<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NO. 0-5108
STATE STREET BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2456637
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICE)
617-786-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(TITLE OF CLASS) (NAME OF EXCHANGE ON WHICH REGISTERED)
---------------- --------------------------------------
COMMON STOCK, $1 PAR VALUE BOSTON STOCK EXCHANGE,
NEW YORK STOCK EXCHANGE AND
PACIFIC STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) 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 PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY NON-
AFFILIATES (PERSONS OTHER THAN DIRECTORS AND EXECUTIVE OFFICERS) OF THE
REGISTRANT ON FEBRUARY 29, 1996 WAS $3,658,343,000.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
FEBRUARY 29, 1996 WAS 81,275,387.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED INTO THE PARTS OF THIS
REPORT ON FORM 10-K INDICATED BELOW:
(1) ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995
(PARTS I AND II) AND
(2) THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 12, 1996
(PART III)
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
State Street Boston Corporation ("State Street") is a bank holding company
organized under the laws of the Commonwealth of Massachusetts.
State Street was organized in 1970 and conducts its business principally
through its subsidiary, State Street Bank and Trust Company ("State Street
Bank"), which traces its beginnings to the founding of the Union Bank in 1792.
The charter under which State Street Bank now operates was authorized by a
special act of the Massachusetts Legislature in 1891, and its present name was
adopted in 1960.
State Street is the fifth largest provider of trust services in the United
States as ranked on the basis of 1994 fiduciary compensation. State Street had
$2.3 trillion of assets under custody, $283 billion of bonds under trusteeship,
and $226 billion of assets under management at year-end 1995. Ranked on the
basis of total assets as of September 1995, State Street is the 33rd largest
bank holding company in the United States. State Street's total assets were
$25.8 billion at December 31, 1995, of which $18.6 billion, or 72%, were
investment securities and money market assets and $3.9 billion, or 15%, were
loans.
Services are provided from offices in the United States, as well as from
offices in Canada, Grand Cayman, Netherland Antilles, the United Kingdom,
France, Belgium, Luxembourg, Denmark, Germany, United Arab Emirates, Hong Kong,
Taiwan, Japan, Australia, and New Zealand. State Street's executive offices are
located at 225 Franklin Street, Boston, Massachusetts. For information as to
foreign activities, refer to Note T to the Notes to Financial Statements which
appear in State Street's 1995 Annual Report to Stockholders. Such information is
incorporated by reference.
LINES OF BUSINESS
State Street has three lines of business: financial asset services,
investment management and commercial lending. In 1995, 65% of net income came
from the broad and growing array of financial asset services, 24% came from
commercial lending and 16% came from investment management. Corporate items
reduced net income by 5%. The results of operations for State Street's lines of
business are set forth in tabular form and discussed on pages 30 and 31 of State
Street's 1995 Annual Report to Stockholders in management's discussion and
analysis of financial condition and results of operation. Such information is
incorporated by reference.
FINANCIAL ASSET SERVICES
Financial asset services are primarily accounting, custody and other
services for large pools of assets such as mutual funds and pension plans, both
defined benefit and defined contribution, and corporate trusteeship. A broad
array of other services is provided, including accounting, information services
and recordkeeping. Also provided are banking functions of accepting deposits,
managing global cash, making loans and trading foreign exchange.
With $1 trillion of mutual fund assets under custody, State Street is the
leading mutual fund custodian in the United States, servicing 41% of the
registered funds. State Street began providing mutual fund services in 1924 and
servicing pension assets in 1974. Customers who sponsor the 2,842 U.S. mutual
funds that State Street services include investment companies, broker/dealers,
insurance companies and others. In addition, State Street services 242 offshore
mutual funds and collective investment funds in other countries.
State Street offers a full array of mutual fund services, including custody,
portfolio and general ledger accounting, pricing, fund administration and
information services. Shareholder accounting is provided through a 50%-owned
affiliate.
Servicing $927 billion of pension and other assets for North American
customers, State Street is ranked as the largest servicer of tax-exempt assets
for corporations and public funds in the United States and the largest global
custodian for U.S. pension assets. Services include portfolio accounting,
securities custody, securities lending, and other related services for
retirement and other financial assets of benefit pension plans, unions,
endowments, foundations, and nuclear decommissioning trusts. In addition, State
Street provides global and domestic custody-related services for $115 billion in
assets for customers outside North America.
State Street acts as participant recordkeeper, securities custodian and
trustee for defined contribution plans, such as 401(k) plans and ESOPs, and
issues checks for employee benefit distributions. Corporate trust services for
asset-backed securities, corporate securities, leveraged leases, and municipal
securities are provided to investment banks, corporations, municipalities and
government agencies from four offices in the United States. At year end 1995,
bonds under trusteeship totaled $283 billion.
State Street provides foreign exchange trading and global cash management
services to financial institutions and corporations. Funds are gathered in the
form of domestic and foreign deposits, federal funds purchased and securities
sold under repurchase agreements from local, national and international sources.
Trading and arbitrage operations are conducted with government securities,
futures and options. Municipal dealer activities include underwriting, trading
and distribution of general obligation tax-exempt bonds and notes. Treasury
centers are located in Boston, London, Hong Kong, Tokyo, Sydney, Munich and
Luxembourg. State Street also provides corporate finance services, including
private placement of debt and equity, acquisitions and divestitures, and project
finance.
INVESTMENT MANAGEMENT
State Street was a pioneer in the development of domestic and international
index funds through State Street Global Advisors ("SSgA"). The products now
offered by SSgA include enhanced index and fully-active equity strategies,
short-term investment funds and fixed income products. These products are sold
and managed both domestically and from locations outside the United States.
State Street is ranked as the largest manager of internationally-indexed assets
and the second largest manager of tax-exempt money in the United States. State
Street is a leading New England trustee and money manager for individuals, and
provides planned gift management services for non-profit organizations
throughout the United States. At year-end 1995, institutional and personal trust
assets under management totaled $226 billion.
COMMERCIAL LENDING
State Street provides corporate banking, specialized lending and
international banking to business and financial institutions. One-third of the
loan portfolio supports the short-term needs of financial asset services
customers and securities brokers in conjunction with their trading and
settlement activity. Corporate banking services are offered primarily to middle
market companies in the Northeast as well as small businesses in the local
community. Specialized lending is both regional and national, with specialities
that include cable television, security alarm monitoring, technology-based
companies, publishing, law firms, non-profit institutions, broker/dealers and
other financial institutions. In addition, State Street engages in asset-based
finance, leasing, real estate, and trade finance transactions. Trade finance
includes letters of credit, collection, payment and other specialized services
for importers and exporters.
SELECTED STATISTICAL INFORMATION
The following tables contain State Street's consolidated statistical
information relating to, and should be read in conjunction with, the
consolidated financial statements, selected financial data and management's
discussion and analysis of financial condition and results of operation, all of
which appear in State Street's 1995 Annual Report to Stockholders and is
incorporated by reference herein. Information reported in State Street's 1994
Form 10-K was restated for the acquisition of Investors Fiduciary Trust Company
which was accounted for as a pooling of interests. This restated information was
filed with the SEC on Form 8-K, dated May 19, 1995.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The average statements of condition and net interest revenue analysis for
the years indicated are presented below.
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------ ------------------------------ -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- ------ ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing
deposits with
banks(1) ............ $ 5,465,950 $286,749 5.25% $ 5,182,776 $209,355 4.04% $ 5,022,194 $201,400 4.01%
Securities purchased
under resale
agreements and
securities
borrowed ............ 5,568,532 329,128 5.91 3,101,649 132,112 4.26 3,255,014 102,332 3.14
Federal funds sold .... 474,730 28,350 5.97 537,433 23,889 4.45 533,644 16,181 3.03
Trading account assets 412,413 21,137 5.13 532,108 26,095 4.90 415,525 16,693 4.02
Investment securities:
U.S. Treasury and
Federal agencies .. 4,139,383 243,936 5.89 3,454,886 184,251 5.33 2,181,353 124,699 5.72
State and political
subdivisions ...... 1,183,372 70,562 5.96 1,119,909 56,956 5.09 731,943 39,780 5.43
Other investments ... 2,211,650 133,712 6.05 2,596,978 138,942 5.35 2,168,790 117,843 5.43
Loans(2):
Domestic ............ 2,925,345 201,168 6.88 2,728,849 145,609 5.34 2,261,915 113,272 5.01
Foreign ............. 738,368 56,767 7.69 672,509 44,091 6.56 314,122 19,137 6.09
------------ --------- ------------ --------- ------------ ---------
Total interest-
earning assets .... 23,119,743 1,371,509 5.93 19,927,097 961,300 4.82 16,884,500 751,337 4.45
--------- --------- ---------
Cash and due from
banks ................ 1,025,646 1,285,560 979,258
Allowance for loan
losses ............... (61,749) (58,089) (57,522)
Premises and equipment 481,000 462,005 435,475
Customers' acceptance
liability(3) ........ 63,252 29,580 33,363
Other assets .......... 1,554,066 1,148,959 651,863
------------ ------------ ------------
Total Assets ........ $26,181,958 $22,795,112 $18,926,937
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings ............. $ 1,912,798 85,160 4.45 $ 1,991,910 56,673 2.85 $ 2,253,434 55,199 2.45
Time ................ 131,008 7,170 5.47 172,411 7,790 4.52 234,250 12,281 5.24
Foreign ............. 8,470,367 323,717 3.82 7,391,851 216,227 2.93 4,953,696 146,051 2.95
Federal funds
purchased ............ 504,079 29,695 5.89 410,784 16,019 3.90 741,082 21,023 2.84
Securities sold under
repurchase
agreements .......... 7,080,311 400,224 5.65 4,957,940 201,992 4.07 4,180,945 121,403 2.90
Other short-term
borrowings ........... 760,586 40,453 5.32 563,221 24,787 4.40 215,948 8,156 3.78
Notes payable ......... 213,802 12,241 5.73 258,252 11,979 4.64 510,719 19,943 3.90
Long-term debt ........ 127,036 8,525 6.71 128,130 8,625 6.73 122,403 10,023 8.19
------------ --------- ------------ --------- ------------ ---------
Total interest-
bearing
liabilities ....... 19,199,987 907,185 4.72 15,874,499 544,092 3.43 13,212,477 394,079 2.98
--------- ----- --------- ----- --------- -----
Noninterest-bearing
deposits ............ 4,113,458 4,700,888 4,059,011
Acceptances outstanding
(3) ................. 63,570 30,098 33,956
Other liabilities ..... 1,322,130 905,514 496,938
Stockholders' equity .. 1,482,813 1,284,113 1,124,555
------------ ------------ ------------
Total Liabilities and
Stockholders'
Equity ............ $26,181,958 $22,795,112 $18,926,937
============ ============ ============
Net interest revenue $464,324 $417,208 $357,258
======== ======== ========
Excess of rate earned
over rate paid .... 1.21% 1.39% 1.47%
===== ==== ====
Net Interest Margin(4) 2.01% 2.09% 2.12%
===== ==== ====
</TABLE>
- ----------
(1) Amounts reported were with non-U.S. domiciled offices of other banks.
(2) Non-accrual loans are included in the average loan amounts outstanding.
(3) In 1995, 1994 and 1993, 22%, 43% and 13% of acceptances were foreign.
(4) Net interest margin is taxable equivalent net interest revenue divided by
total average interest-earning assets.
Interest revenue on non-taxable investment securities and loans in the above
table includes the effect of taxable-equivalent adjustments, using a Federal
income tax rate of 35%, adjusted for applicable state income taxes net of the
related Federal tax benefit.
<PAGE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
The table below summarizes changes in interest revenue and interest expense
due to changes in volume of interest-earning assets and interest-bearing
liabilities, and changes in interest rates. Changes attributed to both volume
and rate have been allocated based on the proportion of change in each category.
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
--------------------------------------------- ---------------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO NET DUE TO NET
---------------------------- INCREASE ---------------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------ ---- ---------- ------ ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue related to:
Interest-bearing deposits
with banks ............... $ 11,967 $ 65,427 $ 77,394 $ 6,478 $ 1,477 $ 7,955
Securities purchased under
resale agreements and
securities borrowed ...... 132,459 64,557 197,016 (4,560) 34,340 29,780
Federal funds sold ......... (2,295) 6,756 4,461 116 7,592 7,708
Trading account assets ..... (6,201) 1,243 (4,958) 5,262 4,140 9,402
Investment securities:
U.S. Treasury and Federal
agencies ............... 39,010 20,675 59,685 67,284 (7,732) 59,552
State and political
subdivisions ........... 3,365 10,241 13,606 19,544 (2,368) 17,176
Other investments ........ (42,292) 37,062 (5,230) 22,879 (1,780) 21,099
Loans:
Domestic ................. 11,089 44,470 55,559 24,546 7,791 32,337
Foreign .................. 4,588 8,088 12,676 23,392 1,562 24,954
------- ------- ------- ------- ------- -------
Total interest-earning
assets .................. 151,690 258,519 410,209 164,941 45,022 209,963
------- ------- ------- ------- ------- -------
Interest expense related to:
Deposits:
Savings ................ (2,155) 30,642 28,487 (3,764) 5,238 1,474
Time ................... (5,161) 4,541 (620) (2,948) (1,543) (4,491)
Foreign ................ 34,667 72,823 107,490 71,312 (1,136) 70,176
Federal funds purchased .... 4,210 9,466 13,676 (31,393) 26,389 (5,004)
Securities sold under
repurchase agreements .... 104,053 94,179 198,232 25,432 55,157 80,589
Other short-term borrowings 9,821 5,845 15,666 15,081 1,550 16,631
Notes payable .............. (725) 987 262 (12,846) 4,882 (7,964)
Long-term debt ............. (73) (27) (100) 499 (1,897) (1,398)
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ............... 144,637 218,456 363,093 61,373 88,640 150,013
------- ------- ------- ------- ------- -------
Net Interest Revenue ..... $ 7,053 $ 40,063 $ 47,116 $103,568 $(43,618) $ 59,950
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO
State Street adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994. Under SFAS No. 115, debt securities for which State Street has
the intent and ability to hold to maturity are classified as held-to- maturity
securities and reported at amortized cost. Securities that are classified as
available-for-sale securities are reported at fair value. Investment securities
consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
HELD TO MATURITY (at amortized cost)
U.S. Treasury and Federal agencies ........................ $ 824,399 $1,668,987 $1,272,370
State and political subdivisions .......................... 1,130,197 1,083,879
Asset-backed securities ................................... 2,346,931 2,028,099
Other investments ......................................... 41,155 99,756
---------- ---------- ----------
Total ................................................. $ 824,399 $5,187,270 $4,484,104
========== ========== ==========
AVAILABLE FOR SALE (at fair value*)
U.S. Treasuries and Federal agencies ...................... $2,283,982 $3,319,417 $1,317,880
State and political subdivisions .......................... 1,306,233
Asset-backed securities ................................... 1,665,361
Other investments ......................................... 279,788 162,892 483,502
---------- ---------- ----------
Total ................................................. $5,535,364 $3,482,309 $1,801,382
========== ========== ==========
</TABLE>
* In 1993 at lower of cost or market
On November 15, 1995, the Financial Accounting Standards Board issued a
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." In accordance with
provisions in that Special Report, State Street chose to reclassify certain
securities from held to maturity to available for sale on December 1, 1995. At
the date of transfer, the amortized cost of those securities was $3,828,808,000
and the net unrealized gain on those securities was $2,684,000, which was
recorded net of tax in stockholders' equity at the date of transfer.
The maturities of investment securities at December 31, 1995 and the
weighted average yields (fully taxable equivalent basis) were as follows:
<TABLE>
<CAPTION>
MATURING
------------------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
ONE YEAR BUT WITHIN BUT WITHIN AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
------------------------ ------------------------ ------------------------ ------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury and
Federal agencies .......... $ 444,480 5.20% $ 379,919 6.22%
---------- ----------
Total ................... $ 444,480 $ 379,919
========== ==========
AVAILABLE FOR SALE
U.S. Treasury and
Federal agencies .......... $ 470,584 6.49 $1,677,034 6.01 $ 45,173 7.07% $ 91,186 7.25%
State and political
subdivisions .............. 560,360 6.84 615,342 6.98 88,999 6.98 41,537 7.50
Asset-backed securities...... 1,086,784 6.16 492,833 6.14 51,697 6.00 34,046 6.00
Other investments ........... 39,653 6.03 240,136 5.53
---------- ---------- -------- --------
Total ................... $2,157,381 $3,025,345 $185,869 $166,769
========== ========== ======== ========
</TABLE>
<PAGE>
LOAN PORTFOLIO
Domestic and foreign loans at December 31 and average loans outstanding for
the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial and financial . $2,572,553 $2,070,145 $1,889,143 $1,519,037 $1,411,994
Real estate .............. 95,782 100,549 94,073 105,156 128,376
Consumer ................. 47,355 41,323 46,315 64,841 75,366
Lease financing .......... 315,115 341,640 254,525 251,761 211,350
---------- ---------- ---------- ---------- ----------
Total domestic ......... 3,030,805 2,553,657 2,284,056 1,940,795 1,827,086
---------- ---------- ---------- ---------- ----------
Foreign:
Commercial and industrial 633,601 510,638 295,716 50,838 67,622
Banks and other financial
institutions ............ 56,984 52,597 25,940 8,838 7,495
Government and official
institutions ........... 2,012 1,000 1,000 1,000 1,000
Lease financing .......... 256,146 110,055 70,976
Other .................... 6,594 5,274 2,486 2,242 2,112
---------- ---------- ---------- ---------- ----------
Total foreign .......... 955,337 679,564 396,118 62,918 78,229
---------- ---------- ---------- ---------- ----------
Total loans ............ $3,986,142 $3,233,221 $2,680,174 $2,003,713 $1,905,315
========== ========== ========== ========== ==========
Average loans outstanding .. $3,663,713 $3,401,358 $2,576,037 $2,070,345 $2,107,388
========== ========== ========== ========== ==========
<CAPTION>
Loan maturities for selected loan categories at December 31, 1995 were as follows:
AFTER ONE
ONE YEAR BUT WITHIN AFTER
OR LESS FIVE YEARS FIVE YEARS
------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial and financial .......................................... $2,089,580 $313,478 $169,495
Real estate ....................................................... 33,175 49,643 12,964
Foreign ........................................................... 678,777 5,845 270,714
<CAPTION>
The following table shows the classification of the above loans due after one year according to sensitivity to changes in
interest rates:
(DOLLARS IN THOUSANDS)
<S> <C>
Loans with predetermined interest rates .................................... $407,101
Loans with floating or adjustable interest rates ........................... 415,038
-------
Total .................................................................. $822,139
========
</TABLE>
Loans are evaluated on an individual basis to determine the appropriateness
of renewing each loan. State Street does not have a general rollover policy.
Unearned revenue included in loans was $3,458,000 and $4,112,000 at December 31,
1995 and 1994, respectively.
NON-ACCRUAL LOANS
It is State Street's policy to place loans on a non-accrual basis when they
become 60 days past due as to either principal or interest, or when in the
opinion of management, full collection of principal or interest is unlikely.
Loans eligible for non-accrual, but considered both well secured and in the
process of collection, are treated as exceptions and may be exempted from
nonaccrual status. When the loan is placed on non-accrual, the accrual of
interest is discontinued and previously recorded but unpaid interest is reversed
and charged against current earnings. Past due loans are loans on which
principal or interest payments are over 90 days delinquent, but where interest
continues to be accrued.
The following schedule discloses information concerning non-accrual and past
due loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual:
Domestic ............................. $15,502 $23,043 $26,804 $39,954 $39,620
Foreign .............................. 323 1,337
------- ------- ------- ------- -------
Total non-accrual .................. $15,502 $23,043 $26,804 $40,277 $40,957
======= ======= ======= ======= =======
Past due:
Domestic ............................. $ 250 $ 41 $ 86 $ 288 $ 44
Foreign .............................. 65 507
------- ------- ------- ------- -------
Total past due ..................... $ 250 $ 41 $ 86 $ 353 $ 551
======= ======= ======= ======= =======
The interest revenue for 1995 which would have been recorded related to
these non-accrual loans is $2,034,000 for domestic loans. The interest revenue
that was recorded on these non-accrual loans was $445,000, all of which relates
to domestic loans.
ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the years ended December
31, were as follows:
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year:
Domestic ............................. $52,424 $50,968 $56,987 $64,323 $49,007
Foreign .............................. 5,760 3,348 944 1,565 1,968
------- ------- ------- ------- -------
Total allowance for loan losses .... 58,184 54,316 57,931 65,888 50,975
------- ------- ------- ------- -------
Provision (credit) for loan losses:
Domestic ............................. 3,789 9,485 10,247 11,734 59,989
Foreign .............................. 4,211 2,084 1,073 467 23
------- ------- ------- ------- -------
Total provision for loan losses .... 8,000 11,569 11,320 12,201 60,012
------- ------- ------- ------- -------
Loan charge-offs:
Commercial and financial ............. 4,649 10,189 15,241 9,794 33,687
Real estate .......................... 538 1,627 10,553 10,940
Consumer ............................. 140 288 1,416 1,811 2,273
Lease Financing ...................... 203
Foreign .............................. 1,196 261 1,356 870
------- ------- ------- ------- -------
Total loan charge-offs ............. 6,726 10,477 18,545 23,514 47,770
------- ------- ------- ------- -------
Recoveries:
Commercial and financial ............. 1,874 1,818 1,178 1,414 1,494
Real estate .......................... 895 215 279 747 52
Consumer ............................. 350 415 561 927 681
Foreign .............................. 914 328 187 268 444
-------- ------- ------- ------- -------
Total recoveries ................... 4,033 2,776 2,205 3,356 2,671
------- ------- ------- ------- -------
Net loan charge-offs ............... 2,693 7,701 16,340 20,158 45,099
------- ------- ------- ------- -------
Allowance of foreign subsidiary purchased 1,405
Balance at end of year:
Domestic ............................. 53,802 52,424 50,968 56,987 64,323
Foreign .............................. 9,689 5,760 3,348 944 1,565
------- ------- ------- ------- -------
Total allowance for loan losses .... $63,491 $58,184 $54,316 $57,931 $65,888
======= ======= ======= ======= =======
Ratio of net charge-offs to average
loans outstanding ..................... .07% .23% .63% .97% 2.14%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES (continued)
State Street establishes an allowance for loan losses to absorb probable
credit losses. Management's review of the adequacy of the allowance for loan
losses is ongoing throughout the year and is based, among other factors, on the
evaluation of the level of risk in the portfolio, the volume of adversely
classified loans, previous loss experience, current trends, and expected
economic conditions and its effect on borrowers.
State Street adopted Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118 on January 1, 1995. SFAS No. 114 requires that the allowance for loan
losses related to certain loans be evaluated based on discounted cash flows
using the loans initial effective interest rate or the fair value of the
underlying collateral for certain collateral dependent loans. Prior to January
1, 1995, the allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans. The adoption of SFAS No. 114 did not have a material effect on
the financial statements of State Street.
