10(d) hereof. All Claims settled by an Indemnifying Party in an amount in
excess of $22,500,000 shall require the consent of the Indemnified Party. The
Indemnified Party shall have the right to be represented by counsel at its own
expense in any such contest, defense, litigation or settlement conducted by the
Indemnifying Party provided that the Indemnified Party shall be entitled to
reimbursement therefor if the Indemnifying Party shall lose its right to defend
and settle as herein provided. Notwithstanding the foregoing, the party
defending and settling such Third Party Claim shall lose its right to defend and
settle the Third Party Claim if it shall fail to contest responsibly under the
facts and circumstances the Third Party Claim. So long as the Indemnifying Party
has not lost its right and/or obligation to defend and settle as herein
provided, the Indemnifying Party shall have the exclusive right, in its
discretion exercised in good faith, and upon the advice of counsel, to settle
any such matter, either before or after the initiation of litigation, at such
time and upon such terms as it deems fair and reasonable, provided that at least
<PAGE>
ten (10) days prior to any such settlement, written notice of its intention to
settle shall be given to the Indemnified Party. No failure by an Indemnifying
Party to acknowledge in writing its indemnification obligations under this
Article VIII shall relieve it of such obligations to the extent they exist.
At the request of the Indemnifying Party, the Indemnified Party shall
cooperate with the Indemnifying Party in the defense of any Third Party Claim,
including but not limited to, providing documents, personnel and related record
research reasonably necessary to defend any such claim.
8.9. Insurance. Each Indemnified Party shall be obligated prior to claiming
any indemnification or reimbursement under this Agreement to use all reasonable
efforts to obtain any insurance proceeds available to such Indemnified Party
with regard to the applicable Claim, which insurance proceeds shall be deducted
from any losses to be claimed against an Indemnifying Party hereunder.
8.10. Limitations on Indemnification Obligations.
(a) The parties hereto, their directors, officers and controlling
persons and assigns may not commence a claim for indemnification under this
Article VIII after the earlier of (x) the first anniversary of the Closing;
or (y) the issuance of the first independent audit report after the
Closing, covering Holdco and/or IFTC; provided, however, that claims made
hereunder within the applicable time period as provided in this Section
8.10 (a) shall survive to the extent of such claim until such claim is
finally determined and, if applicable, paid.
(b) State Street, SSBT, their directors, officers or controlling
persons, IFTC and Holdco shall not be entitled to indemnification pursuant
to this Agreement by the Stockholders or their Affiliates, until the total
amount for which State Street, SSBT, their directors, officers or
controlling persons, IFTC and Holdco are entitled to indemnification
exceeds, in the aggregate, $1,500,000, and then only for amounts in excess
of $1,500,000. The total amount for which State Street, SSBT, their
directors, officers or controlling persons, IFTC and Holdco are entitled to
indemnification shall not exceed, in the aggregate, $22,500,000.
(c) The Stockholders, their directors or controlling persons shall not
be entitled to indemnification pursuant to this Agreement by State Street or
its Affiliates, until the total amount for which the Stockholders, their
directors, officers or controlling persons are entitled to indemnification
exceeds, in the aggregate, $1,500,000, and then only for amounts in excess
of $1,500,000. The total amount for which the Stockholders, their directors,
officers or controlling persons are entitled to indemnification shall not
exceed, in the aggregate, $22,500,000.
<PAGE>
(d) No party to this Agreement shall be entitled to indemnification for
any Loss unless such Loss, individually or as a part of a series of claims
arising from a single occurrence, is greater than or equal to $10,000.
(e) Notwithstanding anything contained in this Article VIII, no
Indemnifying Party shall have any obligation to indemnify an Indemnified
Party for Losses in excess of the amounts permitted in respect of
transactions accounted for as a pooling under Accounting Principles Board
Opinion No. 16 and interpretations thereof issued by the American Institute
of Certified Public Accountants on or prior to the date hereof as determined
by State Street's independent auditors.
(f) After the Closing, this Article VIII shall be the exclusive remedy
for any breach of representation, warranty, covenant or agreement other than
with respect to the representations and warranties contained in Sections
3.3A, 3.3B, the first three sentences of Section 4.4, and Section 4.14 and
the representations contained in the certificates furnished at Closing
pursuant to Sections 7.2.10 and 7.3.5 ("Nonexclusive Representations") and
the covenants and agreements contained in Sections 6.4 and 6.5; provided,
that, nothing in this Article VIII shall limit the remedies, at law or at
equity, available to any of the parties hereto with respect to Nonexclusive
Representations or breaches of Sections 6.4 and 6.5; provided, however, that
notwithstanding the foregoing , the remedy for breach of a representation
and warranty contained in Section 4.14 shall be limited by the dollar
restrictions provided in Sections 8.10(b), (c) and (d) in the same way
indemnification payments are limited by such provisions of Article VIII; and
provided, further, however, that in the event the period for claims under
indemnification terminates prior to the first anniversary of the Closing in
accordance with Section 8.10 (a) (y), this Article VIII shall not be the
exclusive remedy for breaches of representations and warranties other than
Nonexclusive Representations for the remainder of the period referred to in
Section 8.10(a)(x), although the dollar restrictions provided in Sections
8.10 (b), (c) and (d) shall continue to be applicable to the remedy for
breaches of representations and warranties other than Nonexclusive
Representations.