While the allowance is established to absorb probable losses inherent in the
total loan portfolio, management allocates the allowance for loan losses to
specific loans, selected portfolio segments and certain off-balance sheet
exposures and commitments. Adversely classified loans in excess of $1 million
are individually reviewed to evaluate risk of loss and assigned a specific
allocation of the allowance. The allocations are based on an assessment of
potential risk of loss and include evaluations of the borrowers' financial
strength, discounted cash flows, collateral, appraisals and guarantees. The
allocations to portfolio segments and off-balance sheet exposures are based on
management's evaluation of relevant factors, including the current level of
problem loans and current economic trends. These allocations are also based on
subjective estimates and management judgment, and are subject to change from
quarter-to-quarter. In addition, a portion of the allowance remains unallocated
as a general reserve for the entire loan portfolio.
The provision for loan losses is a charge to earnings for the current period
which is required to maintain the total allowance at a level considered adequate
in relation to the level of risk in the loan portfolio. The provision for loan
losses was $8.0 million in 1995, compared with $11.6 million for 1994.
At December 31, 1995, the allowance for loan losses was $63.5 million, or
1.59% of loans. This compares with an allowance of $58.2 million or 1.80% of
loans a year ago. This decline reflects improvement in measures of credit
quality and a continuing satisfactory outlook for general economic conditions
and its effect on borrowers.
CREDIT QUALITY
At December 31, 1995, loans comprised 15% of State Street's assets. State
Street's loan policies limit the size of individual loan exposures to reduce
risk through diversification.
In 1995, net charge-offs declined to $2.7 million from $7.7 million in 1994.
Net charge-offs as a percentage of average loans were .07% compared to .23% for
1994.
At December 31, 1995, total non-performing assets were $18.7 million, an
$8.7 million decrease from year-end 1994. For 1995 and 1994, respectively,
non-performing assets include $15.5 million and $23.0 million of non-accrual
loans and $3.2 million and $4.4 million of other real estate owned. In 1995,
loans placed on non-accrual status were more than offset by charge-offs,
payments, and the return to accrual status of several loans. The decline in
other real estate owned resulted from property sales.
In 1995, measures of credit quality improved, as discussed above, as did the
general economic outlook. We expect these levels of credit quality to continue
in 1996. It is anticipated that gross charge-offs in 1996 will generally
approximate the 1995 level and are expected to be primarily in the commercial
and financial category.
CROSS-BORDER OUTSTANDINGS
Countries with which State Street has cross-border outstandings (primarily
deposits and letters of credit to banks and other financial institutions) of at
least 1% of its total assets at December 31, 1995, 1994 and 1993, were as
follows:
1995 1994 1993
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Japan ................................. $ 920,426 $1,708,021 $1,688,130
France ................................ 852,257 461,919 519,565
United Kingdom ........................ 834,392 543,055 613,515
Australia ............................. 784,241 648,697 498,671
Germany ............................... 727,741 438,624 339,477
Italy ................................. 620,044 527,682 367,931
Netherlands ........................... 487,270 101,797 224,622
Canada ................................ 359,025 265,322 289,152
Belgium ............................... 336,681
Hong Kong ............................. 206,443
---------- ---------- ----------
Total outstandings ................ $5,922,077 $4,695,117 $4,747,506
========== ========== ==========
Aggregate of cross-border outstandings in countries having between .75% and
1% of total assets at December 31, 1995 was $240,169,000 (Austria); at December
31, 1994 was $176,988,000 (Switzerland); and at December 31, 1993 was
$171,688,000 (Belgium).
DEPOSITS
The average balance and rates paid on interest-bearing deposits for the
years ended December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------------ -------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Domestic:
Noninterest-bearing deposits ........ $4,063,553 $4,639,336 $4,025,974
Savings deposits .................... 1,912,798 4.45% 1,991,910 2.85% 2,253,434 2.45%
Time deposits ....................... 131,008 5.47 172,411 4.52 234,250 5.24
---------- ---------- ----------
Total domestic ............... $6,107,359 $6,803,657 $6,513,658
========== ========== ==========
Foreign:
Noninterest-bearing deposits ...... $ 49,905 $ 61,552 $ 33,037
Interest-bearing .................. 8,470,367 3.82% 7,391,851 2.93% 4,953,696 2.95%
----------
Total foreign .................. $8,520,272 $7,453,403 $4,986,733
========== ========== ==========
</TABLE>
Maturities of domestic certificates of deposit of $100,000 or more at
December 31, 1995, were as follows:
(DOLLARS IN THOUSANDS)
3 months or less ..................................... $148,937
3 to 6 months ........................................ 13,513
6 to 12 months ....................................... 14,693
Over 12 months ....................................... 1,905
--------
Total ............................................ $179,048
========
At December 31, 1995, substantially all foreign time deposit liabilities
were in amounts of $100,000 or more. Included in noninterest-bearing deposits
were foreign deposits of $28,265,000, $44,816,000 and $28,519,000 at December
31, 1995, 1994 and 1993, respectively.
RETURN ON EQUITY AND ASSETS AND CAPITAL RATIOS
The return on equity, return on assets, dividend payout ratio, equity to
assets ratio and capital ratios for the years ended December 31, were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income to:
Average stockholders' equity ............................ 16.7% 17.2% 16.8%
Average total assets .................................... .94 .97 1.00
Dividends declared to net income .......................... 22.7 20.8 20.8
Average equity to average assets .......................... 5.7 5.6 5.9
Risk-based capital ratios:
Tier 1 capital ......................................... 14.0 13.6 12.6
Total capital .......................................... 14.5 14.2 13.1
Leverage Ratio ............................................ 5.6 5.6 5.5
</TABLE>
SHORT-TERM BORROWINGS
The following table reflects the amounts outstanding and weighted average
interest rates of the primary components of short-term borrowings as of and for
the years ended:
<TABLE>
<CAPTION>
FEDERAL SECURITIES SOLD
FUNDS UNDER REPURCHASE
PURCHASED AGREEMEMTS
--------- -------------
(DOLLARS IN THOUSANDS)
Balance as of December 31:
<S> <C> <C>
1995 ......................................................... $ 467,305 $5,120,950
1994 ......................................................... 113,143 4,798,261
1993 ......................................................... 269,083 3,012,498
Maximum outstanding at any month end:
1995 ......................................................... $ 970,530 $7,372,277
1994 ......................................................... 745,443 6,684,105
1993 ......................................................... 1,081,811 5,352,620
Average outstanding during the year:
1995 ......................................................... $ 504,079 $7,080,311
1994 ......................................................... 410,784 4,957,940
1993 ......................................................... 741,082 4,180,945
Weighted average interest rate at end of year:
1995 ......................................................... 3.47% 5.17%
1994 ......................................................... 5.28 4.91
1993 ......................................................... 2.72 2.72
Weighted average interest rate during the year:
1995 ......................................................... 5.89% 5.65%
1994 ......................................................... 3.90 4.07
1993 ......................................................... 2.84 2.89
</TABLE>
COMPETITION
State Street operates in a highly competitive environment in all areas of
its business on a worldwide basis, including servicing financial assets,
investment management and commercial lending. In addition to facing strong
competition from other deposit taking institutions, State Street faces strong
competition from investment management firms, private trustees, insurance
companies, mutual funds, broker/dealers, investment banking firms, law firms,
benefit consultants, and business service companies. As State Street expands
globally, additional sources of competition are encountered.
EMPLOYEES
At December 31, 1995, State Street had 11,324 employees, of whom 10,996 were
full-time.
REGULATION AND SUPERVISION
State Street is registered with the Board of Governors of the Federal
Reserve System (the "Board") as a bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act"). The Act, with certain
exceptions, limits the activities that may be engaged in by State Street and its
non-bank subsidiaries, which includes non bank companies which it owns or
controls more than 5% of a class of voting shares, to those which are deemed by
the Board to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. In making such determination, the Board must
consider whether the performance of any such activity by a subsidiary of State
Street can reasonably be expected to produce benefits to the public, such as
greater convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. The
Board is authorized to differentiate between activities commenced de novo and
those commenced by the acquisition in whole or in part of a going concern. The
Board may order a bank holding company to terminate any activity or its
ownership or control of a nonbank subsidiary if the Board finds that such
activity or ownership or control constitutes a serious risk to the financial
safety, soundness or stability of a subsidiary bank and is inconsistent with
sound banking principles or statutory purposes. In the opinion of management,
all of State Street's present subsidiaries are within the statutory standard or
are otherwise permissible. The Act also requires a bank holding company to
obtain prior approval of the Board before it may acquire substantially all the
assets of any bank or ownership or control of more than 5% of the voting shares
of any bank.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") generally permits bank holding companies to acquire banks
located in any state, without regard as to whether the transaction is prohibited
under state law, commencing on September 29, 1995. In addition, it generally
permits national and state chartered banks to merge across state lines (and
thereby create interstate branches) commencing June 1, 1997. Under the
provisions of the Interstate Act, states are permitted to "opt out" of this
latter interstate branching authority by taking action prior to the commencement
date. States may also "opt in" early (i.e., prior to June 1, 1997) to the
interstate merger provisions. Further, the Interstate Act provides that states
may act affirmatively to permit de novo branching by banking institutions across
state lines.
The Board has established risk-based capital guidelines that require minimum
ratios of capital to risk-weighted assets and certain off-balance sheet credit
exposure. The Board also maintains a leverage ratio guideline that is a measure
of capital to total average balance sheet assets. Information on State Street's
capital appears on the return on equity and assets and capital ratio table of
this report.
State Street and its non-bank subsidiaries are affiliates of State Street
Bank under the federal banking laws, which impose certain restrictions on
transfers of funds in the form of loans, extensions of credit, investments or
asset purchases by State Street Bank to State Street and its non-bank
subsidiaries. Transfers of this kind to State Street and its non-bank
subsidiaries by State Street Bank are limited to 10% of State Street Bank's
capital and surplus with respect to each affiliate and to 20% in the aggregate,
and are also subject to certain collateral requirements. A bank holding company
and its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or lease or sale of property or
furnishing of services. Federal law also provides that certain transactions with
affiliates must be on terms and under circumstances, including credit standards
that are substantially the same, or at least as favorable to the institution as
those prevailing at the time for comparable transactions involving other
non-qualified companies or, in the absence of comparable transactions, on terms
and under circumstances, including credit standards, that in good faith would be
offered to, or would apply to, nonaffiliated companies. The Board has
jurisdiction to regulate the terms of certain debt issues of bank holding
companies.
State Street, State Street Bank and their affiliates are also subject to
restrictions with respect to issuing, floating and underwriting, or publicly
selling or distributing, securities in the United States. State Street and its
affiliates are able to underwrite and deal in specific categories of securities,
including U.S. government and certain agency, state, and municipal securities.
Federal Reserve Board regulations require a bank holding company to act as a
source of financial and managerial strength to its subsidiary banks. Under this
regulation, State Street may be required to commit resources to its subsidiary
banks in circumstances where it might not do so absent such regulation. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
The primary banking agency responsible for regulating State Street and its
subsidiaries, including State Street Bank, for both domestic and international
operations is the Federal Reserve Bank of Boston. State Street is also subject
to the Massachusetts bank holding company statute. The Massachusetts statute
requires prior approval by the Massachusetts Board of Bank Incorporation for the
acquisition by State Street of more than 5% of the voting shares of any
additional bank and for other forms of bank acquisitions.
State Street's banking subsidiaries are subject to supervision and
examination by various regulatory authorities. State Street Bank is a member of
the Federal Reserve System and the Federal Deposit Insurance Corporation (the
"FDIC") and is subject to applicable federal and state banking laws and to
supervision and examination by the Federal Reserve Bank of Boston, as well as by
the Massachusetts Commissioner of Banks, the FDIC, and the regulatory
authorities of those countries in which a branch of State Street Bank is
located. Other subsidiary banks are subject to supervision and examination by
the Office of the Comptroller of the Currency or by the appropriate state
banking regulatory authorities of the states in which they are located. State
Street's foreign banking subsidiaries are also subject to regulation by the
regulatory authorities of the countries in which they are located. The capital
of each of these banking subsidiaries is in excess of the minimum legal capital
requirements as set by those authorities.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") broadened the enforcement powers of the federal banking agencies,
including increased power to impose fines and penalties, over all financial
institutions, including bank holding companies and commercial banks. As a result
of FIRREA, State Street Bank and any or all of its subsidiaries can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989, in connection with (a) the default of State Street
Bank or any other subsidiary bank or (b) any assistance provided by the FDIC to
State Street Bank or any other subsidiary bank in danger of default. The Crime
Control Act of 1990 further broadened the enforcement powers of the federal
banking agencies in a significant number of areas.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
has as its primary objectives to recapitalize the Bank Insurance Fund and
strengthen the regulation and supervision of financial institutions. During
1995, the federal banking agencies continued the process of promulgating
regulations to implement the statute.
The "Prompt Corrective Action" provisions of the FDICIA are for the stated
purpose: "to resolve the problems of insured depository institutions at the
least possible long-term loss to the deposit insurance fund." Each federal
banking agency has implemented prompt corrective action regulations for the
institutions that it regulates. The statute requires or permits the agencies to
take certain supervisory actions when an insured depository institution falls
within one of five specifically enumerated capital categories. It also restricts
or prohibits certain activities and requires the submission of a capital
restoration plan when an insured institution becomes undercapitalized. The
implementing regulations establish the numerical limits for the capital
categories and establish procedures for issuing and contesting prompt corrective
action directives. The five tiers of capital measurement range from "well
capitalized" to "critically undercapitalized". To be within the category "well
capitalized", an insured depository institution must have a total risk- based
capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of
6.0 percent or greater, and a leverage ratio of 5.0 percent or greater, and the
institution must not be subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet specific capital
requirements. An insured institution is "adequately capitalized" if it has a
total risk-based capital ratio of 8.0 percent or greater, a Tier 1 risk-based
capital ratio of 4.0 percent or greater, and a leverage ratio of 4.0 percent or
greater (or a leverage ratio of 3.0 percent or greater if the institution is
rated composite 1 under the regulatory rating system). The final three capital
categories are levels of undercapitalized, which trigger mandatory statutory
provisions. While other factors in addition to capital ratios determine an
institution's capital category, State Street Bank's capital ratios were within
the "well-capitalized" category at December 31, 1995.
The Federal Reserve Board adopted a final rule, as required by the FDICIA,
prescribing standards that will limit the risks posed by an insured depository
institution's exposure to any other depository institution. Banks are required
to develop written policies and procedures to monitor credit exposure to other
banks, and to limit to 50% and 25% of total capital exposure to
"undercapitalized" banks in 1995 and 1996, respectively.
As required by the FDICIA, the FDIC adopted a regulation that permits only
well capitalized banks, and adequately capitalized banks that have received
waivers from the FDIC, to accept, renew or roll over brokered deposits.
Regulations have also been adopted by the FDIC to limit the activities conducted
as a principal by, and the equity investments of, state-chartered banks to those
permitted for national banks. Banks may apply to the FDIC for approval to
continue to engage in accepted investments and activities.
Other FDICIA regulations adopted require independent audits, an independent
audit committee of the bank's board of directors, stricter truth- in-savings
provisions, and standards for real estate lending. The FDICIA amended deposit
insurance coverage and the FDIC has implemented a rule specifying the treatment
of accounts to be insured up to $100,000.
Under other provisions of FDICIA, the federal banking agencies have adopted
safety and soundness standards for banks in a number of areas including:
internal controls, internal audit systems, information systems, credit
underwriting, interest rate risk, executive compensation and minimum earnings.
The agencies have also adopted rules to revise risk-based capital standards to
take account of interest rate risk, as required by FDICIA.
Legislation enacted as part of the Omnibus Budget Reconciliation Act of 1993
provides that deposits in U.S. offices and certain claims for administrative
expenses and employee compensation against a U.S. insured depository institution
which has failed will be afforded a priority over other general unsecured
claims, including deposits in non-U.S. offices and claims under non-depository
contracts in all offices, against such an institution in the "liquidation or
other resolution" of such and institution by any receiver. Accordingly, such
priority creditors (including FDIC, as the subrogee of insured depositors) of
State Street Bank will be entitled to priority over unsecured creditors in the
event of a "liquidation or other resolution" of such institution.
DIVIDENDS
As a bank holding company, State Street is a legal entity separate and
distinct from State Street Bank and its other non-bank subsidiaries. State
Street's principal source of cash revenues is dividends from State Street Bank
and its other non-bank subsidiaries. The right of State Street to participate as
a stockholder in any distribution of assets of a subsidiary upon its liquidation
or reorganization or otherwise is subject to the prior claims by creditors of
the subsidiary, including obligations for federal funds purchased and securities
sold under repurchase agreements, as well as deposit liabilities. Payment of
dividends by State Street Bank is subject to provisions of the Massachusetts
banking law which provides that dividends may be paid out of net profits
provided (i) capital stock and surplus remain unimpaired, (ii) dividend and
retirement fund requirements of any preferred stock have been met, (iii) surplus
equals or exceeds capital stock, and (iv) there are deducted from net profits
any losses and bad debts, as defined, in excess of reserves specifically
established therefore. Under the Federal Reserve Act, the approval of the Board
of Governors of the Federal Reserve System would be required if dividends
declared by the Bank in any year would exceed the total of its net profits for
that year combined with retained net profits for the preceding two years, less
any required transfers to surplus. Under applicable federal and state law
restrictions, at December 31, 1995, State Street Bank could have declared and
paid dividends of $426,266,000 without regulatory approval. Future dividend
payments of the Bank and non-bank subsidiaries cannot be determined at this
time.
ECONOMIC CONDITIONS AND GOVERNMENT POLICIES
Economic policies of the government and its agencies influence the operating
environment of State Street. Monetary policy conducted by the Federal Reserve
Board directly affects the level of interest rates and overall credit conditions
of the economy. Policy instruments utilized by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in reserve
requirements for depository institutions, and changes in the discount rate and
availability of borrowing from the Federal Reserve.
ITEM 2. PROPERTIES
State Street's headquarters are located in the State Street Bank Building, a
34-story building at 225 Franklin Street, Boston, Massachusetts, which was
completed in 1965. State Street leases approximately 451,000 square feet (or
approximately 49% of the space in this building) for a 30-year initial term with
two successive extension options of 20 years each at negotiated rental rates.
State Street exercised the first of the two options which became effective on
January 1, 1996 for a term of 20 years.
State Street owns five buildings located in Quincy, Massachusetts, a suburb
of Boston. Four of the buildings, containing a total of approximately 1,365,000
square feet, function as State Street Bank's operations facilities. State Street
Bank occupies approximately 1,320,000 square feet and subleases the remaining
space. The fifth building, with 186,000 square feet, is leased to Boston
Financial Data Services, Inc., a 50% owned affiliate. Additionally, State Street
owns a 98,000 square foot building in Westborough, Massachusetts which is used
as a second data center.
The remaining offices and facilities of State Street and its subsidiaries
are leased. As of December 31, 1995, the aggregate mortgage and lease payments,
net of sublease revenue, payable within one year amounted to $38,143,000, plus
assessments for real estate tax, cleaning and operating escalations.
For additional information relating to premises, see Note E to the Notes to
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with regard to each
executive officer of State Street. As used herein, the term "executive officer"
means an officer who performs policy-making functions for State Street.
NAME AGE POSITION
- ---- --- --------
Marshall N. Carter .............. 55 Chairman and Chief Executive Officer
David A. Spina .................. 53 President and Chief Operating Officer
A. Edward Allinson .............. 61 Executive Vice President
Dale L. Carleton ................ 50 Executive Vice President
Nicholas A. Lopardo ............. 48 Executive Vice President
Ronald L. O'Kelley .............. 50 Executive Vice President, Chief
Financial Officer and Treasurer
Albert E. Petersen .............. 49 Executive Vice President
David J. Sexton ................. 55 Executive Vice President
All executive officers are elected by the Board of Directors. There are no
family relationships among any of the directors and executive officers of State
Street. With the exception of Messrs. Carter, O'Kelley and Petersen, all of the
executive officers have been officers of State Street for five years of more.
Mr. Carter became President of State Street in July, 1991, Chief Executive
Officer in January, 1992 and Chairman in January 1993. Prior to joining State
Street, he was with Chase Manhattan Bank for 15 years, including the last three
as head of global securities services.
Mr. Spina became President and Chief Operating Officer in December, 1995.
Mr. O'Kelley became an officer of State Street in December, 1995. Prior to
joining State Street, he was Vice President and Chief Financial Officer of
Douglas Aircraft Company, a subsidiary of McDonnell Douglas Corporation. Prior
to that he was Senior Vice President and Chief Financial Officer of Rolls-
Royce, Inc.
Mr. Petersen became an officer of State Street in August, 1991. Prior to
joining State Street, he was an Executive Vice President at First Empire State
Corporation, a bank holding company, responsible for operations and systems.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
Information concerning the market prices of and dividends on State Street's
common stock during the past two years appears on page 36 of State Street's 1995
Annual Report to Stockholders and is incorporated by reference. There were 5,773
stockholders of record at December 31, 1995. Prior to February 1995, State
Street common stock was traded on the NASDAQ National Market System, ticker
symbol: STBK. In February 1995, State Street's common stock was listed for
trading on the New York Stock Exchange, ticker symbol: STT.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth on page 23 of State
Street's 1995 Annual Report to Stockholders and is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this item appears in State Street's 1995 Annual
Report to Stockholders on pages 2 through 4 and pages 24 through 39 and is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL FINANCIAL DATA
The Consolidated Financial Statements, Report of Independent Auditors and
Supplemental Financial Data appear on pages 40 through 61 of State Street's 1995
Annual Report to Stockholders and are incorporated by reference. In addition,
discussion of restrictions on transfer of funds from State Street Bank to
Registrant is included in Part 1, Item 1, "Dividends."
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning State Street's directors appears on pages 2 through 6
of State Street's Proxy Statement for the 1996 Annual Meeting of Stockholders
under the caption "Election of Directors" which Statement is to be filed with
the Securities and Exchange Commission. Such information is incorporated by
reference.
Information concerning State Street's executive officers appears under the
caption "Executive Officers of the Registrant" in Item 4.A of this Report.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act appears on page 9 of State Street's Proxy Statement for the 1996
Annual Meeting of Stockholders under the caption "Compliance with Section 16 (a)
of the Securities Exchange Act." Such information is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of the executives of State Street
appears on pages 10 through 23 in State Street's Proxy Statement for the 1996
Annual Meeting of Stockholders. Such information is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management appears on pages 8 and 9 in State Street's Proxy Statement for the
1996 Annual Meeting of Stockholders. Such information is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
appears on pages 9 and 10 in State Street's Proxy Statement for the 1996 Annual
Meeting of Stockholders under the caption "Certain Transactions." Such
information is incorporated by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements -- The following consolidated financial
statements of State Street included in its Annual Report to
Stockholders for the year ended December 31, 1995, are incorporated by
reference in Item 8 hereof:
Consolidated Statement of Income -- Years ended December 31, 1995,
1994 and 1993
Consolidated Statement of Condition -- December 31, 1995 and 1994
Consolidated Statement of Cash Flows -- Years ended December 31, 1995,
1994 and 1993
Consolidated Statement of Changes in Stockholders' Equity - Years
ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Report of Independent Auditors
(2) Financial Statement Schedules -- Schedules to the consolidated
financial statements required by Article 9 of Regulation S-X are not
required under the related instructions, are inapplicable, or the
information is contained herein and therefore have been omitted.
(3) Exhibits
A list of the exhibits filed or incorporated by reference appears
following page 18 of this Report, which information is incorporated by
reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, on March 21, 1996, thereunto duly authorized.
STATE STREET BOSTON CORPORATION
By /s/ REX S. SCHUETTE
-----------------------------
REX S. SCHUETTE
Senior Vice President and Comptroller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 21, 1996 by the following persons on
behalf of the registrant and in the capacities indicated.
OFFICERS:
<TABLE>
<CAPTION>
<S> <C>
/s/ MARSHALL N. CARTER /s/ RONALD L. O'KELLEY
------------------------------------------------- ---------------------------------------------
MARSHALL N. CARTER, Chairman RONALD L. O'KELLEY, Executive
and Chief Executive Officer Vice President and Chief Financial Officer
/s/ REX S. SCHUETTE
---------------------------------------------
REX S. SCHUETTE, Senior Vice President
and Comptroller
DIRECTORS:
/s/ TENLEY E. ALBRIGHT /s/ JOSEPH A. BAUTE
------------------------------------------------- ---------------------------------------------
TENLEY E. ALBRIGHT JOSEPH A. BAUTE
/s/ I. MACALLISTER BOOTH /s/ JAMES I. CASH
------------------------------------------------- ---------------------------------------------
I. MACALLISTER BOOTH JAMES I. CASH
/s/ TRUMAN S. CASNER /s/ NADER F. DAREHSHORI
------------------------------------------------- ---------------------------------------------
TRUMAN S. CASNER NADER F. DAREHSHORI
/s/ ARTHUR L. GOLDSTEIN /s/ CHARLES F. KAYE
------------------------------------------------- ---------------------------------------------
ARTHUR L. GOLDSTEIN CHARLES F. KAYE
/s/ JOHN M. KUCHARSKI /s/ CHARLES R. LAMANTIA
------------------------------------------------- ---------------------------------------------
JOHN M. KUCHARSKI CHARLES R. LAMANTIA
/s/ DAVID B. PERINI /s/ DENNIS J. PICARD
------------------------------------------------- ---------------------------------------------
DAVID B. PERINI DENNIS J. PICARD
/s/ ALFRED POE /s/ BERNARD W. REZNICEK
------------------------------------------------- ---------------------------------------------
ALFRED POE BERNARD W. REZNICEK
/s/ DAVID A. SPINA /s/ ROBERT E. WEISSMAN
------------------------------------------------- ---------------------------------------------
DAVID A. SPINA ROBERT E. WEISSMAN
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT 2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
2.1 Acquisition agreement dated September 27, 1994 among Registrant,
Kemper Financial Services, Inc. and DST Systems, Inc. pertaining to
the acquisition of IFTC Holdings, Inc. (filed with the Securities and
Exchange Commission as Exhibit 2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 and incorporated by
reference)
EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Restated Articles of Organization as amended (filed herewith)
3.2 By-laws as amended (filed with the Securities and Exchange Commission
as Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 and incorporated by reference)
3.3 Certificate of Designation, Preferences and Rights (filed with the
Securities and Exchange Commission as Exhibit 3.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 The description of the Company's Common Stock included in the
Company's effective registration statement report on Form 10, as filed
with the Securities and Exchange Commission on September 3, 1970 and
amended on May 12, 1971 and incorporated by reference.
4.2 Rights Agreement dated as of September 15, 1988 between State Street
Boston Corporation and The First National Bank of Boston, Rights Agent
(filed with the Securities and Exchange Commission as Exhibit 4 to
Registrant's Current Report on Form 8-K dated September 30, 1988 and
incorporated by reference)
4.3 Amendment to Rights Agreement dated as of September 20, 1990 between
State Street Boston Corporation and The First National Bank of Boston,
Rights Agent (filed with the Securities and Exchange Commission as
Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990 and incorporated by reference)
4.4 Indenture dated as of May 1, 1983 between State Street Boston
Corporation and Morgan Guaranty Trust Company of New York, Trustee,
relating to the Company's 7 3/4% Convertible Subordinated Debentures
due 2008 (filed with the Securities and Exchange Commission as Exhibit
4 to the Registrant's Registration Statement on Form S-3 filed on
April 22, 1983, Commission File No. 2-83251 and incorporated by
reference)
4.5 Indenture dated as of August 2, 1993 between State Street Boston
Corporation and The First National Bank of Boston, as trustee (filed
with the Securities and Exchange Commission as Exhibit 4 to the
Registrant's Current Report on Form 8-K dated October 8, 1993 and
incorporated by reference)
4.6 Instrument of Resignation, appointment, and acceptance, dated as of
February 14, 1996 between State Street Boston Corporation, The First
National Bank of Boston (resigning trustee) and Fleet National Bank of
Massachusetts (successor trustee) (filed herewith)
EXHIBIT 10. MATERIAL CONTRACTS
Executive Compensation Plans and Agreements:
10.1 State Street Boston Corporation 1981 Stock Option and Performance
Share Plan, as amended (filed with the Securities and Exchange
Commission as Exhibit 10.2 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1981 and incorporated by reference)
10.2 State Street Boston Corporation 1984 Stock Option Plan as amended
(filed with the Securities and Exchange Commission as Exhibit 4(a) to
Registrant's Registration Statement on Form S-8 (File No. 2-93157) and
incorporated by reference)
10.3 State Street Boston Corporation 1985 Stock Option and Performance
Share Plan as amended (filed with the Securities and Exchange
Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1985 and incorporated by reference)
10.4 State Street Boston Corporation 1989 Stock Option Plan as amended
(filed with the Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1989 and incorporated by reference)
10.5 State Street Boston Corporation 1990 Stock Option and Performance
Share Plan as amended (filed with the Securities and Exchange
Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990 and incorporated by reference)
10.6 State Street Boston Corporation Supplemental Executive Retirement
Plan, together with individual benefit agreements (filed with the
Securities and Exchange Commission as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
10.6A Amendment No. 1 dated as of October 19, 1995, to State Street Boston
Corporation Supplemental Executive Retirement Plan (filed herewith)
10.7 Individual Pension Agreement with Marshall N. Carter (filed with the
Securities and Exchange Commission as Exhibit 10.10 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
10.8 Individual Pension Agreement with A. Edward Allinson dated September
14, 1990 (filed with the Securities and Exchange Commission as Exhibit
10.10 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated by reference)
10.9 Individual Pension Agreement with Albert E. Petersen dated April 5,
1992 (filed with the Securities and Exchange Commission as Exhibit
10.12 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated by reference)
10.10 Revised Termination Benefits Arrangement with Marshall N. Carter
(filed herewith)
10.11 State Street Global Advisors Incentive Plan for 1993 (filed with the
Securities and Exchange Commission as Exhibit 10.14 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.12 State Street Global Advisors Incentive Plan for 1994 (filed with the
Securities and Exchange Commission as Exhibit 10.15 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.13 1994 Stock Option and Performance Unit Plan (filed with the
Securities and Exchange Commission as Exhibit 10.17 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.13A Amendment No. 1 dated as of October 19, 1995, to 1994 Stock Option
and Performance Unit Plan (filed herewith)
10.14 Compensation agreement with J.R. Towers dated September 30, 1994
(filed with the Securities and Exchange Commission as Exhibit 10 to
Registrant's Annual Report on Form 10-Q for the year ended September
30, 1994 and incorporated by reference)
10.15 Senior Executives Annual Incentive Plan (filed with the Securities
and Exchange Commission as Exhibit 10.16 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993 and incorporated by
reference)
10.15A Amendment No. 1 dated as of December 21, 1995, to Senior Executive
Annual Incentive Plan (filed herewith)
10.16 State Street Global Advisors Incentive Plan for 1995 (filed with the
Securities and Exchange Commission as Exhibit 10.20 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated by reference)
10.17 Supplemental Defined Benefit Pension Plan for Senior Executive
Officers (filed with the Securities and Exchange Commission as Exhibit
10.21 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated by reference)
10.18 Nonemployee Director Retirement Plan (filed with the Securities and
Exchange Commission as Exhibit 10.22 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated by
reference)
10.19 State Street Global Advisors Incentive Plan for 1996 (filed herewith)
10.20 Forms of Employment Agreement with Officers (Levels 1, 2, and 3)
approved by the Board of Directors on September, 1995 (filed herewith)
10.21 Compensation Agreement with Ronald L. O'Kelley (filed herewith)
EXHIBIT 11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 State Street Boston Corporation Computation of Earnings Per Share
EXHIBIT 12. STATEMENT RE COMPUTATION OF RATIOS
12.1 Statement of ratio of earnings to fixed charges
EXHIBIT 13. PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS
13.1 Five Year Selected Financial Data
13.2 Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Years Ended December 31, 1995 (not
covered by the Report of Independent Public Accountants)
13.3 Letter to Stockholders
13.4 State Street Boston Corporation Consolidated Financial Statements and
Schedules
EXHIBIT 21. SUBSIDIARIES
21.1 Subsidiaries of State Street Boston Corporation
EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Independent Auditors
EXHIBIT 27. FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule (such schedule is furnished for information
of the Securities and Exchange Commission and is not to be deemed
"filed" as part of Form 10-K or otherwise subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934) (filed
herewith)
EXHIBIT 3.1
C.D. ARO--3 (Rev. 8--69) 25M-8-69-0452C6
THE COMMONWEALTH OF MASSACHUSETTS
JOHN F.X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE
BOSTON, MASS.
ARTICLES OF ORGANIZATION
(UNDER G.L. CH. 156B)
INCORPORATORS
NAME POST OFFICE ADDRESS
Include given name in full in case of natural persons; in case of a
corporation, give state of incorporation.
H. Frederick Hagemann, Jr. 225 Franklin Street
Boston, Mass. 02101
George B. Rockwell 225 Franklin Street
Boston, Mass. 02101
John T. G. Nichols 225 Franklin Street
Boston, Mass. 02101
The above-named incorporator(s) do hereby associate (themselves) with
the intention of forming a corporation under the provisions of General Laws,
Chapter 156B and hereby state(s):
1. The name by which the corporation shall be known is:
State Street Boston Financial Corporation
2. The purposes for which the corporation is formed are as follows:
To acquire, hold, dispose of and otherwise deal in and with securities
(including but not limited to stocks, shares, evidences of beneficial interest,
evidences of indebtedness and evidences of any right to subscribe for or
purchase or sell any thereof), and any interest therein, issued or created by or
evidencing or representing any interest in any one or more banks, trust
companies, other corporations, associations, trusts, firms, partnerships,
governments, governmental or political units, instrumentalities, subdivisions,
agencies or authorities, or other organizations, persons or entities, public or
private; and
To engage in any other lawful business or activity in which a corporation
organized under the Business Corporation Law of Massachusetts is permitted to
engage.
NOTE: If provisions for which the space provided under Articles 2, 4, 5, and 6
is not sufficient additions should be set out on continuation sheets to be
numbered 2A, 2B, etc. Indicate under each Article where the provision is set
out. Continuation sheets shall be on 8 1/2" x 11" paper and must have a
left-hand margin 1 inch wide for binding. Only one side should be used.
<PAGE>
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK -------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES PAR AMOUNT
VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred None None $
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Common None 15,000 $10 $150,000
- ---------------------------------------------------------------------------------------
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
None
*5. The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting,defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
See Continuation Sheets 6A, 6B, 6C and 6D
*If there are no provisions state "None".
<PAGE>
CONTINUATION SHEET 6A
By-laws
The board of directors is authorized to make, amend or repeal the by-laws
of the corporation in whole or in part, except with respect to any provision
thereof which by law, by these articles of organization or by the by-laws
requires action by the stockholders.
Division of Directors into Classes
and Tenure of Office and Election Thereof
The board of directors shall consist of not less than three nor more than
thirty directors, the number of directors to be determined (within the foregoing
limits) initially by the incorporators and thereafter at each annual meeting of
the stockholders by such stockholders as have the right to vote thereon. The
incorporators, in connection with their election of the initial directors, shall
elect, as nearly as possible, one-third of such directors to hold office until
the 1970 annual meeting of the stockholders, one-third of such directors to hold
office until the 1971 annual meeting of the stockholders and one-third of such
directors to hold office until the 1972 annual meeting of the stockholders. At
the 1970 annual meeting of the stockholders and at each annual meeting of the
stockholders thereafter, the stockholders shall elect such number of directors
as equals the number of directors then determined by them less the number of
directors whose terms do not then expire. Each director so elected shall be
elected for such term of office of one, two or three years as will most nearly
result in the terms of office of one-third of all the directors expiring at each
of the next three annual meetings of the stockholders. Either the stockholders,
at any special meeting held for the purpose, or the board of directors, by vote
of a majority, of the directors then in office, may increase (subject to the
maximum limitation of thirty directors fixed above) the number of directors and
elect a new director or directors to fill the vacancy or vacancies so created
for such term or terms as will most nearly result in the terms of one-third of
all the directors expiring at each of the next three annual meetings of the
stockholders. Any other vacancy in the board of directors may be filled by vote
of a majority of the remaining directors, and any director elected to fill such
a vacancy shall hold office until the next annual meeting of the stockholders,
at which time the term to which he was elected shall be deemed to have expired.
Except as otherwise provided by law or by these articles of organization or,
with respect to the resignation or removal of directors, by, the by-laws,
directors shall hold office until the annual meeting of the stockholders at
which their terms are scheduled to expire and until either the election thereat
of directors to succeed the directors whose terms expire at that meeting or a
determination by the stockholders that the total number of directors for the
ensuing year shall be such that, in accordance with the foregoing provisions, no
directors are to be elected to succeed the directors whose terms expire at that
meeting. Directors may be elected to successive terms. No director need be a
stockholder. As used herein, the term "annua1 meeting of stockholders" shall
include any special meeting of the stockholders held in lieu thereof.
Place of Meetings of the Stockholders
Meetings of the stockholders may be held anywhere in the United States.
Partnership
The corporation may be a partner in any business enterprise which the
corporation would have power to conduct by itself.
Indemnification of Directors, Officers and Others
The corporation shall indemnify each person who is or was a director,
officer, employee or other agent of the corporation, and each person who is or
was serving at the request of the corporation as a director, trustee, officer,
employee or other agent of another organization in which it directly or
indirectly owns shares or of which it is directly or indirectly a creditor,
against all liabilities, costs and expenses, including but not limited to
amounts paid in satisfaction of judgments, in settlement or as fines and
penalties, and counsel fees and disbursements, reasonably incurred by him in
connection with the defense or disposition of or otherwise in connection with or
resulting from any action, suit or other proceeding, whether civil, criminal,
administrative or investigative, before any court or administrative or
legislative or investigative body, in which he may be or may have been involved
as a party or otherwise or with which he may be or have been threatened, while
in office or thereafter, by reason of his being or having been such a director,
officer, employee, agent or trustee, or by reason of any action taken or not
taken in any such capacity, except with respect to any matter as to which he
shall have been finally adjudicated by a court of competent jurisdiction not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the corporation. Expenses, including but not limited to counsel
fees and disbursements, so incurred by any such person in defending any such
action, suit or proceeding, may be paid from time to time by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the person indemnified to repay the
amounts so paid if it shall ultimately be determined that indemnification of
such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to
a consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the corporation, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in Office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such officer, director, employee, agent or trustee of any amounts paid to him or
on his behalf as indemnification in accordance with the preceding sentence if
such person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to him. As used herein,
the terms "director," "officer," "employee," "agent" and "trustee" include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened.
By action of the board of directors, notwithstanding any interest of the
directors in such action, the corporation may purchase and maintain insurance,
in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
organization in which it directly or indirectly owns shares or of which it is
directly or indirectly a creditor, against any liability incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
Intercompany Transactions
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other organization of
which one or more of its directors or officers are directors, trustees or
officers, or in which any of them has any financial or other interest, shall be
void or voidable, or in any way affected, solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of directors or committee thereof which authorizes, approves or
ratifies the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the board of directors
or the committee which authorizes approves or ratifies the contract or
transaction, and the board or committee in good faith authorizes, approves or
ratifies the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
authorized, approved or ratified in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board of directors, a
committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee thereof which
authorizes, approves or ratifies the contract or transaction. No director or
officer of the corporation shall be liable or accountable to the corporation or
to any of its stockholders or creditors or to any other person, either for any
loss to the corporation or to any other person or for any gains or profits
realized by such director or officer, by reason of any contract or transaction
as to which clauses (a), (b) or (c) above are applicable.
7. By-laws of the corporation have been duly adopted and the initial
directors, president, treasurer and clerk, whose names are set out below,
have been duly elected.
8. The effective date of organization of the corporation shall be the date of
filing with the Secretary of the Commonwealth or if later date is desired,
specify date, (not more than 30 days after date of filing.)
9. The following information shall not for any purpose be treated as a
permanent part of the Articles of Organization of the corporation.
a. The post office address of the initial principal office of the
corporation in Massachusetts is:
225 Franklin Street, Boston, Massachusetts 02101
b. The name, residence, and post office address of each of the initial
directors and following officers of the corporation are as follows:
NAME RESIDENCE POST OFFICE ADDRESS
H. Frederick Hagemann, Jr. 30 Woodman Rd. 225 Franklin Street
President: Newton, Mass. Boston, Mass. 02101
- -------------------------------------------------------------------------------
John T. G. Nichols Corn Point Rd. 225 Franklin Street
Treasurer: Marblehead, Mass. Boston, Mass. 02101
- -------------------------------------------------------------------------------
Eldon C. Swim 6 Nelson Rd. 225 Franklin Street
Clerk: Melrose, Mass. Boston, Mass. 02101
- -------------------------------------------------------------------------------
Directors:
H. Frederick Hagemann, Jr. (Same As Above)
George B. Rockwell 16 Salem Road 225 Franklin Street
Wellesley, Mass. Boston, Mass. 02101
John T. G. Nichols (Same As Above)
c. The date initially adopted on which the corporation's fiscal year ends
is:
December 31
d. The date initially fixed in the by-laws for the annual meeting of
stockholders of the corporation is:
Third Wednesday of April
e. The name and business address of the resident agent, if any, of the
corporation is:
None
IN WITNESS WHEREOF and under the penalties of perjury the above-named
INCORPORATOR(S) sign(s) these Articles of Organization this sixteenth
day of October, 1969.
/s/ H. Frederick Hagemann, Jr.
---------------------------------------
/s/ George B. Rockwell
---------------------------------------
/s/ John T.G. Nichols
---------------------------------------
The signature of each incorporator which is not a natural person must
be by an individual who shall show the capacity in which he acts and
by signing shall represent under the penalties of perjury that he is
duly authorized on its behalf to sign these Articles of Organization.
<PAGE>
Form CD-72. 25M-7-74-104070
THE COMMONWEALTH OF MASSACHUSETTS
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
02133
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth within
sixty days after the date of the vote of stockholders adopting the amendment.
The fee for filing this certificate is prescribed by General Laws, Chapter 156B,
Section 114. Make check payable to the Commonwealth of Massachusetts.
We, Peter S. Maher , Senior/Vice President, and
Dean W. Harrison , Clerk
STATE STREET BOSTON FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
--------------------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 20, 1977, by vote
of
1,664,380 shares of Common 2,280,323
- --------- ----------------- out of --------- shares outstanding,
(Class of Stock)
- -------- shares of ----------------- out of --------- shares outstanding, and
(Class of Stock)
- -------- shares of ----------------- out of --------- shares outstanding
(Class of Stock)
being at least a majority of each class outstanding and entitled to
vote thereon:
CROSS OUT
INAPPLICABLE
CLAUSE
(1) For amendments adopted pursuant to Chapter 156B, Section 72.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
NOTE: Amendments for which the space provided above is not sufficient should be
set on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets
shall be on 8-1/2" wide x 11" high paper and must have a left-hand margin
1 inch wide for binding. Only one side should be used.
<PAGE>
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of the General
Laws unelss these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this
Twentieth day of April, in the year 1977
/s/ illegible Senior/Vice President
- ----------------------------
/s/ illegible
- ---------------------------- Clerk
<PAGE>
Form CD-74, 25M-6-66-942983
THE COMMONWEALTH OF MASSACHUSETTS
JOHN F. X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
We, George B. Rockwell , President and
Winthrop B. Walker , Clerk of
State Street Boston Financial Corporation
- -------------------------------------------------------------------------------
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
---------------------------------------------------------------
do hereby certify that the following restatement of the articles of organization
of the corporation was duly
adopted on June 11, 1970, by written consent of the holder of
100 Common Stock 100
- --------- shares of ----------------- out of --------- shares outstanding,
(Class of Stock)
- --------- shares of ----------------- out of --------- shares outstanding, and
(Class of Stock)
- --------- shares of ----------------- out of --------- shares outstanding
(Class of Stock)
being all of the stock outstanding and entitled to vote and of each class or
series of stock adversely affected thereby:
1. The name by which the corporation shall be known is:-
State Street Boston Financial Corporation
2. The purposes for which the corporation is formed are as follows:-
See Continuation Sheet 2A.
NOTE: Provisions for which the space provided under articles 2, 4, 5, and 6 is
not sufficient should be set out on continuation sheets to be numbered 2A,
2B, etc. Indicate under each article where the provision is set out.
Continuation sheets shall be on 8-1/2" wide x 11" high paper and must have
a left-hand margin 1 inch wide for binding. Only one side should be used.
3. The total number of shares and the part value, if any, of each class
of stock which the corporation is authorized to issue is as follows:
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ---------
Preferred 700,000 0 ---
Common 0 3,500,000 $10
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
See Continuation Sheet 4A
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provision, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See Continuation Sheets 6A, 6B and 6C.
*If there are no such provisions, state "None".
To acquire, hold, dispose of and otherwise deal in and with securities
(including but not limited to stocks, shares, evidences of beneficial interest,
evidences of indebtedness and evidences of any right to subscribe for or
purchase or sell any thereof), and any interest therein, issued or created by or
evidencing or representing any interest in any one or more banks, trust
companies, other corporations, associations, trusts, firms, partnerships,
governments, governmental or political units, instrumentalities, subdivisions,
agencies or authorities, or other organizations, persons or entities, public or
private; and
To engage in any other lawful business or activity in which a corporation
organized under the Business Corporation Law of Massachusetts is permitted to
engage.
<PAGE>
The board of directors is authorized, subject to the
limitations prescribed by law and these articles, to divide the Preferred Stock
into two or more series and to establish and designate each series and fix and
determine the variations in the relative rights and preferences as between the
different series, provided that all shares of the Preferred Stock shall be
identical except that there may be variations fixed and so determined between
different series as to:
(a) The number of shares constituting each series and the distinctive
designation of that series;
(b) Whether or not the shares of any series shall be redeemable and, if
redeemable, the price (which may vary under different conditions and at
different redemption dates), the terms and the manner of redemption, including
the date or dates on or after which they shall be redeemable;
(c) The dividend rate on the shares of each series, the conditions and
dates upon which dividends thereon shall be payable, the extent, if any, to
which dividends thereon shall be cumulative, and the relative rights of
preference, if any, of payment of dividends thereon;
(d) The rights of each series on liquidation, voluntary or involuntary,
including dissolution or winding up of the corporation;
(e) The sinking fund or purchase fund provisions, if any, applicable to
each series, including without limitation the annual amount thereof and the
terms relating thereto;
(f) The conversion rights, if any, of each series, including the terms and
conditions of conversion, which terms and conditions may contain provisions for
adjustment of the conversion rate in such events as the board of directors shall
determine; and
(g) The conditions under which each series shall have separate voting
rights or no voting rights, in addltlon to the voting rights provided by law.
<PAGE>
By-laws
The board of directors is authorized to make, amend or repeal the by-laws
of the corporation in whole or in part, except with respect to any provision
thereof which by law, by these articles of organization or by the by-laws
requires action by the stockholders.