(g) Each of the minimum dollar requirement of $1,500,000 and the
maximum dollar limitation of $22,500,000 set forth in Sections 8.10 (b) and
(c) hereof and the minimum dollar requirement of $10,000 set forth in
Section 8.10 (d) shall not be subject to the adjustments set forth in
Section 8.4.
<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1. Termination.
9.1.1. Ability to Terminate. This Agreement may be terminated, by
written notice, at any time prior to the Closing:
(a) by mutual consent of the Stockholders and State Street; or
(b) by either State Street or the Stockholders at any time after
January 31, 1995, if the Closing shall not theretofore have occurred,
unless the failure to close by such date is due to the breach of any
representation, warranty, covenant or agreement in this Agreement by
the party seeking to terminate.
9.1.2. Effect of Termination. In the event of termination of this
Agreement by State Street pursuant to the right of State Street to
terminate this Agreement set forth in Section 5.2 of this Agreement,
the Stockholders shall pay to State Street an amount equal to State
Street's out-of-pocket expenses related to preparing for, entering
into and carrying out this Agreement and the Transaction Agreements,
including legal and accounting fees and expenses, not to exceed
$2,000,000, within 15 days of notice to the Stockholders by State
Street of such termination. Any amount paid pursuant to this section
shall represent the liquidated damages of State Street related to such
termination.
9.2. Amendment. This Agreement and Schedules hereto may be amended by
mutual agreement of the parties hereto; provided, that this Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.3. Waiver. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is entitled to the benefits
thereof.
<PAGE>
ARTICLE X
GENERAL PROVISIONS
10.1. Survival of Representations, Warranties and Agreements. The agreements
of the Stockholders and State Street contained in this Agreement or in any
instrument delivered by the Stockholders and State Street pursuant to this
Agreement shall survive the Closing until the first anniversary of the Closing
unless otherwise specified therein. The representations and warranties set forth
in Sections 3.3A, 3.3B, and 4.14, the first three sentences of Section 4.4 or
pursuant to the certificates furnished under Sections 7.2.10 and 7.3.5 hereto
shall survive until the expiration of the statute of limitations applicable to
the matters referred to therein plus sixty days. All other representations and
warranties contained in this Agreement shall expire on the first anniversary of
the Closing. In the event of termination of this Agreement in accordance with
its terms, the agreements contained in or referred to in Sections 6.2 (c) and
6.6 shall survive such termination. This Agreement shall take effect as an
instrument under seal.
10.2. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly received (i) on the date given if
delivered personally or by cable, telegram, telex or telecopy or (ii) on the
date received if mailed by registered or certified mail (return receipt
requested), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to State Street:
Mr. David A. Spina
State Street Boston Corporation
225 Franklin Street
Boston, Massachusetts 02110
Copies to:
Robert J. Malley, Esq.
State Street Boston Corporation
225 Franklin Street
Boston, Massachusetts 02110
and
Champe A. Fisher, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
<PAGE>
(b) if to Kemper:
Mr. Charles M. Kierscht
Kemper Financial Services, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
Copies to:
David Dierenfeldt, Esq.
Kemper Financial Services, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
and
William H. Rheiner, Esq.
Ballard Spahr Andrews & Ingersoll
1735 Market Street
Philadelphia, PA 19103-7599
(c) if to DST:
Mr. Thomas A. McDonnell
DST Systems, Inc.
1055 Broadway, 9th Floor
Kansas City, Missouri 64105
Copies to:
Robert C. Canfield, Esq.
DST Systems, Inc.
1055 Broadway, 9th Floor
Kansas City, Missouri 64105
and
Dennis R. Rilinger, Esq.
Watson & Marshall, L.C.
1010 Grand Ave., 5th Floor
Kansas City, Missouri 64106
<PAGE>
10.3. Miscellaneous. This Agreement (including exhibits, documents and
instruments referred to herein (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) is not intended to and shall not confer upon any person not a party hereto
any rights or remedies hereunder; (c) shall not be assigned other than by
operation of law, provided that between the date of this Agreement and the
Closing Date this Agreement shall not be assigned by operation of law without
the prior consent of the other party; and (d) shall be governed by and construed
in accordance with the domestic substantive laws of The Commonwealth of
Massachusetts, without giving effect to any choice or conflict of law provision
that would cause the application of the domestic substantive laws of any other
jurisdiction. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement. Each of the Stockholders and State
Street by their execution of this Agreement hereby consent to service of process
in any such proceeding in any manner permitted by law, and agree that service of
process by registered or certified mail, return receipt requested, at their
respective addresses specified in or pursuant to Section 10.2 hereof is
reasonably calculated to give actual notice.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, State Street, Kemper and DST have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
STATE STREET BOSTON CORPORATION
By /s/ David A. Spina
Title: Vice Chairman
KEMPER FINANCIAL SERVICES, INC.