Place of Meetings of the Stockholders
Meetings of the stockholders may be held anywhere in the United States.
Partnership
The corporation may be a partner in any business enterprise which the
corporation would have power to conduct by itself.
Indemnification of Directors, Officers and Others
The corporation shall indemnify each person who is or was a director,
officer, employee or other agent of the corporation, and each person who is or
was serving at the request of the corporation as a director, trustee, officer,
employee or other agent of another organization in which it directly or
indirectly owns shares or of which it is directly or indirectly a creditor,
against all liabilities, costs and expenses, including but not limited to
amounts paid in satisfaction of judgments, in settlement or as fines and
penalties, and counsel fees and disbursements, reasonably incurred by him in
connection with the defense or disposition of or otherwise in connection with or
resulting from any action, suit or other proceeding, whether civil, criminal,
administrative or investigative, before any court or administrative or
legislative or investigative body, in which he may be or may have been involved
as a party or otherwise or with which he may be or may have been threatened,
while in office or thereafter, by reason of his being or having been such a
director, officer, employee, agent or trustee, or by reason of any action taken
or not taken in any such capacity, except with respect to any matter as to which
he shall have been finally adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action
was in the best interests of the corporation. Expenses, including but not
limited to counsel fees and disbursements, so incurred by any such person in
defending any such action, suit or proceeding, may be paid from time to time by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the person
indemnified to repay the amounts so paid it it shall ultimately be determined
that indemnification of such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to
a consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the corporation, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such officer, director, employee, agent or trustee of any amounts paid to him or
on his behalf as indemnification in accordance with the preceding sentence if
such person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to him. As used herein,
the terms "director", "officer", "employee", "agent" and "trustee" include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened.
By action of the board of directors, notwithstanding any interest of the
directors in such action, the corporation may purchase and maintain insurance,
in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
organization in which it directly or indirectly owns shares or of which it is
directly or indirectly a creditor, against any liability incurred by him in any
such capacity, or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liability.
Intercompany Transactions
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other organization of
which one or more of its directors or officers are directors, trustees or
officers, or in which any of them has any financial or other interest, shall be
void or voidable, or in any way affected, solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of directors or committee thereof which authorizes, approves or
ratifies the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(a) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the board of
directors or the committee which authorizes, approves or ratifies the
contract or transaction, and the board or committee in good faith
authorizes, approves or ratifies the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically authorized, approved or ratified in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified by the board of
directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee thereof which
authorizes, approves or ratifies the contract or transaction. No director or
officer of the corporation shall be liable or accountable to the corporation or
to any of its stockholders or creditors or to any other person, either for any
loss to the corporation or to any other person or for any gains or profits
realized by such director or officer, by reason of any contract or transaction
as to which clauses (a), (b) or (c) above are applicable.
*We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles 3 and 4.
(*If there are no such amendments, state "None".)
Article Three is amended by increasing the authorized capital stock of this
corporation by
(a) 3,485,000 shares of Common Stock, $10 par value, to a total of
3,500,000 shares; and
(b) 700,000 shares of Preferred Stock, without par value.
Article Four is amended by the addition of provisions authorizing the Board of
Directors to divide the Preferred Stock into two or more series and to establish
and designate each series and fix and determine the variations in the relative
rights and preferences as between the different series.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 11th day of June in the year 1970.
[ILLEGIBLE] President
[ILLEGIBLE] Clerk
<PAGE>
FORM CD-72-30M 10-79 152328
[ILLEGIBLE] FEDERAL IDENTIFICATION
- --------------
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, Robert J. Malley Senior Vice President, and
Christoph H. Schmidt Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02110
- -------------
Name Approved
do hereby certify that the following amendments to the articles of organization
of the corporation was duly adopted at a meeting held on April 21, 1982, by
vote of 1,315,382 shares of Common Stock out of 2,111,476 shares outstanding,
on Vote (Class of Stock)
1,089,224 shares of Common Stock out of 2,111,476 shares outstanding, on Vote
(Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(1)
CLAUSE
(Vote 1) VOTED: That Article 3 of the Articles of Organization of this
C [ ] Corporation is hereby amended to increase the number of authorized
P [ ] shares of Common Stock, $10 par value, of the Corporation from
M [ ] 3,500,000 to 7,000,000; and that the Board of Directors be and it
hereby is authorized to issue any and all of the authorized but
unissued shares of the Common Stock, $10 par value, of this
Corporation at such time or times, to such persons, and for such
lawful consideration, including cash, tangible or intangible
property, services or expenses, or as stock dividends, as may be
determined from time to time by the Board of Directors.
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[ILLEGIBLE]
_______ Note: If the space provided under any Amendment or item on this form
P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
| -0- shares preferred |
| | with par value
| 3,500,000 shares common |
The total amount of capital |
stock already authorized is |
| 700,000 shares preferred |
| | without par value
| -0- shares common |
| -0- shares preferred |
| | with par value
| 3,500,000 shares common |
The amount of additional |
capital stock authorized is |
| 2,800,000 shares preferred |
| | without par value
| -0- shares common |
(Vote 2) VOTED: That Article 3 of the Articles of Organization of this
Corporation is hereby amended to increase the number of authorized
shares of Preferred Stock, no par value, of the Corporation from
700,000 to 3,500,000; and that the Board of Directors be and it
hereby is authorized to issue any and all of the authorized but
unissued shares of the Preferred Stock, no par value, of this
Corporation at such time or times, to such persons, and for such
lawful consideration, including cash, tangible or intangible
property, services or expenses, or as stock dividends, as may be
determined from time to time by the Board of Directors.
The foregoing amendments will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this eleventh day of May, in year 1982.
Robert J. Malley Senior Vice President
Christoph H. Schmidt Clerk
<PAGE>
C24 |
| $75
C25 |
FORM CD-72-30M 10-79 152328
[ILLEGIBLE]
________ FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts. __________ We, William S. Edgerly President, and Robert J. Malley
Secretary of
State Street Boston Corporation
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 20, 1983, by
vote of 3,223,000 shares of Common Stock $10.00 par value out of 4,311,465
shares outstanding, (Class of Stock)
_________ shares of _____________________________ out of _________ shares
outstanding, and (Class of Stock)
_________ shares of _____________________________ out of _________ shares
outstanding, (Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Corporation's Articles of Organization be
C [ ] amended to change the authorized common stock from 7,000,000 shares
P [ ] having a par value of $10.00 per share to 14,000,000 shares having
M [ ] a par value of $1.00 per share; and that the Board of Directors be
and it hereby is authorized to issue any and all of the authorized
but unissued shares of the Common Stock, $1 par value, of this
Corporation at such time or times, to such persons, and for such
lawful consideration, including cash, tangible or intangible
property, services or expenses, or as stock dividends, as may be
determined from time to time by the Board of Directors.
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
3
- ------- Note: If the space provided under any Amendment or item on this form
P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
| __________ shares preferred |
| | with par value
| __________ shares common |
The total amount of capital |
stock already authorized is |
| __________ shares preferred |
| | without par value
| __________ shares common |
| __________ shares preferred |
| | with par value
| __________ shares common |
The amount of additional |
capital stock authorized is |
| __________ shares preferred |
| | without par value
| __________ shares common |
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 21st day of April, in year 1983.
William S. Edgerly President
Robert J. Malley Secretary
<PAGE>
FORM CD-72-3/83 172595
[ILLEGIBLE]
________ FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, William S. Edgerly President, and
Robert J. Malley Secretary & Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 17, 1985, by
vote of 6,669,209 shares of Common Stock $1 par value out of 8,241,453 shares
outstanding, (Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, and (Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, (Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Articles of Organization be amended to change
C [ ] the authorized number of shares of Common Stock of the Corporation,
P [ ] $1 par value, from 14 million to 28 million."
M [ ]
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[ILLEGIBLE]
- ------- Note: If the space provided under any Amendment or item on this form
P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 14,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 28,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 25th day of April, in year 1985
William S. Edgerly President
Robert J. Malley Secretary & Clerk
<PAGE>
FORM CD-72-30M 3/83-172595
[illegible] FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, David A. Spina Executive Vice President, and
Robert J. Malley Secretary & Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 16, 1986, by
vote of 14,092,857 shares of Common Stock out of 17,216,198 shares outstanding,
(Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, and (Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, (Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Articles of Organization be amended to
C [ ] increase the authorized number of shares of Common Stock of the
P [ ] Corporation, $1 par value, from 28 million to 56 million."
M [ ]
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[illegible] Note: If the space provided under any Amendment or item on this form
- ----------- is insufficient, additions shall be set forth on separate 8 1/2 x 11
P.C. sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 28,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 56,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 9th day of May, in year 1986
David A. Spina Executive Vice President
Robert J. Malley Clerk and Secretary
<PAGE>
030 = $75
FORM CD-72-30M-4/86-808881
[illegible]
- ------------ FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, David A. Spina Executive Vice President, and
Robert J. Malley Secretary & Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation were duly adopted at a meeting held on April 15, 1987, by
vote of 27,682,822 shares of Common Stock out of 35,116,000 shares outstanding,
Amendment #1 (Class of Stock)
27,501,803 shares of Common Stock out of 35,116,000 shares outstanding,
Amendment #2 (Class of Stock)
shares of out of shares outstanding,
- ----------- ---------------- ----------------
(Class of Stock)
CROSS OUT being at least two-thirds of each class outstanding and entitled
INAPPLICABLE to vote thereon and of each class or series of stock whose rights
CLAUSE are adversely affected thereby:(2)
Amendment #1
"VOTED: That Article 6 of the Corporation's Articles of Organization be
C [ ] amended to add the following new paragraph pursuant to the Business
P [ ] Corporation of Massachusetts:
M [ ] (See Continuation Sheet 1A, attached)
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[illegible] Note: If the space provided under any Amendment or item on this form
- ----------- is insufficient, additions shall be set forth on separate 8 1/2 x 11
P.C. sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON
- -------------------------------------------------------------------------------
PREFERRED
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON
- -------------------------------------------------------------------------------
PREFERRED
- -------------------------------------------------------------------------------
STATE STREET BOSTON CORPORATION
Continuation Sheet 1A
Amendment #1 (continued)
"Liability of Directors
A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability,
provided, however, that this paragraph of Article Six shall not eliminate the
liability of a director to the extent such liability is imposed by applicable
law (i) for any breach of the director's duty of loyalty to this corporation or
its stockholders. (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for any transaction
from which the director derived an improper personal benefit, or (iv) for paying
a dividend, approving a stock repurchase or making loans which are illegal under
certain provisions of Massachusetts law, as the same exists or hereafter may be
amended. If Massachusetts law is hereafter amended to authorize the further
limitation of the legal liability of the directors of this corporation, the
liability of the directors shall then be deemed to be limited to the fullest
extent then permitted by Massachusetts law as so amended. Any repeal or
modification of this paragraph of this Article Six which may hereafter be
effected by the stockholders of this corporation shall be prospective only, and
shall not adversely affect any limitation on the liability of a director for
acts or omissions prior to such repeal or modification."
<PAGE>
CONTINUATION SHEET 2A
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
The corporation shall to the fullest extent legally permissible
indemnify each person who is or was a director, officer, employee or other agent
of the corporpation and each person who is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
corporation or of any partnership, joint venture, trust, employee benefit plan
or other enterprise or organization against all liabilities, costs and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
settlement or as fines and penalties, and counsel fees and disbursements,
reasonably incurred by him in connection with the defense or disposition of or
otherwise in connection with or resulting from any action, suit or other
proceeding, whether civil, criminal, administrative or investigative, before any
court or administrative or legislative or investigative body, in which he may be
or may have been involved as a party or otherwise or with which he may be or may
have been threatened, while in office or thereafter, by reason of his being or
having been such a director, officer, employee, agent or trustee, or by reason
of any action taken or not taken in any such capacity, except with respect to
any matter as to which he shall have been finally adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that his action was in the best interests of the corporation (any person serving
another organization in one or more of the indicated capacities at the request
of the corporation who shall not have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interest of such other organization shall be deemed so to have acted in
good faith with respect to the corporation) or to the extent that such matter
relates to service with respect to an employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan.
Expenses, including but not limited to counsel fees and disbursements, so
incurred by any such person in defending any such action, suit or proceeding,
shall be paid from time to time by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the person indemnified to repay the amounts so paid if it shall
ultimately be determined that indemnification of such expenses is not authorized
hereunder.
If, in an action, suit or proceeding brought by or in the name of the
corporation, a director of the corporation is held not liable for monetary
damages, whether because that director is relieved of personal liability under
the provisions of this Article Six of the Articles of Organization, or
otherwise, that director shall be deemed to have met the standard of conduct set
forth above and to be entitled to indemnification for expenses reasonably,
incurred in the defense of such action, suit or proceeding.
As to any matter disposed of by settlement by any such person, pursuant
to a consent decree or otherwise, no such indemnification either for the amount
of such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the corporation, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such director, officer, employee, agent or trustee of any amounts paid to him or
on his behalf as indemnification in accordance with the preceding sentence if
such person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to him. As used herein,
the terms "director", "officer", "employee", "agent" and "trustee" include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened.
By action of the board of directors, notwithstanding any interest of the
directors in such action, the corporation may purchase and maintain insurance,
in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
corporation or of any partnership, joint venture, trust, employee benefit plan
or other enterprise or organization against any liability incurred by him in any
such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
<PAGE>
Amendment #2
"VOTED: That Article 6 of the Articles of Organization be further
amended and restated with respect to indemnification to
read as follows:
(See Continuation Sheet 2A, attached)
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this twenty-fourth day of April, in the year 1987.
[Illegible] Executive/Vice President
[Illegible] Clerk
<PAGE>
027
Form CD-26-3M-8-83
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
[Illegible] MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
FEDERAL IDENTIFICATION
NO. 04-456637
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
--------
We, Robert J. Malley Vice President, and
Robert J. Malley , Clerk of
STATE STREET BOSTON CORPORATION
- ------------------------------------------------------------------------------
(Name of Corporation)
located at 225 Franklin Street, Boston, MA 02110
---------------------------------------------------
do hereby certify that at a meeting of the directors of the corporation held on
September 15, 1988, the following vote establishing and designating a series of
a class of stock and determining the relative rights and preferences thereof was
duly adopted:
See continuation sheets numbered 2A through 2A-7
NOTE: Votes for which the space provided above is not sufficient should be set
out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets must
have a left-hand margin 1 inch wide for binding and shall be 8-1/2" x 11". Only
one side should be used.
<PAGE>
VOTED: That pursuant to the authority granted to and vested in the
Board of Directors in accordance with the provisions of the
Articles of Organization, as amended to date, the Board of
Directors hereby creates a series of Preferred Stock, without
par value, of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights, preferences
and limitations thereof (in addition to the provisions set forth
in the Articles of Organization which are applicable to the
Preferred Stock of all classes and series), as set forth in the
Certificate of Designation, Preferences and Rights comprising
Exhibit A to the Rights Agreement, which is attached hereto and
incorporated herein by reference; and
<PAGE>
Exhibit_A
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
STATE STREET BOSTON CORPORATION
(Pursuant to Section 26 of the
Massachusetts Business Corporation Law)
State Street Boston Corporation, a corporation organized and existing under
the Business Corporation Law of the Commonwealth of Massachusetts (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 26
of the Business Corporation Law at a meeting duly called and held on September
15, 1988:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Articles of Organization,
the Board of Directors hereby creates a series of Preferred Stock, without par
value (the "Preferred Stock"), of the Corporation and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
and limitations thereof (in addition to any provisions set forth in the Articles
of Organization of the Corporation which are applicable to the Preferred Stock
of all classes and series) as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 400,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, $1
par value (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $1 or (b) subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the
date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately prior
to such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liqui-
dation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends, or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Articles of Organization, or in any other Certificate of Designations creating a
series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank junior with
respect to the payment of dividends and the distribution of assets to all other
series of the Corporation's Preferred Stock.
Section 10. Amendment. The Articles of Organization of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
<PAGE>
024
FORM CD-72-30M-4/86-808881
[Illegible] FEDERAL IDENTIFICATION
- ---------
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, Marshall N. Carter President, and
Robert J. Malley Clerk of
State Street Boston Corporation
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02210
[Illegible]
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 15, 1992, by
vote of 31,180,121 shares of Common Stock out of 37,248,358 shares outstanding,
(Class of Stock)
shares of out of shares outstanding, and
(Class of Stock)
shares of out of shares outstanding,
(Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Restated Articles of Organization be
C [ ] amended to increase the authorized number of shares of Common Stock,
P [ ] $1 par value, from 56 million to 112 million, and to authorize the
M [ ] Board of Directors to issue such shares from time to time for general
corporate purposes."
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[Illegible] Note: If the space provided under any Amendment or item on this
- ----------- form is insufficient, additions shall be set forth on separate
P.C. 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1
inch for binding. Additions to more than one Amendment may be
continued on a single sheet so long as each Amendment requiring
each such addition is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 56,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 112,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 22nd day of April, in year 1992
Marshall N. Carter President
Robert J. Malley Clerk
<PAGE>
EXHIBIT 4.6
INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of
February 14, 1996 among State Street Boston Corporation, a Massachusetts
corporation (the "Corporation"), The First National Bank of Boston, a national
banking association, as trustee (the "Resigning Trustee") and Fleet National
Bank of Massachusetts, a national banking association, having its principal
trust office at One Federal Street, Boston, Massachusetts 02211 (the "Successor
Trustee").
WHEREAS, there are presently issued and outstanding $100,000,000. State
Street Boston Corporation 5.95% Notes due September 15, 2003, (the "Notes")
under an Indenture dated as of August 2, 1993, between the Corporation, and the
Resigning Trustee, (the "Senior Indenture").
WHEREAS, there is presently an Indenture dated as of August 9, 1993,
between the Corporation and the Resigning Trustee (the "Subordinated
Indenture"), under which there is presently no debt outstanding. The Senior
Indenture and the Subordinated Indenture are referred to collectively as the
"Indenture".
WHEREAS, Sections 610 of the Indenture provides that the Trustee may at
any time resign by giving written notice to the Corporation. The Corporation
shall give notice of the resignation of the Trustee to all Holders of all
Securities and the notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office;
WHEREAS, the Resigning Trustee represents that it has given the
Corporation written notice of its resignation as Trustee, a true copy of which
is annexed hereto marked Exhibit A;
WHEREAS, Section 610 of the Indentures further provides that, if the
Trustees shall resign, the Corporation shall appoint a successor Trustee;
WHEREAS, the Corporation desires to appoint the Successor Trustee as
successor Trustee under the Indentures;
WHEREAS, the Board of Directors of the Corporation by a resolution, a
true copy of which is annexed hereto marked Exhibit B, authorized the
appointment of the Successor Trustee as Trustee under the Indentures, such
appointment to become effective upon the execution and delivery of this
Instrument by all the parties hereto;
WHEREAS, Section 611 of the Indentures provides that the successor
Trustee appointed as provided in Section 610 shall execute, acknowledge and
deliver to the Corporation and to the retiring Trustee an instrument accepting
such appointment, the retiring Trustee shall transfer all property held by it as
Trustee to the successor trustee and thereupon the resignation of the retiring
Trustee shall become effective and such successor Trustee without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties, of the retiring Trustee;
WHEREAS, no successor Trustee shall accept appointment as provided in
said Section 611 unless at the time of such acceptance such successor Trustee
shall be qualified and eligible under the provisions of Section 609 of the
Indentures;
WHEREAS, the Successor Trustee is qualified, eligible and willing to
accept such appointment as successor Trustee.
NOW THEREFORE, THIS INSTRUMENT OF RESIGNATION, APPOINTMENT, AND
ACCEPTANCE, WITNESSETH: that for and in consideration of the premises and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is hereby covenanted, declared and decreed by the
Corporation, the Successor Trustee and the Resigning Trustee as follows:
1. The Resigning Trustee hereby resigns as Trustee, and its
discharge from the trust created by the Indentures shall be effective
upon execution and delivery of this Instrument by all the parties
hereto.
2. The Corporation hereby accepts the resignation of the
Resigning Trustee as Trustee under the Indentures:
3. The Resigning Trustee hereby represents and warrants to the
Successor Trustee that:
a. To the best of the knowledge of the Resigning
Trustee, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default,
has occurred and is continuing under the Indentures.
b. No covenant or condition contained in the
Indenture has been waived by the Resigning Trustee or by the
Holders of the percentage in aggregate principal amount of the
Securities required by the Indentures to effect any such
waiver.
c. There is no action, suit or proceeding pending or,
to be the best of the knowledge of the Resigning Trustee,
threatened against the Resigning Trustee before any court or
governmental authority arising out of any action or omission
by the Resigning Trustee as Trustee under Indentures.
4. The Corporation in the exercise of the authority vested in
it pursuant to Section 610 of the Indentures and the resolution, hereby
appoints the Successor Trustee as successor Trustee with all the
rights, powers, trusts and duties of the Trustee under the Indentures,
such appointment to be effective upon the execution and delivery of
this Instrument by all the parties hereto.
5. The Successor Trustee hereby represents that it is
qualified and eligible under the provisions of Section 609 of the
Indentures to be appointed successor Trustee, and hereby accepts
appointment as successor Trustee pursuant to Section 611 of the
Indentures, effective upon the execution and delivery of this
Instrument by all the parties hereto. The Successor Trustee also hereby
represents to all of the matters set forth in Exhibit C.
6. The Resigning Trustee hereby grants, gives, bargains,
sells, remises, releases, conveys, confirms, assigns, transfers and
sets over to the successor Trustee and its successors and assigns, all
rights, powers, trusts and duties of the Trustee under the Indentures;
and the Resigning Trustee does hereby pay over, assign and deliver to
the successor Trustee, any and all money, if any, and property, if any,
held by the Resigning Trustee as Trustee. The Corporation for the
purpose of more fully and certainly vesting in and confirming to the
Successor Trustee said rights, powers, trusts and duties, and at the
request of the Successor Trustee, joins in the execution hereof. The
Successor Trustee agrees that all documents, instruments and other
properties will be held and maintained in the Commonwealth of
Massachusetts unless the Corporation otherwise agrees.
7. This Instrument may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
8. Each of the Corporation, the Resigning Trustee and the
Successor Trustee, acknowledges receipt of an executed counterpart of
this Instrument.
9. Unless otherwise defined herein, all terms used herein
which are defined in the Indenture shall have the meanings assigned to
them in the Indentures.
10. This Instrument shall be governed by and construed in
accordance with laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Instrument of
Resignation, Appointment and Acceptance to be duly executed and their respective
seals to be affixed hereto and duly attested all as of the day and year first
above written.
State Street Boston Corporation
By: /s/ John R. Towers
--------------------------------
Name: John R. Towers
Title: Secretary
ATTEST:
/s/ Kathleen M. Restuccia
----------------------------------
The First National Bank of Boston,
as Resigning Trustee
By: /s/ Carol A. Anthony
--------------------------------
Name: Carol A. Anthony
Title: Authorized Officer
(Seal)
ATTEST:
/s/ Michael R. Garfield
----------------------------------
Fleet National Bank of Massachusetts
as Successor Trustee
By: /s/ Natalie S. Forrest
--------------------------------
Name: Natalie S. Forrest
Title: Vice President
(Seal)
ATTEST:
/s/ Virginia Jones
----------------------------------
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On the 20th day of February, 1996, before me personally came Kathleen
M. Restuccia, to me known, who is being by me duly sworn, that she is an
Assistant Treasurer of State Street Boston Corporation described in and which
executed the above instrument; that he knows the seal of said institution, that
the seal affixed to said instrument is such corporate seal; that it was so
affixed pursuant to the authority of the Board of Directors of said Corporation;
and that she signed her name thereto pursuant to like authority.
Notary Public
/s/ Leona A. Attardo
--------------------------------
Leona A. Attardo
Notary Public
Commission Expires April 5, 2002
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On the 14th day of February, 1996, before me personally came Michael R.
Garfield, to me known, who is being by me duly sworn, that he is an Assistant
Secretary of the First National Bank of Boston described in and which executed
the above instrument; that he knows the seal of said authority, that the seal
affixed to said instrument is such corporate seal; that it was so affixed
pursuant to the authority of the Board of Directors of said Authority; and that
he signed his name thereto pursuant to like authority.
Notary Public
/s/ Judith A Mercurio
--------------------------------
Judith A. Mercurio
Notary Public
Commission Expires April 15, 1999
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On the 22nd of February, 1996, before me personally came Natalie S.
Forrest, to me known, who is being by me duly sworn, that she is a Vice
President of Fleet National Bank of Massachusetts, described in and which
executed the above instrument; that he knows the seal of said authority; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed pursuant to the authority of the Board of Directors of said Authority;
and that she signed her name thereto pursuant to like authority.
Notary Public
/s/ Jane M. Bishop
--------------------------------
Jane M. Bishop
Notary Public
Commission Expires March 29, 2002
<PAGE>
January 10, 1996
State Street Boston Corporation
225 Franklin Street
Boston, MA 02110
Re: Senior Indenture and Subordinated Indenture, each dated
as of August 2, 1993 between State Street Boston
Corporation and The First National Bank of Boston
Ladies/Gentlemen:
The First National Bank of Boston hereby resigns as Trustee pursuant to
Section 610 of the referenced Senior Indenture and Subordinated Indenture,
effective upon the appointment of a successor trustee pursuant to the terms of
each Indenture.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Trustee
By: /s/ Michael R. Garfield
--------------------------------
Michael R. Garfield
Senior Counsel
<PAGE>
CERTIFIED EXCERPT FROM VOTE OF EXECUTIVE COMMITTEE
VOTED: That the resignation of The First National Bank of Boston as Trustee
(the "Resigning Trustee") under an Indenture dated as of August 2, 1993
among State Street Boston Corporation (the "Corporation") and The First
National Bank of Boston (the "Senior Indenture") and under an Indenture
dated as of August 2, 1993 among State Street Boston Corporation and
The First National Bank of Boston (the "Subordinated Indenture" and,
together with the Senior Indenture, the "Indentures"), be and hereby
is, accepted;
That Fleet National Bank of Massachusetts is hereby appointed as
successor Trustee (the "Successor Trustee") under the Indentures;
That the Chairman and Chief Executive Officer, the Vice Chairman, the
Treasurer, the Senior Vice President and General Counsel, and the
Senior Vice President and Comptroller be, and each of them is, hereby
authorized to execute and deliver the Instrument of Resignation,
Appointment and Acceptance (the "Instrument") among the Corporation,
the Resigning Trustee and the Successor Trustee; and
That the Chairman and Chief Executive Officer, the Vice Chairman, the
Treasurer, the Senior Vice President and General Counsel, and the
Senior Vice President and Comptroller be and each of them hereby is
authorized and empowered in the name and on behalf of this Corporation
to take any and all actions and to execute and deliver any all
documents, instruments, agreements or certificates and to do or cause
to be done any and all other things as may in the judgment of such
officer be deemed necessary or desirable in order to give effect and
carry out the intent and purposes of the execution and delivery of any
such documents, instruments, agreements or certificates and the doing
of any such things to be conclusive evidence of the authority of such
officer or officers so acting and to be conclusive evidence of due
authorization by the Corporation.
I hereby certify that the foregoing is a true excerpt from a vote
unanimously passed at a meeting of the Executive Committee of the Board of
Directors of State Street Boston Corporation duly called and held on February 8,
1996.
I further certify that said vote is in full force and effect as of the
date this instrument was executed.
Attest: /s/ John R. Towers (SEAL)
-----------------------
Date: February 9, 1996
<PAGE>
EXHIBIT C
SUCCESSOR TRUSTEE REPRESENTATIONS
The Successor Trustee hereby represents to the following:
(a) the Successor Trustee is a trust company or a bank having the
powers of a trust company located in Massachusetts
(b) the Successor Trustee has a capital and surplus of not less than
$50,000,000.
(c) the Successor Trustee shall execute, deliver, record and file such
instruments as are required to confirm or perfect its succession hereunder as
successor Trustee.
<PAGE>
EXHIBIT 10.6A
AMENDMENT NO. 1
TO THE
STATE STREET BOSTON CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Amendment No. 1, effective as of October 19, 1995, to the State Street
Boston Corporation Supplemental Executive Retirement Plan (the "Plan").
RECITAL
The Board of Directors has approved the following amendment to the
Plan:
1. The first sentence of section 4 of the Plan is amended to read in
its entirety as follows:
"Benefits shall be payable hereunder only to (a) Participants who
retire from the Company on or after their Normal Retirement Date,
and their Spouses or other Beneficiaries; (b) Participants who
retire from the Company after having completed at least five years
of Vesting Service, and their Spouses or other Beneficiaries; and
(c) Spouses or other Beneficiaries of Participants who die while
employed by the Company."
2. Except as amended above, the Plan remains in full force and effect.
STATE STREET BOSTON CORPORATION
By: /s/ Trevor Lukes
-------------------------------
Name: Trevor Lukes
Title: Senior Vice President
<PAGE>
EXHIBIT 10.10
October 9, 1995
Dear Mr. Carter:
Reference is hereby made to the undated letter between you and W.S.
Edgerly (on behalf of State Street Boston Corporation (the "Company")) attached
hereto as Exhibit A (the "Letter"). This letter agreement supersedes the Letter.
This letter agreement is intended to set forth our understanding with respect to
certain benefits payable to you in the event of termination of your employment
with the Company. Terms used and not defined herein shall have the meaning set
forth in the proposed form of Employment Agreement (the "Change in Control
Agreement"), attached hereto as Exhibit B. Changes made to said Employment
Agreement prior to its execution by you are deemed to apply to this letter also.
1. In the event that your employment is terminated by the Company
before July 23, 2001 for any reason other than your death or Cause and you are
not eligible for severance under Section 6(a) of the Change in Control
Agreement, you shall be entitled to a severance payment equal to 2 times the sum
of (x) your base salary plus (y) your maximum bonus applicable in the year of
your termination.
2. In the event that your employment is terminated by the Company
before July 23, 2001 for any reason other than your death or Cause and you are
not eligible for severance under Section 6(a) of the Change in Control
Agreement, then for purposes of determining the amount payable to you pursuant
to the Company's Supplemental Defined Benefit Pension Plan (the "Plan"): (i) you
shall be considered to be 55 years of age (or if older, your age at the date of
termination); (ii) the forfeiture provisions of Section 3.3 and 3.4 of the Plan
shall be inapplicable: and, (iii) the benefit under Section 4.1 of the Plan
shall be calculated by multiplying the amount payable pursuant to Subsection (a)
thereof by a fraction, the numerator of which is the number of whole calendar
months you were employed by the Company until your date of termination of
employment and the denominator of which is 120.
3. If you become employed by a Competitor (as defined below) within 2
years of termination of employment you shall forfeit your right to receive any
subsequent payment described in Section 2 of this letter agreement. A
"Competitor" shall mean (x) one of the top five master trust or custody banks
(other than the Company) listed in the latest published listing contained in
Pension and Investments which was published prior to the termination of your
employment or (y) one of the top five open-end mutual fund custodians (excluding
the Company) listed in the list published by Lipper Analytical Services for the
latest quarter available prior to your termination of employment.
4. In the event of Change of Control of the Company, if your employment
terminates under circumstances which entitle you to receive a severance payment
pursuant to Section 6(a) of the Change in Control Agreement, the Plan shall be
considered to be modified in the manner set forth in Paragraph 2 of this letter
agreement (but Paragraph 3 hereof shall be inapplicable) and the Plan as so
modified shall be considered to be a SERP in which you participate for purposes
of adding three years of age and service under Section 6(a)(i)C of the Change in
Control Agreement, which is intended to provide you with a benefit equivalent in
value to that which you would receive if your employment with the Company
continued of an additional three years.
Very truly yours,
STATE STREET BOSTON CORPORATION
By /s/ John R. Towers
-----------------------------------
John R. Towers
Senior Vice President
and General Counsel
Accepted:
October 19, 1995
/s/ Marshall N. Carter
---------------------------------
Marshall N. Carter
<PAGE>
EXHIBIT 10.13A
AMENDMENT NO. 1
TO THE
STATE STREET BOSTON CORPORATION
1994 STOCK OPTION AND PERFORMANCE UNIT PLAN
Amendment No. 1, effective as of October 19, 1995, to the State Street
Boston Corporation 1994 Stock Option and Performance Unit Plan (the "Plan").
RECITAL
The Board of Directors has approved the following amendments to the
Plan:
1. Paragraph 14.A.1 of the Plan is amended to read in its entirety as
follows:
"1. Acceleration of Options and SARs. Any Options and SARs
outstanding as of the date such Change of Control is determined to
have occurred and which are not then exercisable shall become
exercisable to the full extent of the original grant. Holders of
Performance Units granted hereunder as to which the relevant
Performance Period has not ended as of the date such Change of
Control is determined to have occurred shall be entitled at the
time of such Change of Control to receive a cash payment per
Performance Unit equal to the Fair Market Value of a share of the
Company's Common Stock."
2. Paragraph 14.B of the Plan is amended to read in its entirety as
follows:
"B. Definition of Change of Control. For purposes of the Plan, a
"Change of Control" shall mean the happening of any of the
following events:
1. An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of either (x)
the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following acquisitions of Outstanding Company Common Stock and
Outstanding Company Voting Securities: (i) any acquisition directly
from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any Person
pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (3) of this Paragraph 14B; or
2. Individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however,
that any individual who becomes a member of the Board subsequent to
such effective date, whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a
majority of directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so
considered as a member of the Incumbent Board; or
3. Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially
all of the assets of the Company ("Business Combination");
excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who
are the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination own, directly or indirectly,
more than 50% of, respectively, the outstanding shares of common
stock, and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or such corporation resulting from such
Business Combination) will beneficially own, directly or
indirectly, 25% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the
election of directors except to the extent that such ownership
existed with respect to the Company prior to the Business
Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
4. The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
5. Except as amended above, the Plan remains in full force and
effect.
STATE STREET BOSTON CORPORATION
By: /s/Trevor Lukes
-------------------------------
Name: Trevor Lukes
Title: Senior Vice President
<PAGE>
EXHIBIT 10.15A
AMENDMENT NO. 1
TO THE
STATE STREET BOSTON CORPORATION
SENIOR EXECUTIVES ANNUAL INCENTIVE PLAN
Amendment No. 1, effective as of December 21, 1995, to the State Street
Boston Corporation Senior Executives Annual Incentive Plan (the "Plan").
RECITAL
The Executive Compensation Committee has approved the following
amendment to the Plan:
1. The second paragraph of the Plan with respect to eligibility for
participation in the Plan is amended to read in its entirety as
follows:
"Eligibility:
The Chief Executive Officer and such members of the Executive
Operating Group as are designated as Participants by the Executive
Compensation Committee."
2. Except as amended above, the Plan remains in full force and effect.
STATE STREET BOSTON CORPORATION
By: /s/ Trevor Lukes
-------------------------------
Name: Trevor Lukes
Title: Senior Vice President
<PAGE>
EXHIBIT 10.19
STATE STREET GLOBAL ADVISORS
INCENTIVE COMPENSATION PLAN
I. Purpose
The purpose of the plan is to provide participants with significant
incentive to enhance the financial performance of State Street Global
Advisors ("SSgA") and State Street Boston Corporation ("SSB").
II. Funding and Incentive Pool
Annual financial targets and funding level of the Incentive Pool
shall be determined by the CEO of SSgA and the CEO of SSB, subject to the
approval of the Executive Compensation Committee of SSB. Annual financial
targets, incentive funding levels and operating procedures shall be
attached as Schedule A, and amended from time to time, as required.
The Incentive Pool shall be allocated between Annual Incentive Awards
and a Long Term element. The CEO of SSgA shall determine the percentage of
such allocation. Subject to the approval of the CEO of SSB, the CEO of
SSgA shall establish financial targets and procedures for the Long Term
element.
III. Eligibility and Participation
All officers and full time non-officers of SSgA are eligible to
participate in the Annual Incentive Awards element of the plan.
Additionally, such senior officers who have responsibility for direct
impact on the financial success of SSgA shall be eligible to participate
in the Long Term element of the plan. Participation in the Long Term
element of the plan requires prior approval of the CEO of SSB.
IV. Miscellaneous
No payment shall be made to any employee who ceases to be employed by
SSgA, or SSB or one of its subsidiaries, provided, however, that this
provision shall not apply if the participant's employment is terminated by
reason of death or disability prior to the date of actual payment of
incentive or deferral.
Should a participant in the plan be terminated as a result of a
change in control of either SSgA or any existing balances or deferrals
shall be paid at the time of such termination.
<PAGE>
STATE STREET GLOBAL ADVISORS
SCHEDULE A
FINANCIAL TARGETS, FUNDING AND OPERATING PROCEDURES
1996
I. Financial Targets and Incentive Pool Funding
The incentive pool will be generated based upon achievement of Net
Income Before Taxes and Incentive Compensation ("NIBTIC"). For 1996, the
pool will be as follows:
a. Below $77.0 million NIBTIC, no incentives will be paid.
b. At $77.0 million NIBTIC, the incentive pool will be $15.0
million.
c. At $104.7 million NIBTIC, the incentive pool will be $26.8
million.
d. Between NIBTIC of $77.0 million and $104.7 million, the incentive
pool will rise from $15.0 million to $26.8 million in direct
proportion with the increase in NIBTIC from $77.0 million to
$104.7 million.
e. Above $104.7 million NIBTIC, one half NIBTIC will be added to the
incentive pool.
II. Award Procedures
Recommendation and approval of awards shall be as follows:
a. Only participants meeting job standards are eligible for awards.
b. Participants' managers shall recommend award amounts based upon
each participant's contribution to the financial performance of
SSgA.
c. Award recommendations are subject to the approval of the CEO of
SSgA, the CEO and the Executive Compensation Committee of SSB.
Payments of awards shall be made in accordance with the following
provision:
a. Awards to non-officer participants shall be made in February
1997.
b. Awards to officer participants shall be made as follows:
o 70% in February 1997
o 15% in February 1998
o 15% in February 1999
c. Deferred payments shall earn interest equal to the effective
yield to maturity on the one year U.S. Treasury note with an
issue date closest to February 15, 1997.
All payments are subject to applicable country, state and local tax
requirements and shall be made in accordance with the procedures and standards
established by SSB for other compensation.
<PAGE>
EXHIBIT 10.20
Level 1 (Chairman,President,Chief Financial Officer,Legal Counsel)
EMPLOYMENT AGREEMENT
AGREEMENT by and between State Street Boston Corporation, a Massachusetts
trust company (the "Company") and _________ _________ (the "Executive"), dated
as of the 19th day of October, 1995.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on December 31, 1997; provided, however, that
commencing on December 31, 1996, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), unless previously terminated, the Change of Control
Period shall be automatically extended so as to terminate two years from such
Renewal Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control Period shall not
be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (I) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
product of the Annual Base Salary and the percentage of base salary actually
awarded to the Executive under the Company's annual incentive plans applicable
to the Executive in effect from time to time (or any comparable bonus percentage
under any predecessor or successor plan), for the last full fiscal year prior to
the Effective Date (or in the event that the Executive was not employed by the
Company during such fiscal year or was otherwise not a participant in such plan,
forty-five (45%) percent) (the "Recent Annual Bonus Percentage"). Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, payment of
club dues, and, if applicable, use of an automobile and payment of related
expenses, in accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the Executive
at any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(I)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement to
the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the 180th day after the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product
of (x) the Recent Annual Bonus Percentage and (y) the Executive's
Annual Base Salary and (z) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) an amount equal to
the matching contribution made to the State Street Boston Corporation
and Certain Related Companies Salary Savings Program for the most
recent full fiscal year and (z) the product of (i) the Recent Annual
Bonus Percentage and (ii) the Annual Base Salary; and
C. an amount equal to the excess of (a) the actuarial equivalent
of the benefit under the Company's qualified retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable
to the Executive than those in effect under the Company's Retirement
Plan immediately prior to the Effective Date), and any excess or
supplemental retirement plan in which the Executive participates or is
deemed pursuant to this Agreement to participate (collectively, the
"SERP") which the Executive would receive if the Executive's employment
continued for three years after the Date of Termination assuming that
the Executive's compensation in each of the three years is that
required by Section 4(b)(i) and Section 4(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the Date
of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs, practices and
policies described in Section 4 (b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies and their families, provided, however,
that if the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be considered to
have remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
Anything in this Agreement to the contrary not withstanding, for purposes
of calculating the amounts payable to the Executive pursuant to subparagraph
6(a)(i)(C) hereof, the Executive shall be considered to be a participant in the
Company's Amended and Restated Supplemental Retirement Plan ("Basic SERP") and
Supplemental Defined Benefit Pension Plan ("Super SERP") whether or not the
Committee has designated the Executive as a Participant (as such term is defined
in the Super SERP or Basic SERP, as the case may be).
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement. Anything in the Super
SEEP to the contrary notwithstanding, Section 3.4 thereof shall be inapplicable
to the Executive following any termination of employment (other than for Cause)
during the Employment Period. Anything in the SEEP to the contrary
notwithstanding, Section 6 thereof shall be inapplicable to the Executive
following any termination of employment (other than for Cause) during the
Employment Period.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7 8 72(f)(2)(A) of the Internal Revenue
Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect to hereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information; Restriction on Solicitation of Employees
and Clients. (a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses and Clients (as defined below), which shall have been obtained by the
Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. For the purposes of this Section 10, the term
"Client" means any person or entity that is a customer or client of the Company
or any of its subsidiaries.
(b) During the term of employment of the Executive and during the
Nonsolicitation Period (as defined below), the Executive shall not, without the
prior written consent of the Company, solicit, directly or indirectly (other
than through a general solicitation of employment not specifically directed to
employees of the Company or its subsidiaries), the employment of any person who
within the previous 12 months was an officer of the Company or any of its
subsidiaries. For purposes of this Section 10, the term "Nonsolicitation
Period" means the period beginning on the date of termination of the Executive's
employment with the Company (the "Termination Date") and ending on the earlier
of (1) eighteen months after the Termination Date and (2) one year after the
Effective Date (if any).
(c) During the term of employment of Executive and during the
Nonsolicitation Period, the Executive shall not, without the prior consent of
the Company, engage in the Solicitation of Business (as defined below) from any
Client on behalf of any person or entity other than the Company and its
subsidiaries. For the purposes of this Section 10(c), the term "Solicitation of
Business" shall mean the attempt through direct personal contact on the part of
the Executive with a Client with whom the Executive has had significant personal
contact while serving in a Line-Function Capacity (as defined below) during his
period of employment to induce such Client to transfer its business relationship
from the Company and its subsidiaries to any other person or entity. The term
"Line-Function Capacity" means service to the Company and its subsidiaries in a
primary capacity other than a staff function, in which the Executive has direct
and regular contact with Clients and responsibility for managing the business
relationship of the Company and its subsidiaries with such Clients. During the
Nonsolicitation Period, the Executive may accept employment with or enter into a
business relationship with a person or entity that has or seeks to establish
business relationships with one or more Clients provided that the Executive does
not engage in the Solicitation of Business from such Clients and does not
disclose confidential information concerning such Client and its relationship
with the Company and its subsidiaries to any such person or entity.
(d) In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(e) This Section 10 shall be effective from and after the date of
this Agreement notwithstanding that an Effective Date has not occurred.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall insure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
If to the Company:
State Street Boston Corporation
225 Franklin Street
Boston, MA 02110
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(I)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
---------------------------------------
[Executive]
STATE STREET BOSTON CORPORATION
By
------------------------------------
<PAGE>
EXHIBIT 10.20
Level 2 (All Executive Vice Presidents, Comptroller)
EMPLOYMENT AGREEMENT
AGREEMENT by and between State Street Boston Corporation, a Massachusetts
trust company (the "Company") and _________ _________ (the "Executive"), dated
as of the 19th day of October, 1995.
The Board of Directors of the Company (the " Board"), has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on December 31, 1997; provided, however, that
commencing on December 31, 1996, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), unless previously terminated, the Change of Control
Period shall be automatically extended so as to terminate two years from such
Renewal Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control Period shall not
be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
product of the Annual Base Salary and the percentage of base salary actually
awarded to the Executive under the Company's annual incentive plans applicable
to the Executive in effect from time to time (or any comparable bonus percentage
under any predecessor or successor plan), for the last full fiscal year prior to
the Effective Date (or in the event that the Executive was not employed by the
Company during such fiscal year or was otherwise not a participant in such plan,
forty-five (45%) percent) (the "Recent Annual Bonus Percentage"). Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, payment of
club dues, and, if applicable, use of an automobile and payment of related
expenses, in accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the Executive
at any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the
product of (x) the Recent Annual Bonus Percentage and (y) the
Executive's Annual Base Salary and (z) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred
to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) an amount equal to
the matching contribution made to the State Street Boston Corporation
and Certain Related Companies Salary Savings Program for the most
recent full fiscal year and (z) the product of (i) the Recent Annual
Bonus Percentage and (ii) the Annual Base Salary; and
C. an amount equal to the excess of (a) the actuarial equivalent
of the benefit under the Company's qualified retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable
to the Executive than those in effect under the Company's Retirement
Plan immediately prior to the Effective Date), and any excess or
supplemental retirement plan in which the Executive participates or is
deemed pursuant to this Agreement to participate (collectively, the
"SERP") which the Executive would receive if the Executive's
employment continued for three years after the Date of Termination
assuming that the Executive's compensation in each of the three years
is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the
Date of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies and their families, provided, however,
that if the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be considered to
have remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
Anything in this Agreement to the contrary notwithstanding, for purposes of
calculating the amounts payable to the Executive pursuant to subparagraph
6(a)(i)(C) hereof, the Executive shall be considered to be a participant in the
Company's Amended and Restated Supplemental Retirement Plan ("Basic SERP") and
Supplemental Defined Benefit Pension Plan ("Super SERP") whether or not the
Committee has designated the Executive as a Participant (as such term is defined
in the Super SERP or Basic SERP, as the case may be).
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement. Anything in the Super
SERP to the contrary notwithstanding, Section 3.4 thereof shall be inapplicable
to the Executive following any termination of employment (other than for Cause)
during the Employment Period. Anything in the SERP to the contrary
notwithstanding, Section 6 thereof shall be inapplicable to the Executive
following any termination of employment (other than for Cause) during the
Employment Period.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information; Restriction on Solicitation of
Employees and Clients. (a) The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and their
respective businesses and Clients (as defined below), which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. For the purposes of this Section
10, the term "Client" means any person or entity that is a customer or client of
the Company or any of its subsidiaries.