By /s/ David F. Dierenfeldt
Title: Senior Vice
President
DST SYSTEMS, INC.
By /s/ Kenneth V. Hager
Title: Vice President -
Chief Financial Officer
Exhibit 10
State Street Boston Corporation
Material Contract Agreement with J.R. Towers
September 7, 1994
Mr. John R. Towers
239 Union Street
Hanover, Massachusetts 02339
Dear John:
I am pleased to extend you an offer to become Senior Vice President and
Senior Legal Officer at State Street Boston Corporation and State Street Bank
and Trust Company.
Your salary will be $275,000 per year. As a member of our Global
Management Forum, in 1995, you will participate in our annual incentive plan in
which bonuses are awarded on a judgmental basis, usually between 0% and 50% of
salary. In recognition of the fact that you are participating in such a plan
now, we should agree to a "sign-on bonus" of $50,000 (less all applicable taxes)
payable within two weeks of your start date, and another $50,000 (less all
applicable taxes) payable by the end of February, 1995. Of course, all bonus
payments assume that you are an employee of goo d standing at the time of
payout.
Because of your prior service, you will be immediately vested in the
State Street Retirement Plan. Further, we will create a supplemental executive
retirement program which will provide a target benefit equal to 40% of your
average salary for your final five years with State Street. To be eligible for
this special SERP, John, we require that you be employed for ten years starting
from the date you rejoin us. State Street will subtract all other pensions that
you would receive from your prior employers, including payments under State
Street's Retirement Plan. The target and
offsets will be calculated on a "straight life annuity" basis.
Subject to the approval of the Executive Compensation Committee of our
Board of Directors, you will be granted non- qualified stock options on 5,000
shares of State Street common stock.
<PAGE>
To offset the extra compensation you have with your current employer and
to further ally your compensation with the welfare of our stockholders, we will
provide you with a cash payment on December 29, 1995 equal to the closing price
of State Street stock on that day multiplied by 1,000. In addition, you will
receive payments in January, April, July and October, 1995 equal to the
quarterly dividend multiplied by 1,000. Each of the payments referred to in
this paragraph will be made provided you are an employee in good standing with
State Street on the proscribed payment dates.
John, I think you are uniquely qualified to step in and build State Street's
legal function. Your knowledge of the business, and your effective working
relationship with many of State Street's senior executives, all lead me to
believe that you can do an outstanding job in this critical are a. I will also
do everything I can to make your re-entry as smooth and enjoyable as possible.
As I'm sure you know, we don't achieve results without working hard. I know you
are not only a hard worker, but an effective one and an inspiring leader. I hope
very much that you will accept our offer. As a matter of course, I would ask you
to sign below to indicate your acceptance of this offer. Your signature also
indicates that you do not have any current employment contract which would
conflict with your employment with State Street.
I look forward to working with you in the future.
Sincerely,
David A. Spina
Vice Chairman
/s/ John R. Towers September 30, 1994
John R. Towers Date
Exhibit 15
STATE STREET BOSTON CORPORATION
Independent Accountants' Acknowledgment Letter
The Stockholders and Board of Directors
State Street Boston Corporation
We are aware of the incorporation by reference in the Registration
Statement (Form S-8 Nos. 33-38672, 33-38671, 33-2882, 2-93157, 2-88641 and
2-68698) and the Post-Effective Amendment No. 2 to Registration Statement (Form
S-8 No. 2-68696) pertaining to various stock option and performance share plans,
and in the Registration Statement (Form S-3 No. 33-49885) pertaining to the
registration of debt securities of State Street Boston Corporation, of our
report dated October 17, 1994 relating to the unaudited consolidated interim
financial statements of State Street Boston Corporation which are included in
its Form 10-Q for the quarter ended September 30, 1994.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Boston, Massachusetts
November 9, 1994
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
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<INT-BEARING-DEPOSITS> 5,381,227
<FED-FUNDS-SOLD> 3,189,989
<TRADING-ASSETS> 313,986
<INVESTMENTS-HELD-FOR-SALE> 2,869,563
<INVESTMENTS-CARRYING> 5,022,953
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<LOANS> 3,078,424
<ALLOWANCE> 58,336
<TOTAL-ASSETS> 22,358,390
<DEPOSITS> 14,038,589
<SHORT-TERM> 5,731,503
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<LONG-TERM> 127,753
<COMMON> 76,468
0
0
<OTHER-SE> 1,137,831
<TOTAL-LIABILITIES-AND-EQUITY> 22,358,390
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<INTEREST-TOTAL> 629,630
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<SECURITIES-GAINS> (473)
<EXPENSE-OTHER> 198,280
<INCOME-PRETAX> 239,216
<INCOME-PRE-EXTRAORDINARY> 239,216
<EXTRAORDINARY> 0
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<NET-INCOME> 154,147
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 1.99
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