(b) During the term of employment of the Executive and during the
Nonsolicitation Period (as defined below), the Executive shall not, without the
prior written consent of the Company, solicit, directly or indirectly (other
than through a general solicitation of employment not specifically directed to
employees of the Company or its subsidiaries), the employment of any person who
within the previous 12 months was an officer of the Company or any of its
subsidiaries. For purposes of this Section 10, the term "Nonsolicitation Period"
means the period beginning on the date of termination of the Executive's
employment with the Company (the "Termination Date") and ending on the earlier
of (1) eighteen months after the Termination Date and (2) one year after the
Effective Date (if any).
(c) During the term of employment of Executive and during the
Nonsolicitation Period, the Executive shall not, without the prior consent of
the Company, engage in the Solicitation of Business (as defined below) from any
Client on behalf of any person or entity other than the Company and its
subsidiaries. For the purposes of this Section 10(c), the term "Solicitation of
Business" shall mean the attempt through direct personal contact on the part of
the Executive with a Client with whom the Executive has had significant personal
contact while serving in a Line-Function Capacity (as defined below) during his
period of employment to induce such Client to transfer its business relationship
from the Company and its subsidiaries to any other person or entity. The term
"Line-Function Capacity" means service to the Company and its subsidiaries in a
primary capacity other than a staff function, in which the Executive has direct
and regular contact with Clients and responsibility for managing the business
relationship of the Company and its subsidiaries with such Clients. During the
Nonsolicitation Period, the Executive may accept employment with or enter into a
business relationship with a person or entity that has or seeks to establish
business relationships with one or more Clients provided that the Executive does
not engage in the Solicitation of Business from such Clients and does not
disclose confidential information concerning such Client and its relationship
with the Company and its subsidiaries to any such person or entity.
(d) In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(e) This Section 10 shall be effective from and after the date of
this Agreement notwithstanding that an Effective Date has not occurred.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
If to the Company:
State Street Boston Corporation
225 Franklin Street
Boston, MA 02110
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
---------------------------------------
[Executive]
STATE STREET BOSTON CORPORATION
By
------------------------------------
<PAGE>
EXHIBIT 10.20
Level 3 (All Senior Vice Presidents)
EMPLOYMENT AGREEMENT
AGREEMENT by and between State Street Boston Corporation, a Massachusetts
corporation (the "Company"), and _________ _________ (the "Executive"), dated as
of the 19th day of October, 1995.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on December 31, 1997; provided, however, that
commencing on December 31, 1996, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), unless previously terminated, the Change of Control
Period shall be automatically extended so as to terminate two years from such
Renewal Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control Period shall not
be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
product of the Annual Base Salary and the percentage of base salary actually
awarded to the Executive under the Company's annual incentive plans applicable
to the Executive in effect from time to time (or any comparable bonus percentage
under any predecessor or successor plan), for the last full fiscal year prior to
the Effective Date (or in the event that the Executive was not employed by the
Company during such fiscal year or was otherwise not a participant in such plan,
thirty-five (35%) percent) (the "Recent Annual Bonus Percentage"). Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, if
applicable, payment of club dues, and use of an automobile and payment of
related expenses, in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in effect for
the Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the
product of (x) the Recent Annual Bonus Percentage and (y) the
Executive's Annual Base Salary and (z) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred
to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's Annual Base Salary and (y) an amount equal to the
matching contribution made to the State Street Boston Corporation and
Certain Related Companies Salary Savings Program for the most recent
full fiscal year; and
C. an amount equal to the excess of (a) the actuarial equivalent
of the benefit under the Company's qualified retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable
to the Executive than those in effect under the Company's Retirement
Plan immediately prior to the Effective Date), and any excess or
supplemental retirement plan in which the Executive participates or is
deemed pursuant to this Agreement to participate (collectively, the
"SERP") which the Executive would receive if the Executive's
employment continued for two years after the Date of Termination
assuming that the Executive's compensation in each of the two years is
that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the
Date of Termination;
(ii) for two years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies and their families, provided, however,
that if the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be considered to
have remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
Anything in this Agreement to the contrary notwithstanding, for purposes of
calculating the amounts payable to the Executive pursuant to subparagraph
6(a)(i)(C) hereof, the Executive shall be considered to be a participant in the
Company's Amended and Restated Supplemental Retirement Plan ("Basic SERP")
whether or not the Committee has designated the Executive as a Participant (as
such term is defined in Basic SERP).
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement. Anything in the Super
SERP to the contrary notwithstanding, Section 3.4 thereof shall be inapplicable
to the Executive following any termination of employment (other than for Cause)
during the Employment Period. Anything in the SERP to the contrary
notwithstanding, Section 6 thereof shall be inapplicable to the Executive
following any termination of employment (other than for Cause) during the
Employment Period.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Reduction of Payments. Notwithstanding the foregoing, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible by the Company for Federal income tax purposes
because of Section 280G of the Code, then the aggregate present value of amounts
payable or distributable to or for the benefit of the Executive pursuant to this
Agreement (such payments or distributions pursuant to this Agreement are
hereinafter referred to as "Agreement Payments") shall be reduced (but not below
zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed
in present value that maximizes the aggregate present value of Agreement
Payments without causing any Payment to be nondeductible by the Company because
of Section 280G of the Code. For purposes of this Section X, present value shall
be determined in accordance with Section 280G(d)(4) of the Code.
All determinations required to be made under this Section 9 shall be made
by Ernst & Young LLP (the "Accounting Firm"), which shall provide detailed
supporting calculations to both the Company and the Executive within 30 business
days of the Date of the Change of Control or such earlier time as is requested
by the Company. Any such determination by the Accounting Firm shall be binding
upon the Company and the Executive. The Executive shall determine which and how
much of the Plan Payments (or, at the election of the Executive, other Payments)
shall be eliminated or reduced consistent with the requirements of this Section
9, provided that, if the Executive does not make such determination within ten
business days of the receipt of the calculations made by the Accounting Firm,
the Company shall elect which and how much of the Plan Payments shall be
eliminated or reduced consistent with the requirements of this Section 9 and
shall notify the Executive promptly of such election. Within five business days
thereafter, the Company shall pay to or distribute to or for the benefit of the
Executive such amounts as are then due to the Executive under the Plan.
As a result of the uncertainty in the application of Section 280G of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Plan Payments will have been made by the Company that should
not have been made ("Overpayment") or that additional Plan Payments that will
have not been made by the Company could have been made ("Underpayment"), in each
case, consistent with the calculations required to be made hereunder. In the
event that the Accounting Firm determines that an Overpayment has been made, any
such Overpayment shall be treated for all purposes as a loan to the Executive,
which the Executive shall repay to the Company together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Executive to the
Company (or if paid by the Executive to the Company shall be returned to the
Executive) if and to the extent such payment would not reduce the amount which
is subject to taxation under Section 4999 of the Code. In the event that the
Accounting Firm determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code.
10. Confidential Information; Restriction on Solicitation of
Employees and Clients. (a) The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and their
respective businesses and Clients (as defined below), which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. For the purposes of this Section
10, the term "Client" means any person or entity that is a customer or client of
the Company or any of its subsidiaries.
(b) During the term of employment of the Executive and during the
Nonsolicitation Period (as defined below), the Executive shall not, without the
prior written consent of the Company, solicit, directly or indirectly (other
than through a general solicitation of employment not specifically directed to
employees of the Company or its subsidiaries), the employment of any person who
within the previous 12 months was an officer of the Company or any of its
subsidiaries. For purposes of this Section 10, the term "Nonsolicitation Period"
means the period beginning on the date of termination of the Executive's
employment with the Company (the "Termination Date") and ending on the earlier
of (1) eighteen months after the Termination Date and (2) one year after the
Effective Date (if any).
(c) During the term of employment of Executive and during the
Nonsolicitation Period, the Executive shall not, without the prior consent of
the Company, engage in the Solicitation of Business (as defined below) from any
Client on behalf of any person or entity other than the Company and its
subsidiaries. For the purposes of this Section 10(c), the term "Solicitation of
Business" shall mean the attempt through direct personal contact on the part of
the Executive with a Client with whom the Executive has had significant personal
contact while serving in a Line-Function Capacity (as defined below) during his
period of employment to induce such Client to transfer its business relationship
from the Company and its subsidiaries to any other person or entity. The term
"Line-Function Capacity" means service to the Company and its subsidiaries in a
primary capacity other than a staff function, in which the Executive has direct
and regular contact with Clients and responsibility for managing the business
relationship of the Company and its subsidiaries with such Clients. During the
Nonsolicitation Period, the Executive may accept employment with or enter into a
business relationship with a person or entity that has or seeks to establish
business relationships with one or more Clients provided that the Executive does
not engage in the Solicitation of Business from such Clients and does not
disclose confidential information concerning such Client and its relationship
with the Company and its subsidiaries to any such person or entity.
(d) In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(e) This Section 10 shall be effective from and after the date of
this Agreement notwithstanding that an Effective Date has not occurred.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
If to the Company:
State Street Boston Corporation
225 Franklin Street
Boston, MA 02110
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
---------------------------------------
[Executive]
STATE STREET BOSTON CORPORATION
By
------------------------------------
<PAGE>
EXHIBIT 10.21
December 1, 1995
To: Ronald L. O'Kelley
SEVERANCE
In the event that your employment at State Street Boston Corporation
(State Street) is terminated before November 31, 2000 for reasons other than 1)
your resignation due to your unilateral decision to take other employment or for
personal reasons, or 2) due to your death, or 3) termination for cause, State
Street will pay you severance pay, as follows:
Severance pay in an amount equal to one year of annual salary in effect
on the date of termination of employment, payable in agreed upon
installments.
The annual bonus paid for the year prior to the year in which
employment is terminated, payable in agreed upon installments.
A lump sum payment of $200,000.
The receipt of any other forms of compensation or benefits (e.g. stock
options and performance units) will be determined at the time of termination in
accordance with the terms of the plans and the agreements issued under such
plans.
INDIVIDUAL PENSION BENEFIT
State Street agrees to provide you with a non-qualified individual
supplemental pension benefit, effective as of December 1, 1995. After five full
years of employment, you will be entitled to receive a straight life annuity
payable upon retirement at age 55 or thereafter in accordance with the following
schedule:
STRAIGHT LIFE ANNUITY PAYABLE ON RETIREMENT
55 $51,232
56 $55,450
57 $60,117
58 $64,517
59 $69,373
60 $74,745
61 $80,706
62 $87,346
63 $94,763
64 $103,081
65 $112,441
This pension benefit may be converted to a Joint and Survivor benefit
using conversion rates similar to State Street's qualified pension plan.
The right to benefits hereunder shall not be assignable and neither
you, your spouse or any designated beneficiary shall be entitled to have such
benefits made or commuted otherwise than in accordance with the preceding
paragraph.
This agreement does not create a trust or require current funding.
State Street Boston Corporation
By:
________________________________
Trevor Lukes
Senior Vice President
Agreed and Accepted:
______________________________
Ronald L. O'Kelley
Date:_________________________
<PAGE>
EXHIBIT 11
STATE STREET BOSTON CORPORATION
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
Primary:
Average shares outstanding ............. 82,553,704 82,297,360 81,415,826
Common stock equivalents ............... 504,745 525,577 749,560
---------- ---------- ----------
Primary shares outstanding ........... 83,058,449 82,822,937 82,165,386
========== ========== ==========
Net income ........................... $ 247,109 $ 220,343 $ 189,386
========== ========== ==========
Earnings Per Share -- primary ........ $ 2.98 $ 2.66 $ 2.30
========== ========== ==========
Fully diluted:
Average shares outstanding ............. 82,553,704 82,297,360 81,415,826
Common stock equivalent ................ 717,740 525,577 749,560
Assumed conversion of 5%
convertible notes ..................... 571,940 631,028 983,338
---------- ---------- ----------
Fully diluted average
shares outstanding .................. 83,843,384 83,453,965 83,148,724
========== ========== ==========
Net income ............................. $ 247,109 $ 220,343 $ 189,386
Elimination of interest on 5%
convertible notes and 7 3/4%
convertible subordinated debentures
less related income tax benefit ...... 147 155 214
---------- ---------- ----------
Fully diluted net income ............. $ 247,256 $ 220,498 $ 189,600
========== ========== ==========
Earnings Per Share -- fully diluted ...... $ 2.95 $ 2.64 $ 2.28
========== ========== ==========
<PAGE>
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
----------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
(A) Excluding interest on deposits:
Earnings:
Income before income taxes ........ $ 370,242 $343,229 $292,523 $271,163 $241,167
Fixed charges ..................... 494,678 266,985 183,814 189,369 184,630
--------- ------- ------- ------- -------
Earnings as adjusted ........ $ 864,920 $610,214 $476,337 $460,532 $425,797
========== ======== ======== ======== ========
Income before income taxes:
Pretax income from continuing
operations as reported .......... $ 366,490 $340,134 $291,091 $270,821 $241,130
Share of pretax income (loss)
of 50% owned subsidiaries not
included in above .............. 3,752 3,095 1,432 342 37
--------- ------- ------- ------- -------
Net income as adjusted ...... $ 370,242 $343,229 $292,523 $271,163 $241,167
========== ======== ======== ======== ========
Fixed charges:
Interest on other borrowings ...... $ 482,613 $254,780 $170,176 $172,397 $167,714
Interest on long-term debt
including amortization of
debt issue costs ................ 8,525 8,625 10,022 13,324 13,238
Portion of rents representative of
the interest factor in long
term lease ...................... 3,540 3,580 3,616 3,648 3,678
--------- ------- ------- ------- -------
Fixed charges ............... $ 494,678 $266,985 $183,814 $189,369 $184,630
========== ======== ======== ======== ========
Ratio of earnings to fixed charges .. 1.75x 2.29x 2.59x 2.43x 2.31x
(B) Including interest on deposits:
Adjusted earnings from (A) above .... $ 864,920 $610,214 $476,337 $460,532 $425,797
Add interest on deposits ............ 416,047 280,687 213,890 263,927 306,642
------- ------- ------- ------- -------
Earnings as adjusted $1,280,967 $890,901 $690,227 $724,459 $732,439
========== ======== ======== ======== ========
Fixed charges:
Fixed charges from (A) above ...... $ 494,678 $266,985 $183,814 $189,369 $184,630
Interest on deposits .............. 416,047 280,687 213,890 263,927 306,642
------- ------- ------- ------- -------
Adjusted fixed charges .............. $ 910,725 $547,672 $397,704 $453,296 $491,272
========== ======== ======== ======== ========
Adjusted earnings to adjusted
fixed charges ...................... 1.41x 1.63x 1.74x 1.60x 1.49x
</TABLE>
<PAGE>
EXHIBIT 13.1
<TABLE>
SELECTED FINANCIAL DATA
-----------------------
STATE STREET BOSTON CORPORATION
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Compound
Growth
(Dollars in millions, Rate
except per share data) 1995 1994 1993 1992 1991 1990 90-95
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Fee revenue....................... $1,119.1 $1,017.3 $ 865.6 $ 743.5 $ 596.4 $ 530.5 16%
Gain on sale of credit card loan
portfolio...................... 56.2
Interest revenue - taxable
equivalent..................... 1,371.5 961.3 751.3 770.7 803.7 874.5 9
Interest expense.................. 907.2 544.1 394.1 449.6 487.6 567.4 10
--------- --------- --------- --------- -------- --------
Net interest revenue - taxable
equivalent................. 464.3 417.2 357.2 321.1 316.1 307.1 9
Provision for loan losses......... 8.0 11.6 11.3 12.2 60.0 45.7
--------- --------- --------- --------- -------- --------
Total revenue.................. 1,575.4 1,422.9 1,211.5 1,052.4 908.7 791.9 15
Operating expenses................ 1,174.0 1,057.8 898.7 766.3 646.6 573.1 15
--------- --------- --------- --------- -------- --------
Income before income taxes on
a taxable equivalent basis. 401.4 365.1 312.8 286.1 262.1 218.8 13
Income taxes...................... 119.4 119.7 101.7 100.7 89.8 68.7
Taxable equivalent adjustment..... 34.9 25.1 21.7 15.3 21.0 23.0
--------- --------- --------- --------- -------- --------
Net Income..................... $ 247.1 $ 220.3 $ 189.4 $ 170.1 $ 151.3 $ 127.1 14
========= ========= ========= ========= ======== ========
PER SHARE
Earnings:
Primary........................ $ 2.98 $ 2.66 $ 2.30 $ 2.07 $ 1.87 $ 1.59 13
Fully diluted.................. 2.95 2.64 2.28 2.04 1.83 1.56 14
Cash dividends declared........... .68 .60 .52 .445 .385 .34 15
Book value at year end............ 19.27 16.22 14.68 12.83 11.11 9.61 15
Closing price..................... 45.00 28.63 37.50 43.75 32.13 17.44 21
Fully diluted shares outstanding.. 83,843 83,454 83,149 83,670 83,088 81,927
ANNUAL AVERAGES
Interest-earning assets........... $ 23,120 $ 19,927 $ 16,885 $ 14,504 $10,680 $ 9,369 20
Total assets...................... 26,182 22,795 18,927 16,255 12,194 10,709 20
Noninterest-bearing deposits...... 4,113 4,701 4,059 3,305 2,674 2,453 11
Foreign deposits.................. 8,470 7,392 4,954 3,955 2,648 2,223 31
Long-term debt.................... 127 128 122 146 146 114 2
Stockholders' equity.............. 1,483 1,284 1,125 970 844 707 16
RATIOS
Return on equity.................. 16.7% 17.2% 16.8% 17.5% 17.9% 18.0%
Return on assets.................. .94 .97 1.00 1.05 1.24 1.19
Total risk-based capital.......... 14.5 14.2 13.1 15.0 16.7 13.8
Internal capital generation rate.. 12.9 13.3 13.1 13.8 14.3 14.2
Leverage.......................... 5.6 5.6 5.5 6.1 6.5 6.5
Employees at year end............. 11,324 11,528 10,445 9,698 8,670 8,545 6
o In 1995, State Street acquired Investors Fiduciary Trust Company in a transaction accounted for as a pooling of
interests. All prior period information has been restated to reflect this acquisition.
o Results for 1991 include a non-recurring gain on the sale of the credit card loan portfolio, which increased
net income $32.6 million, equal to $.41 primary and $.40 fully diluted per share.
o Per share amounts for 1990 and 1991 have been restated to reflect a two-for-one stock split distributed in
1992.
</TABLE>
<PAGE>
EXHIBIT 13.2
FINANCIAL REVIEW
----------------
STATE STREET BOSTON CORPORATION
This section provides management's discussion and analysis of State
Street Boston Corporation's consolidated results of operation for the three
years ended December 31, 1995, its financial condition at year-end 1995 and its
approach to risk management. It should be read in conjunction with the Financial
Statements and Supplemental Financial Data.
In 1995, State Street acquired Investors Fiduciary Trust Company in a
transaction accounted for as a pooling of interests. All prior period
information has been restated to reflect this acquisition.
RESULTS OF OPERATIONS
SUMMARY
Earnings per share were $2.95 on a fully diluted basis, up 12% from 1994.
Net income increased 12%. Return on stockholders' equity was 16.7%.
Earnings per share growth for the year was driven primarily by new
business growth worldwide, including both additional services for existing
customers and new relationships; by international transactions, including
foreign exchange activity; by increased market valuations; and by improvements
in operating efficiency. Two important trends affecting the financial services
industry underlie these factors: the continued industry consolidation and the
steady growth in cross-border investing. Facilitating cross-border investing,
through global custody, multicurrency accounting, international investment
management, foreign exchange, and other services, is a State Street focus and
strength. Increasing numbers of new and existing customers used these services
in 1995, resulting in increased revenues, especially foreign exchange and
investment management revenues.
Total revenue grew 11%, driven primarily by a 10% increase in fee
revenue. The year-over-year growth rate of revenue accelerated as 1995
progressed. Operating expenses were up 11%, supporting growth. Following a
two-year program of higher-than-usual investment spending, at 10% of revenue,
that component of expense declined to approximately 8% of revenue, a more normal
level for State Street, by the fourth quarter.
Since many customers pay for services using various combinations of fee
revenue and net interest revenue, State Street's focus is on total revenue.
Total revenue is defined as fee revenue plus taxable equivalent net interest
revenue, less the provision for loan losses. State Street is distinct from most
bank holding companies in that more than two-thirds of its revenue is from fees.
FEE REVENUE
In 1995, fee revenue accounted for 71% of total revenue and was $1,119
million, up $102 million, or 10%, over 1994 due to strong new business growth
and the expansion of services used by existing customers.
- --------------------------------------------------------------------------------
FEE REVENUE Change
(Dollars in millions) 1995 1994 1993 94-95
- --------------------------------------------------------------------------------
Fiduciary compensation .................. $ 823.8 $ 749.8 $657.0 10%
Foreign exchange trading ................ 140.7 113.8 82.7 24
Service fees ............................ 59.5 48.2 40.7 23
Processing service fees ................. 53.7 66.8 46.1 (20)
Securities gains, net ................... 12.3 1.7 15.8
Other ................................... 29.1 37.0 23.3 (21)
-------- -------- ------
Total fee revenue ..................... $1,119.1 $1,017.3 $865.6 10
======== ======== ======
<TABLE>
State Street Boston Corporation
December 31, 1995
Charts Data for Management Discussion & Analysis
(Annual Report - 1995)
(in millions of dollars, except per share data)
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Earnings Per Share
(Fully Diluted) 2.95 2.64 2.28 2.04 1.83
Dividends Per Share 0.680 0.600 0.520 0.445 0.385
Stockholders' Equity at Year-End 1,587.5 1,337.1 1,201.2 1,039.8 893.2
Total Revenue 1,575.4 1,422.9 1,211.5 1,052.4 908.7
Fee Revenue 1,119.1 1,017.3 865.6 743.5 596.4
</TABLE>
FIDUCIARY COMPENSATION. Fiduciary compensation, the largest component of
fee revenue, is derived from accounting, custody, information, investment
management and trusteeship services. Basic custody for mutual funds and custody
and accounting services for other portfolios provide less than 30% of fiduciary
compensation; portfolio transaction fees account for less than 10%.
Fees are negotiated based on each customer's entire relationship with
State Street. Fees are a function of the volume and mix of assets under custody,
the number of securities held, portfolio transactions, income collected and the
use of State Street's broadening array of other, value-added services such as
daily pricing and securities lending. Investment management fees are derived
from a variety of products, including index funds, active quantitative
strategies and traditional active management, all with different fee structures.
Given the variety of services provided and the use of sliding scales
which are standard to the industry, changes in portfolio size do not usually
have a corresponding impact on State Street's revenue. As a result, revenue is
becoming less sensitive to changes in prices of securities. If equity values
worldwide were to increase or decrease 10%, State Street estimates that this, by
itself, would cause approximately a 1% change in total revenue. If bond values
were to change by 10%, less than a 1% change in total revenue would be
anticipated.
Fiduciary compensation increased $74.0 million, or 10%, to $823.8 million
in 1995. Growth in fiduciary compensation in 1995 came equally from existing
customers who used additional and more complex services, and from new customers.
Revenue from new business installed was partially offset by customer
internalization of certain functions, pricing adjustments to retain certain
large customers who are using a broader array of services, and customers no
longer at State Street for various reasons. The year-over-year growth rate in
fiduciary compensation from 1994 results was lowered by six percentage points
for these reasons.
In addition to fiduciary compensation, certain financial asset services
customers generate other types of revenue, particularly foreign exchange trading
revenue and net interest revenue. Noninterest-bearing deposits from these
customers comprise about 85% of total noninterest-bearing deposits available for
investment. These customers also invest substantial and increasing amounts of
short-term funds with State Street in the form of foreign deposits and other
short-term liabilities, particularly repurchase agreements. Revenue from
investing these deposits and funds at favorable spreads is reported as interest
revenue.
MUTUAL FUND SERVICES. State Street is the largest custodian of mutual
funds in the United States, servicing 41% of registered funds, and provides
services to offshore funds and in-country funds outside the United States. State
Street's capabilities and offshore locations enable it to benefit from the
increasingly complex global custody and accounting requirements of mutual funds
worldwide.
In 1995, the increase in revenue was broad-based. It reflected new
business and growth in the number of funds serviced; growth in additional
services used, including fund administration and remote servicing; an increase
in subcustodian assets; an increase in trading volume; and additional funds
offering more than one class of share. This was partially offset by the
internalization of fund accounting by some customers, changes in service levels,
some repricing for customers using multiple products, lower fees due to the
impact of higher interest rates on balance credit arrangements, and the
liquidation of some off-shore funds.
The total number of funds serviced increased 4%, to 2,842 at year-end
1995. There were 405 new funds -- 367 from existing customers and 38 from new
customers. The increase was significantly offset by lost business, liquidations,
and mergers of funds due to consolidation within fund groups. Mutual fund assets
under custody increased to $1.0 trillion, growing 27% from year-end 1994,
primarily reflecting growth in equity funds.
INVESTMENT MANAGEMENT. State Street manages assets for corporations,
public funds, other large and small institutions and individuals. Revenue growth
was strong in 1995, benefiting from new business growth, particularly in the
latter half of the year, and market appreciation. The revenue increase reflected
growth in international equities in both passively- and actively-managed
accounts, cash pools and domestic equities. The increase was partially offset by
lost business, changes in fee agreements and lower one-time revenue from new
sales of SICAVs (the French equivalent of a mutual fund).
MASTER TRUST/MASTER CUSTODY/GLOBAL CUSTODY. State Street provides
custody, portfolio accounting, information and other related services for
retirement and other financial assets of corporations, public funds,
endowments, foundations and nuclear decommissioning trusts.
In 1995, revenue grew primarily from the addition of new business, both
U.S. and non-U.S. In the United States, where State Street is ranked as the
largest servicer of U.S. tax-exempt assets for corporations and public funds,
fees from providing portfolio accounting services to new customers grew,
partially offset by changes in fee agreements and lost business. Outside the
United States, geographically dispersed revenue growth came from both the
addition of new customers and the expansion of services provided to existing
customers.
Securities lending revenue, which comprises less than 5% of total
revenue, is a function of the volume of securities lent and interest rate
spreads earned on cash received as collateral for the securities. In 1995,
securities lending revenue increased despite slightly narrower average spreads,
reflecting growth in securities lent.
DEFINED CONTRIBUTION PLAN SERVICES. Revenue from servicing defined
contribution plans, such as 401(k) plans, and ESOPs grew significantly as a
result of new business. The number of participant accounts serviced increased
27% to 1,472,000.
ASSETS UNDER CUSTODY, TRUSTEESHIP AND MANAGEMENT. Assets under custody,
trusteeship and management serve to indicate the relative size of various
markets served and, in the context of market-value changes, as proxies for
business growth. There is not a one-for-one correlation between assets serviced
and revenue. This is due to the multiplicity of services used by many of State
Street's customers and the declining percentage of revenue coming from
asset-based custody and accounting fees as discussed earlier.
U.S. equity-market values and bond values increased substantially in
1995. The U.S. equity market, as measured by the S&P 500 index, increased 34%,
compared with a decline of 2% in the previous year. Total return in the U.S.
bond markets, as measured by the Lehman Brothers Aggregate Bond index, increased
18%, and values increased 10%. This compares with a negative return of 3% and a
value decline of 10% in 1994. International equity markets, as measured in
dollars by the EAFE index, increased 9%, which compares with an increase of 6%
in 1994.
In 1995, total assets under custody increased $550 billion, or 32%, to
$2.3 trillion. Using broad assumptions, State Street estimates that the net
market impact of higher securities values increased assets under custody by
approximately $330 billion in 1995.
At year-end, approximately 43% of assets under custody were equities, 32%
were fixed income instruments and 25% were short-term instruments. Non-U.S.
securities comprised 11% of total assets under custody.
In 1995, bonds under trusteeship increased $73 billion to $283 billion,
primarily due to the acquisitions of Bank of Boston's and BayBanks' corporate
trust businesses.
Assets managed increased to $226 billion, up $66 billion, or 41%, from
year-end 1994. A $38 billion increase in equities and bonds primarily reflected
growth in passively-managed equities, for which we receive a relatively low
basis-point fee, and higher securities valuations. A $14.6 billion, or 75%,
increase in employer securities resulted primarily from new business acquired
due to State Street's participant recordkeeping service capabilities for
defined contribution pension plans.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS UNDER CUSTODY, TRUSTEESHIP AND MANAGEMENT Compound
DECEMBER 31, Growth
Change Rate
(Dollars in billions) 1995 1994 1993 1992 1991 1990 94-95 90-95
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS UNDER CUSTODY
Mutual funds/collective
investment funds.............. $1,000.5 $ 787.9 $ 795.3 $ 655.5 $ 579.0 $499.8 27% 15%
-------- -------- -------- ------- --------- ------ -- --
Customers in:
North America:
Master trust/master
custody/global custody.. 926.5 663.9 574.1 465.9 335.2 250.3 40 30
Corporate trust............ 76.5 67.7 115.1 104.6 78.4 58.5 13 6
Insurance.................. 96.5 62.4 60.4 46.8 37.9 23.1 55 33
Other...................... 63.0 74.2 72.6 72.5 59.8 54.5 (15) 3
Europe........................ 49.5 25.2 20.0 13.2 13.2 9.5 96 39
Asia/Pacific.................. 65.8 47.0 46.1 30.7 31.9 16.1 40 33
-------- -------- -------- ------- --------- ------
Total assets under
custody.............. $2,278.3 $1,728.3 $1,683.6 $1,389.2 $1,135.4 $911.8 32 20
======== ======== ======== ======== ======== ======
BONDS UNDER TRUSTEESHIP
Corporate trust.................. $ 282.9 $ 210.0 $ 201.0 $ 136.0 $ 132.0 $108.4 35 21
======== ======== ======== ======== ======== ======
ASSETS UNDER MANAGEMENT
Institutional:
Equities and bonds............ $ 112.3 $ 74.7 $ 64.9 $ 50.3 $ 44.4 $ 34.4 50 27
Money markets................. 72.8 60.4 51.7 37.1 21.9 14.0 20 39
Employer securities........... 34.0 19.4 19.7 18.8 17.8 13.8 75 20
Personal......................... 7.4 6.0 5.8 5.2 4.8 3.4 23 17
-------- -------- -------- ------- --------- ------
Total assets under
management........... $ 226.5 $ 160.5 $ 142.1 $ 111.4 $ 88.9 $ 65.6 41 28
======== ======== ======== ======== ======== ======
</TABLE>
FOREIGN EXCHANGE TRADING. In 1995, foreign exchange trading revenue was
$140.7 million, up 24% from 1994. State Street's foreign exchange activities
focus on servicing investment managers around the world, many of whom have their
securities under custody with State Street. State Street is gaining market share
for portfolios under custody both at State Street and elsewhere.
This growth combined with additional risk management activities by
customers, resulted in increased transactions in 1995 compared with 1994.
Periods of currency volatility created opportunities and heightened customer
activity.
FEES AND OTHER REVENUE. Service fees of $59.5 million were up 23% from
1994. Revenue reflects loan service fees, trade banking activities, investment
banking fees, cash management fees and brokerage fees. The increase was from
brokerage activity generated by customers that restructured their investment
portfolios, as well as increased investment banking activity, revenues on
products providing currency overlay capabilities, and the securitization of
receivables.
Processing service fees of $53.7 million, down from $66.8 million in
1994, are derived from mortgage servicing, processing unclaimed securities for
state governments and corporations, and accounting services for retained-asset
accounts of insurance companies. The decrease in 1995 was due to lower volume
from unclaimed securities processing and the sale of a nonstrategic business.
During 1995, net securities gains on the available-for-sale investment
portfolio were $12.3 million. Certain securities were sold as the gain exceeded
expected revenue from the spread over the remaining life of the security. A
portion of the equity securities acquired in the IFTC transaction were sold. The
available-for-sale portfolio is managed for total return, which is comprised of
gains and/or losses and interest revenue.
The $7.9 million decline in other fee revenue in 1995 was due primarily
to an $8.2 million difference in currency translation on the foreign bond
investment portfolio. Results included a $2.7 million gain on the sale of a
non-strategic business.
NET INTEREST REVENUE
Net interest revenue is the interest revenue on earning assets reduced by
the interest expense on interest-bearing liabilities that are used to fund these
assets. Net interest revenue is expressed on a fully taxable equivalent basis to
adjust for the tax-exempt status of revenue earned on certain investment
securities and loans. In 1995, taxable equivalent net interest revenue was
$464.3 million, up 11% over 1994. This increase in net interest revenue was
driven by balance sheet growth and higher asset yields, which were
significantly offset by the narrower spread between interest rates earned and
paid.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net Interest Revenue - Taxable Equivalent Change
(Dollars in millions) 1995 1994 1993 94-95
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest revenue............................................................ $1,336.6 $936.2 $729.6
Taxable equivalent adjustment............................................... 34.9 25.1 21.7
-------- ------ ------
1,371.5 961.3 751.3
Interest expense............................................................ 907.2 544.1 394.1
-------- ------ ------
Net interest revenue.................................................. $ 464.3 $417.2 $357.2 11%
======== ====== ======
</TABLE>
In the first two quarters of 1995, net interest revenue was under
pressure due to rising U.S. short-term market interest rates. The 25 basis-point
reduction in U.S. short-term interest rates in July eased that pressure
temporarily. However, due to the market's anticipation of further rate
reductions, the yield curve for U.S. fixed-income instruments flattened,
reducing opportunities for the rest of the year.
Net interest revenue was positively affected by a larger balance sheet.
State Street manages its balance sheet to support the growth of its financial
asset services business worldwide. During 1995, State Street continued to
strengthen its position in global markets as it experienced strong new business
growth that included additional services for current customers as well as new
customers. This new business resulted in increasing amounts of funds on the
balance sheet from financial asset services customers. Repurchase agreements
served as short-term investments and foreign deposits accommodated both
transaction and investment needs of customers. In 1995, foreign deposit growth
included $777 million of non-U.S. transaction account deposits, which are
invested at favorable spreads. Additional customer funds supported the increase
in average interest-earning assets of $3.2 billion, or 16%, to $23.1 billion.
Higher market interest rates had a favorable impact on net interest
revenue by increasing asset yields, increasing the return on the investment of
State Street's large volume of noninterest-bearing sources of funds. Average
short-term U.S. interest rates increased as the Federal Reserve tightened
monetary policy, raising the Federal funds rate from 5.50% to 6.00%, or 50 basis
points, early in 1995. Later in the year, the Federal Reserve changed the
direction of its monetary policy and lowered the Federal funds rate back to
5.50%. On average, while overnight rates for the year were approximately 160
basis points higher, the two-year Treasury rate rose only 22 basis points,
flattening the yield curve significantly. The average prime rate for 1995
increased approximately 165 basis points from 1994.
The spread between interest rates earned and paid decreased eighteen
basis points to 1.21% in 1995. Because State Street is liability sensitive in
the short term (interest-bearing liabilities reprice faster than
interest-earning assets), the rising-rate environment, coupled with the flatter
Treasury yield curve, had a negative impact on the spread earned.
NET INTEREST MARGIN. Net interest margin is defined as taxable
equivalent net interest revenue as a percent of average interest-earning assets.
The margin declined eight basis points to 2.01% in 1995. The narrower spread
between interest rates earned and paid, along with lower noninterest-bearing
deposits, outweighed the benefits of asset growth. The contribution to the
margin from noninterest-bearing sources was ten basis points above 1994 as a
result of the investment of these funds in higher yielding assets.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net Interest Margin 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield on interest-earning assets....................................................... 5.93% 4.82% 4.45%
Rate on interest-bearing liabilities................................................... 4.72 3.43 2.98
---- ---- ----
Excess of rate earned over rate paid............................................. 1.21 1.39 1.47
Contribution of noninterest-bearing sources............................................ .80 .70 .65
---- ---- ----
Net interest margin.............................................................. 2.01% 2.09% 2.12%
==== ==== ====
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses is the amount
charged to earnings during the current period to maintain the allowance for loan
losses at a level that management considers appropriate, relative to the level
of risk in the loan portfolio and other extensions of credit. The provision for
loan losses was $8.0 million in 1995, which compares favorably with $11.6
million in 1994. Net charge-offs continued to decline and were $2.7 million,
down from $7.7 million a year ago.
Additional discussion of the allowance for loan losses, asset quality,
and loan charge-offs and recoveries is presented in the credit risk section on
page 37.
OPERATING EXPENSES
In 1995, operating expenses were $1,174 million, up 11%, with most of the
increase supporting business growth. Particularly in the second half of 1995,
State Street handled significantly greater activity, due in part to the
installation of new business. Total average assets under custody increased 25%
over the prior year and average daily transactions increased 20%.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Operating Expenses Change
(Dollars in millions) 1995 1994 1993 94-95
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits............................................ $ 650.6 $ 587.6 $492.4 11%
Occupancy, net............................................................ 83.7 72.9 61.6 15
Equipment................................................................. 123.9 111.8 100.3 11
Contract services......................................................... 117.1 104.6 74.9 12
Professional services..................................................... 48.1 48.2 35.8
Advertising and sales promotion........................................... 25.8 23.4 19.0 10
Postage, forms and supplies............................................... 23.8 20.6 18.6 16
Telecommunications........................................................ 22.4 21.5 21.7 4
Other..................................................................... 78.6 67.2 74.4 17
-------- -------- ------
Total operating expenses............................................ $1,174.0 $1,057.8 $898.7 11
======== ======== ======
</TABLE>
Salaries and employee benefits, the largest component of expense, were
$650.6 million, up 11% from 1994. This increase was due to higher salaries,
incentive compensation and benefit costs.
Occupancy expense increased $10.8 million, or 15%, to $83.7 million as a
result of additional space.
Equipment expense of $123.9 million was up 11%, due to additional
computers and related information-technology equipment and software needed to
support business growth and a broader product line. The increase in equipment
expense was due to the global deployment of more robust applications, the
addition of disk storage space, and upgrades to data center processing power. As
mainframe processing power in all data centers increased through upgrades to the
latest bi-polar technology-based systems, equipment expense for this area grew
by only a fraction of the increased capacity.
Contract services expense includes the cost of subcustodian services in
69 countries, as well as other outside services, including pricing and
processing services. In 1995, contract services expense increased $12.5 million,
or 12%, primarily due to mutual fund shareholder accounting costs and,
secondarily, to increased subcustodian costs.
Professional services expense in 1995 was $48.1 million, approximately
the same as in 1994, and included acquisition-related costs, legal fees and fees
incurred for other services.
Advertising and sales promotion expense was $25.8 million, up 10%, due to
additional advertising and an expanded sales effort.
Other operating expenses include operating and processing losses,
insurance expense, contributions, dues and other fees incurred in the normal
course of business. In 1995, other operating expenses increased $11.4 million,
or 17%. Operating and processing loss expense incurred from errors in securities
processing and settlement, valuations and corporate actions increased $13.7
million from a low level in 1994. Insurance expense declined $9.5 million,
mainly due to significantly lower rates on FDIC insurance beginning in the
second quarter. Other costs increased supporting geographic expansion and
growth.
Higher than normal strategic investment spending gradually tapered to
more normal levels over the course of 1995. In 1993, State Street increased its
level of investment spending to expand market leadership and to position it for
future growth. Investment spending is for information technology, core
processing infrastructure, and product and market development. In 1993 and 1994,
strategic investment spending approximated 10% of total revenue, up from a more
normal level of 7% to 8%. Investment spending was approximately 9% of total
revenue in 1995.
INCOME TAXES
Income tax expense charged to earnings was $119.4 million in 1995 and
$119.7 million in 1994, and the effective tax rates were 32.6% and 35.2%,
respectively.
A significant portion of the reduction in the effective tax rate from
1994 to 1995 was due to three nonrecurring items. First, effective January 1,
1995, Massachusetts enacted a five-year phased-in reduction in the bank tax
rate from 12.54% to 10.50% and permitted banks to apportion taxable income.
State Street recorded a rebooking of deferred taxes relating to leveraged leases
and other items, which lowered the 1995 effective tax rate by 1.2%. Second,
State Street and other banks settled a multi-year tax dispute with Massachusetts
over the taxability of interest revenue from certain Massachusetts bonds,
lowering the effective rate by 1.0%. Third, nondeductible expenses associated
with the IFTC pooling increased the rate by .3%. The effective tax rate without
these three nonrecurring items would have been 34.5%, which is lower than the
1994 tax rate primarily due to the reduced effective state tax rate for banks in
1995.
The 1996 effective tax rate is estimated to be 35.5%, up one percentage
point from the adjusted 1995 rate. The increase in the effective tax rate
results largely from the anticipated growth in fully-taxable revenue, partially
offset by the continued phase-in of the lower state tax rate for banks.
COMPARISON OF 1994 VERSUS 1993
In 1994, fully diluted earnings per share were $2.64, up 16% from $2.28
in 1993. Total revenue for 1994 was 17% higher than in 1993.
New customers, and existing customers using additional services, fueled
revenue gains. The increase in cross-border investing, the expansion of the
mutual fund industry, and institutional investors' continued demand for
information also contributed to strong revenue in 1994.
Operating expenses rose 18% in 1994 against 1993, in support of business
growth, as a program of higher than normal investment spending continued.
LINES OF BUSINESS
State Street reports on three lines of business: financial asset
services, investment management and commercial lending. The results for State
Street's three lines of business are derived from internal accounting systems.
These systems collect revenue and expenses for each business, and allocate
certain revenue, expenses, assets and liabilities. Capital is allocated using
the Federal regulatory guidelines and management's judgment 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 three lines
of business were independent business units.
The following 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 Financial Investment Commercial
(Taxable equivalent basis, Asset Services Management Lending Corporate
dollars in millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue............. $ 903.2 $ 831.5 $ 708.3 $ 178.8 $149.7 $127.5 $ 38.3 $ 41.5 $ 36.5 $ (1.2) $ (5.4) $ (6.7)
Net interest revenue.... 311.2 307.5 275.7 17.4 6.1 3.7 138.3 108.6 86.1 (2.6) (5.0) (8.3)
Provision for loan
losses............... 1.2 1.6 0.5 6.8 10.0 10.8
------- ------- ------- ------- ------ ------ ------- ------- -------
Total revenue........ 1,213.2 1,137.4 983.5 196.2 155.8 131.2 169.8 140.1 111.8 (3.8) (10.4) (15.0)
Operating expenses...... 947.9 859.2 719.3 121.4 98.5 86.1 72.7 73.7 64.5 32.0 26.4 28.8
------- ------- ------- ------- ------ ------ ------- ------- -------
Income before
income taxes...... 265.3 278.2 264.2 74.8 57.3 45.1 97.1 66.4 47.3 (35.8) (36.8) (43.8)
Income taxes............ 105.0 115.1 115.1 34.7 24.7 19.4 38.0 28.6 20.1 (23.4) (23.6) (31.2)
------- ------- ------- ------- ------ ------ ------- ------- -------
Net Income........... $ 160.3 $ 163.1 $ 149.1 $ 40.1 $ 32.6 $ 25.7 $ 59.1 $ 37.8 $ 27.2 $(12.4) $(13.2) $(12.6)
======= ======= ======= ======= ====== ====== ======= ======= ======= ====== ====== ======
Percentage
contribution......... 65% 74% 79% 16% 15% 14% 24% 17% 14% (5)% (6)% (7)%
Average assets.......... $23,422 $20,428 $16,664 $16 $17 $12 $ 2,744 $ 2,350 $ 2,251
</TABLE>
FINANCIAL ASSET SERVICES. Financial asset services, which contributed 65%
of State Street's net income in 1995, primarily offers custody-related services
for large pools of assets, such as mutual funds and pension plans (both defined
benefit and defined contribution), participant recordkeeping for defined
contribution plans and corporate trusteeship. A broad array of services is
provided, including accounting, custody of securities, information services and
recordkeeping. Also provided are banking services, such as accepting deposits
and other short-term funds, foreign exchange trading, and global cash
management. Funds gathered companywide are invested in the investment securities
portfolio and other interest-earning assets. Revenue is reflected in both fee
revenue and net interest revenue.
In 1995, net income of $160.3 million declined $2.8 million from $163.1
million in 1994. Revenue increased to $1,213.2 million from $1,137.4 million in
1994. The $75.8 million increase in total revenue was driven by providing
additional services for both existing customers and new relationships, higher
foreign exchange trading revenue and higher service fees.
Revenue growth was restrained by less revenue from the spread earned on
the investment securities portfolio, lower activity in the unclaimed property
business, and a difference in currency translation on the foreign bond
portfolio.
The yield curve impacted financial asset services results in many ways.
For example, the rapid rise in short-term interest rates early in 1995, followed
by lower rates and a flat to inverted yield curve late in the year,
significantly reduced the return from the investment securities portfolio. The
less favorable U.S. Treasury yield curve reduced the spread between U.S.
Treasury and Federal agency securities held in the investment portfolio and the
securities sold under repurchase agreements used to fund those securities. The
spread declined 102 basis points, from 1.26% to .24%. This less favorable
spread, when applied to the 1994 volume of $3.5 billion in securities, lowered
net interest revenue by $35 million.
Operating expenses were $947.9 million, 10% higher than 1994, primarily
to support business growth. Investment spending continued at a higher than
normal rate and the operating loss expense was up from a low level in 1994.
COMMERCIAL LENDING. Reported in this line of business are loans to
regional middle market businesses, to both regional and national companies in
selected industries, and to broker/dealers. Asset-based finance, leasing,
real-estate lending and trade finance are also included. In 1995, commercial
lending contributed 24% of net income, a higher percentage than in previous
years.
In 1995, commercial lending benefited from several factors. Interest
rates were higher, loans grew, leasing revenue reflected a one-time benefit
from a reduction in state tax rates, the provision for loan losses was reduced
due to continued improvement in loan quality and operating expenses were
slightly lower. Net income from commercial lending increased $21.3 million, or
56%. On average, short-term interest rates were 160 percentage points higher
than in 1995, increasing the interest revenue earned on investing deposits and
capital. On average, loans increased $394 million, or 17%, to $2.7 billion. This
included a $138 million increase in leases, primarily non-U.S. leveraged leases
made to reduce the corporation's effective tax rate.
INVESTMENT MANAGEMENT. Investment management, which contributed 16% of
State Street's net income in 1995, is comprised of the business components that
manage financial assets worldwide -- both institutional and personal. State
Street's institutional services include a broad array of products that focus on
quantitative equity management, both passive and active, and money market funds.
In 1995, net income from investment management services was $40.1
million, an increase of 23% from 1994. Revenue grew 26% due to an increase in
assets under management, from both new business and asset appreciation. This was
offset by a 23% increase in operating expense due to additional personnel,
higher salaries and incentive compensation.
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; acquisition costs; and other
corporate expenses. In 1995, these corporate items reduced net income by $12.4
million, $.8 million less than $13.2 million in 1994.
FINANCIAL GOALS AND FACTORS WHICH MAY AFFECT THEM
FINANCIAL GOALS. State Street's primary financial goal is sustainable
real growth in earnings per share. There are two supporting goals, one for
revenue and one for return on stockholders' equity. The revenue goal is to
repeat in the decade of the 1990s what was accomplished in the 1980s, which was
12 1/2% real, or inflation adjusted, growth in revenue per year for the decade.
The return on equity goal is an 18% return on stockholders' equity.
State Street considers these to be financial goals, not projections or
forward looking statements. However, if these or any other goals or expectations
are perceived to be forward looking statements, they should be considered in
conjunction with the factors listed below, which may materially impact State
Street's ability to achieve these goals.
FACTORS. The following issues and factors, among others, should be
considered in evaluating the outlook for State Street's growth:
o Cross-border investing. Cross-border investing by both U.S. and
non-U.S. customers benefits revenue. Future revenue may increase or decrease
depending upon the cross-border investment decisions made by customers or future
customers.
o Savings rate of individuals. State Street may benefit from increased
savings of individuals if those savings are invested in mutual funds and/or
defined contribution plans.
o Size and value of worldwide financial markets. As worldwide financial
markets increase or decrease in size, State Street's opportunity to invest
and/or service financial assets changes. Since a portion of State Street's fees
are based on the value of assets under custody and management, the fluctuations
in worldwide securities market valuations affect revenue.
o Dynamics of markets served. Changes in the markets served can affect
revenue, including the growth rate of U.S. mutual funds, the pace of debt
issuance, and mergers, acquisitions and consolidations among customers.
o Interest rates. Market interest rate levels, the direction of interest
rate changes and spreads affect both net interest revenue and fiduciary
compensation from securities lending. All else being equal, State Street
benefits from higher rather than lower interest rates because it can invest its
non-interest bearing deposits and equity in higher interest-earning assets. As
discussed on page 32, it also benefits from falling interest rates. Wider
market interest rate spreads enable State Street to earn more net interest
revenue from its deposits and other funding and from fiduciary compensation
generated by securities lending.
o Pace of pension reform. State Street expects to benefit from worldwide
pension reform that creates additional pools of assets that use custody and
related services and/or investment management services.
o Pricing/competition. Future prices the company is able to obtain for
its products may decrease from current levels depending upon the market and cost
factors. Substitute products could render State Street's products less desirable
or State Street could produce products on which it has increased pricing power.
o Pace of new business. The pace at which existing and new customers use
new services will affect future revenue.
o Business mix. Changes in business mix, including the mix of U.S. and
non-U.S. business, will affect earnings growth rates.
o Rate of technological change. Technological change creates
opportunities for product differentiation and reduced costs as well as the
possibility of increased expenses.
Based on its evaluation of these factors, management is optimistic about
the company's long-term prospects.
BALANCE SHEET REVIEW
State Street manages its balance sheet to support the transaction and
short-term investment needs of the financial asset services business while
maximizing net interest revenue. The balance sheet composition resulting from
State Street's distinctive business mix affects the approach to managing
interest rate sensitivity, liquidity and credit risk.
LIABILITIES
Growth in State Street's balance sheet is liability-driven. Increased
volume of interest-bearing liabilities, stockholders' equity and other
noninterest-bearing sources fund the growth in interest-earning assets.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
SOURCES OF FUNDS Average Volume Average Rate
(Dollars in millions) 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Savings.......................................... $ 1,913 $ 1,992 $ 2,253 4.45% 2.85% 2.45%
Time............................................. 131 172 234 5.47 4.52 5.24
Foreign.......................................... 8,470 7,392 4,954 3.82 2.93 2.95
------- ------- -------
Total interest-bearing deposits............... 10,514 9,556 7,441 3.96 2.93 2.87
Federal funds purchased............................. 504 411 741 5.89 3.90 2.84
Securities sold under repurchase agreements......... 7,080 4,958 4,181 5.65 4.07 2.90
Other short-term borrowings......................... 761 563 216 5.32 4.40 3.78
Notes payable....................................... 214 258 511 5.73 4.64 3.90
Long-term debt...................................... 127 128 122 6.71 6.73 8.19
------- ------- -------
Total interest-bearing liabilities............ 19,200 15,874 13,212 4.72 3.43 2.98
Other noninterest-bearing sources................... 2,437 2,769 2,548
Stockholders' equity................................ 1,483 1,284 1,125
------- ------- -------
Total sources................................. $23,120 $19,927 $16,885
======= ======= =======
</TABLE>
Average interest-bearing liabilities increased $3.3 billion, or 21%, in
1995. Securities sold under repurchase agreements increased $2.1 billion, or
43%, reflecting short-term investments by customers. Foreign deposits increased
$1.1 billion, or 15%, of which $.8 billion reflects additional transaction
account balances. Other short-term borrowings increased $198 million, while
notes payable declined $44 million from 1994.
Noninterest-bearing deposits declined 12%, mainly due to lower deposit
balances from mutual funds and corporate trust customers. Stockholders' equity
increased 15% from 1994.
ASSETS
Average interest-earning assets increased $3.2 billion, or 16%, funded by
additional customer deposits and other liabilities. State Street's assets are
primarily comprised of money market assets and investment securities, which are
generally more marketable and have less credit risk than loans.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTEREST-EARNING ASSETS Average Volume Average Rate
(Dollars in millions) 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks................ $ 5,466 $ 5,183 $ 5,022 5.25% 4.04% 4.01%
Securities purchased under resale agreements
and securities borrowed.......................... 5,569 3,102 3,255 5.91 4.26 3.14
Federal funds sold.................................. 475 537 534 5.97 4.45 3.03
Trading account assets.............................. 412 532 416 5.13 4.90 4.02
Investment securities:
U.S. Treasury and Federal agencies............... 4,139 3,455 2,181 5.89 5.33 5.72
State and political subdivisions................. 1,183 1,120 732 5.96 5.09 5.43
Other investments................................ 2,212 2,597 2,169 6.05 5.35 5.43
------- ------- -------
Total investment securities................... 7,534 7,172 5,082 5.95 5.30 5.55
Loans............................................... 3,664 3,401 2,576 7.04 5.58 5.14
------- ------- -------
Total interest-earning assets................. $23,120 $19,927 $16,885 5.93 4.82 4.45
======= ======= =======
</TABLE>
Growth occurred primarily in securities purchased under resale
agreements, which increased $2.5 billion, or 80%, from 1994. These short-term
assets are fully collateralized by U.S. Treasury and Federal agency securities
and had an average maturity of five days at year end. These were purchased to
accommodate customers' needs for securities sold under repurchase agreements as
well as for short-term investments. The interest rate environment, particularly
the flatter U.S. Treasury yield curve, made short-term investments relatively
more attractive compared to the yields on longer-maturity instruments.
Interest-bearing deposits with banks are short-term instruments,
primarily Eurocurrency placements, invested with major U.S. and non-U.S. banks.
As of December 31, 1995, the average maturity of the Eurocurrency placements was
38 days.
On average in 1995, the investment securities portfolio increased $362
million. However, at year-end 1995 the portfolio assets were 27% less than at
year-end 1994.
State Street classifies its investment securities in two categories,
held to maturity and available for sale. The held-to-maturity portfolio is used
to invest depositors' funds, to provide asset diversity and to stabilize
revenue. The available-for-sale portfolio is managed for total return. During
the fourth quarter of 1995, State Street used a window available in accounting
rules to reclassify $3.8 billion of investment securities from held to maturity
to available for sale. This gives State Street more flexibility to manage its
securities positions.
The held-to-maturity portfolio, which is carried at amortized cost, is
comprised of U.S. Treasury and Federal agency securities. At December 31, 1995,
the total $824 million portfolio of held-to-maturity securities had net
unrealized appreciation of $4.7 million, and the duration was 11 months.
The available-for-sale portfolio is comprised of securities acquired with
the intent to hold for an indefinite period of time, not necessarily until
final maturity. At December 31, 1995, this $5.5 billion portfolio was comprised
of U.S. Treasury and Federal agency notes, asset-backed securities, bonds and
notes of state and political subdivisions, and foreign bonds. The expected
duration of the available-for-sale portfolio was 18 months.
State Street invests in asset-backed securities, including collateralized
mortgage obligations, for yield enhancement and earnings stabilization. The
collateralized mortgage obligations typically have limited variability in the
timing of cash flows and provide protection from undue prepayment and extension
risk. Asset-backed securities are highly rated; 96% were AAA as of December 31,
1995. Available-for-sale securities are carried at market value. At December 31,
1995, the market value of these securities was $21.1 million higher than cost.
In response to declining rates and in expectation of a flattening yield
curve, management sold securities for which the appreciation exceeded the
projected net interest spread over the remaining lives of the securities. Due to
the flattening and inversion of the U.S. Treasury yield curve at various times
in the latter half of 1995, buying opportunities were limited. In order to
maintain customer liabilities at positive spreads, much of the proceeds of
securities sold were invested in securities purchased under resale agreements
rather than in U.S. Treasury securities. Investments in shorter-term U.S. agency
notes increased by $318 million, and foreign bonds were increased by $140
million.
At year-end 1995, loans comprised 15% of State Street's assets, compared
with approximately 60% for other banking companies of comparable size.
Approximately 30% of the loan portfolio supports the short-term needs of
financial asset services customers and securities brokers in conjunction with
their trading and settlement activity. These are generally short-term, usually
overnight, and are structured to have relatively low credit risk. Average loans
increased by $263 million, or 8%, with growth occurring in commercial loans and
in lease financing.
INTEREST RATE SENSITIVITY MANAGEMENT
The objective of interest rate sensitivity management is to provide
sustainable and stable net interest revenue under various economic environments
and to protect asset values from adverse effects of changes in interest rates.
State Street manages the structure of interest-earning assets and
interest-bearing liabilities to meet revenue goals by adjusting the mix, yields
and maturity, or repricing characteristics, based on changing market conditions.
Interest rate risk arises from differences in the timing of when assets and
liabilities are repriced. Depending on the degree of difference, changes in
interest rates and yield curves can result in an increase or decrease in net
interest revenue and affect the valuation of assets and liabilities. Under
policies approved by the Board of Directors, State Street seeks to limit
interest rate risk while using timing differences to manage net interest
revenue.
State Street uses three tools for measuring interest rate risk:
simulation, duration and gap analysis. Simulation models capture the dynamics of
interest rate movements, differences within a time frame, changes in
relationships among various market rates, certain assumed lagged movements in
money market rates and expected changes in volumes. Results from the simulation
models are evaluated as part of the forecasting, long-range planning and budget
processes to evaluate the potential range of net interest revenue under "most
likely" and alternative interest rate scenarios.
State Street also measures duration and present value of the assets and
liabilities and evaluates the effect of changes in interest rates on the
economic value of equity.
The third measure of interest rate risk, as shown below, is the
difference in asset and liability repricing on a cumulative basis within a
specified time frame. State Street monitors the three-month, six-month,
one-year and two-year cumulative net interest-earning assets, or gaps.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTEREST SENSITIVITY POSITION AT DECEMBER 31, 1995 Interest Sensitivity Period in Months
----------------------------------------------------------------
(Dollars in millions) Balance 0-3 4-6 7-12 13-24 over 24
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Interest-bearing deposits with banks................ $ 5,975 $ 5,343 $ 535 $ 97 $ $
Other money market assets (1)....................... 4,596 4,596
Investment securities:
Held to maturity................................. 824 188 165 45 396 30
Available for sale............................... 5,535 808 775 1,313 1,095 1,544
Loans............................................... 3,468 2,541 137 34 29 727
------- ------- ----- ------ ------ ------
Total interest-earning assets.................... 20,398 13,476 1,612 1,489 1,520 2,301
------- ------- ----- ------ ------ ------
Interest-Bearing Liabilities:
Domestic deposits................................... 2,151 1,963 14 14 2 158
Foreign deposits.................................... 9,414 9,383 24 7
Federal funds purchased and repurchase agreements... 5,588 5,587 1
Other interest-bearing liabilities.................. 745 570 48 127
------- ------- ----- ------ ------ ------
Total interest-bearing liabilities............... 17,898 17,503 39 21 50 285
------- ------- ----- ------ ------ ------
(4,027) 1,573 1,468 1,470 2,016
Interest rate swaps................................. 209 8 (25) (1) (191)
------- ----- ------ ------ ------
Interest rate sensitivity position..................... (3,818) 1,581 1,443 1,469 1,825
Cumulative interest rate sensitivity position.......... (3,818) (2,237) (794) 675 2,500
Cumulative gap percentage (2).......................... (17)% (10)% (3)% 3% 11%
(1) Includes adjustments to normalize the one-day position and for earnings
credits
(2) Cumulative interest rate sensitivity position as a percent of December
average earning assets
</TABLE>
The table shows State Street's year-end interest rate sensitivity
position for various assets and liabilities, measured by repricing date or
maturity date, whichever is earlier. Non-maturity items, such as asset-backed
securities and deposits, are reported in time periods based on management's
evaluations of prepayments and repricing. The table reflects an adjustment made
to include the effect of rate changes on noninterest-bearing deposits which earn
balance credits.
As shown, State Street was liability sensitive as interest-bearing
liabilities were repricing faster than interest-earning assets. If all other
variables remained constant, in the short term, falling interest rates would
lead to increased net interest revenue; rising rates would lead to decreased net
interest revenue. However, interest rate sensitivity is only one of several
factors determining net interest revenue. Rate levels, balance sheet growth and
mix, and rate spreads are also important determinants.
State Street maintains flexibility in its balance sheet to adjust its
interest rate sensitivity. Since interest-bearing sources of funds are
predominantly short-term, State Street maintains a generally short-term
structure for its interest-earning assets, including money market assets,
investments and loans. Off-balance sheet financial instruments are used as part
of overall asset and liability management. Financial futures and interest rate
swaps are used modestly to augment State Street's management of interest rate
exposure within policy limits. At December 31, 1995, $217 million of interest
rate swaps reduced short-term liability sensitivity.
LIQUIDITY
The primary objective of State Street's liquidity management is to ensure
that State Street has sufficient funds to replace maturing liabilities,
accommodate the transaction and cash management requirements of its customers,
meet loan commitments, and accommodate other corporate needs. Liquidity is
provided by State Street's access to global market sources of funding and its
ability to gather additional deposits, and from maturing short-term assets, the
sale of available-for-sale securities and payments of loans.
State Street manages its assets and liabilities to maintain a high level
of liquidity. It has an extensive and diverse funding base inside and outside
the United States. Nearly all of its funding comes from customers who have other
relationships with State Street, particularly those using custody services
worldwide. Deposits are available through both domestic and international
treasury centers, providing a cost-effective, multicurrency,
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 December
31, 1995, the portfolio included $6.0 billion of interest-bearing deposits with
banks, $5.4 billion of securities purchased under resale agreements and
securities borrowed, and $348 million of Federal funds sold. Of the total $11.7
billion in liquid assets, $7.5 billion mature within one week, and nearly all
mature within six months. Although not relied on for daily liquidity needs, the
$5.5 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 and securities borrowed, trading account
assets and investment securities. At December 31, 1995, State Street's liquid
assets were 78% of total assets.
State Street's high ratings as a corporation and depository enhance its
liquidity. Senior debt is rated AA- by Standard & Poor's, A1 by Moody's Investor
Services and AA by IBCA, Inc. Depending upon the rating service, six or fewer of
the largest 100 bank holding companies in the United States have higher ratings.
State Street Bank's long-term certificate of deposit ratings are AA by Standard
& Poor's, Aa2 by Moody's Investor Services and AA+ by IBCA, Inc. These ratings,
as well as strong capital ratios, enhance State Street's liquidity by making its
liabilities attractive to a large number of investors worldwide.
The Consolidated Statements of Cash Flows on page 42 provide additional
information.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The short-maturity structure of State Street's assets and liabilities
results in the fair value of its financial instruments equating to or closely
approximating its balance sheet value, with the exception of the
held-to-maturity portfolio, which had appreciation of $4.7 million as of
December 31, 1995. See Footnote S to the Financial Statements, page 56, for a
further discussion.
CAPITAL STRENGTH
State Street maintains strong capital levels to support continued growth
and to accommodate customer needs. State Street continues to generate capital
internally at a high rate. On December 31, 1995, stockholders' equity was $1.6
billion, compared with $760 million on December 31, 1990, a 15.9% compound
annual growth rate. During 1995, stockholders' equity increased $250 million.
This increase was primarily attributable to net income of $247 million and an
increase in the net unrealized gains on the available-for-sale investment
securities portfolio of $69 million. These increases were partially offset by
dividends of $56 million and treasury stock purchases of $17 million.
The Board of Directors has authorized the repurchase of up to three
million shares of State Street's common stock. Shares purchased under the
authorization will be used for employee benefit plans and for general corporate
purposes. During the second half of 1995, the stock purchase program was
initiated and 416,200 shares of State Street's common stock were purchased for
employee benefit plans at an average cost of $41 per share.
The Federal Reserve Board, State Street's primary regulator, has
established risk-based capital guidelines that require minimum ratios of capital
to risk-weighted assets and certain off-balance sheet credit exposures. The
Federal Reserve Board also maintains a leverage ratio guideline as a measure of
capital to total average balance sheet assets.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
REGULATORY CAPITAL AT DECEMBER 31 Minimum
Regulatory
(Dollars in millions) 1995 1994 Guidelines
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-based ratios:
Tier 1 capital................................................................... 14.0% 13.6% 4%
Total capital.................................................................... 14.5 14.2 8
Leverage ratio...................................................................... 5.6 5.6 3
Tier 1 capital...................................................................... $ 1,507 $1,354
Total capital....................................................................... 1,563 1,408
Risk-adjusted assets:
On-balance sheet assets.......................................................... $ 8,409 $7,993
Off-balance sheet assets......................................................... 2,339 1,942
-------- ------
Total risk-adjusted assets....................................................... $10,748 $9,935
======= ======
</TABLE>
State Street has developed internal capital-adequacy policies that
emphasize risk exposure rather than asset levels. These policies place primary
importance on the risk-based guidelines, particularly the Tier 1 risk-based
capital ratio. This emphasis is appropriate to State Street's balance sheet
structure, which has a high degree of liquidity and low credit risk. At year-end
1995, State Street's Tier 1 capital ratio of 14.0% significantly exceeded the
regulatory guideline of 4% and was among the strongest for large U.S. banking
companies. The improvement in State Street's risk-based ratios during 1995
resulted from higher levels of capital, which grew more rapidly than
risk-weighted assets.
Bank regulators have adopted five capital categories based on capital
ratios and other factors, which are applicable to banks for certain regulatory
supervisory purposes. These categories range from "well capitalized" to
"critically undercapitalized." The "well capitalized" category requires a bank
to maintain a minimum Tier 1 risk-based ratio of 6%, a minimum total risk-based
capital ratio of 10% and a minimum leverage ratio of 5%. State Street has
internal guidelines which meet or exceed the minimum standard for the "well
capitalized" category and it actively manages its level of assets and capital to
meet these guidelines. At December 31, 1995, State Street Bank had a Tier 1
risk-based capital ratio of 13.1%, a total risk-based capital ratio of 13.4% and
a leverage ratio of 5.2%.
DIVIDENDS AND COMMON STOCK
State Street increased the quarterly dividend to stockholders twice
during 1995, continuing the pattern of dividend increases that began in 1978. At
year-end 1995, the dividend rate was 12.5% higher than at year-end 1994. Since
1990, dividends per share have increased at an annual rate of 15%. State
Street's policy is to increase dividends at a rate that is consistent with
long-term earnings growth and that will permit levels of internal capital
generation sufficient to allow for the full development of strategic business
opportunities. The dividend payout ratio was 23% for 1995.
There were 5,773 stockholders of record at year-end 1995.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDENDS AND COMMON STOCK
MARKET PRICE Market Price
------------------------- -----------------------------
DIVIDENDS END OF Dividends End of
DECLARED LOW HIGH PERIOD Declared Low High Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994
FIRST................ $.16 $28 $34 1/8 $31 7/8 First............... $.14 $35 1/8 $39 1/8 $36
SECOND............... .17 $30 3/8 $37 5/8 $36 7/8 Second.............. $.15 $34 3/8 $43 1/8 $38 5/8
THIRD................ .17 $35 1/8 $41 1/2 $40 Third............... $.15 $36 $41 $36 1/2
FOURTH............... .18 $38 5/8 $46 1/4 $45 Fourth.............. $.16 $27 5/8 $37 1/4 $28 5/8
</TABLE>
RISK MANAGEMENT
In providing financial asset services globally, certain inherent risks
must be managed and controlled. These include counterparty credit risk,
fiduciary risk, operations and settlement risk, and market risk. Risk
management is an integral part of State Street's business activities and is
centrally organized with close ties to the business units in order to identify
and manage risks effectively. This structure allows for corporate risk
management across the business areas while individual line areas remain
responsible for risk management in their units. Continuing a trend of recent
years, risk-management resources are increasingly devoted to financial asset
services and investment management.
Emphasis in risk management is placed on establishing specific
authorization levels and limits. Exposure levels are reviewed and modified as
required by changing conditions. Counterparties are subject to a rigorous credit
approval process that covers traditional credit facilities, foreign exchange,
placements, credit-enhancement services, securities lending and
securities-clearing facilities. Concentration is managed in terms of
business-risk concentration, including specific industry lending concentrations
and country limits, as well as limits on individual counterparties.
In managing country risk, State Street considers a broad variety of
issues and risks inherent in doing business outside the United States, including
issues related to credit quality and asset concentration. Consideration is also
given to transfer risk, which arises from the possible inability of a
counterparty or borrower to repay an obligation because of the inconvertibility
of its currency.
Fiduciary risk is the risk of financial loss as a consequence of
breaching a fiduciary duty to a customer. Business units have the primary
responsibility to operate within the rules and regulations applicable to their
businesses, as well as corporate guidelines, and are responsible for
establishing unit specific procedures to do so. Additionally, the corporate
fiduciary review committee and compliance committee work with the business
units to oversee adherence to corporate standards.
Since State Street is a large servicer and manager of financial assets
on a global scale, management of operations and settlement risk is an inherent
part of the management process throughout the corporation. This focuses on
payment-system risk management, overdraft monitoring and control, and global
securities clearing and settlement. In addition to specific authorization
levels and limits, operating risk is also controlled through extensive
automation, operating procedures and insurance.
Market risk arises from price changes in various markets. Market risk
from foreign exchange and trading activities is monitored and controlled through
established limits on positions and aggregate limits based on estimates of
potential loss of earnings under assumptions about changes in market conditions.
State Street acts as an agent to lend customer-owned securities to
broker/dealers and banks. State Street is not a principal in these transactions
and, therefore, the assets and liabilities are not reflected on its balance
sheet. Potential exposure to each borrower is approved and monitored through
State Street's credit risk approval and management process. Collateral in the
form of cash, securities, or letters of credit is received to secure the
borrower's promise to return these securities. Securities are marked to market
and compared to the value of collateral daily. Investment of customer cash
collateral is managed by State Street Global Advisors in compliance with
approved investment parameters.
CREDIT RISK
Credit risk results from the possibility that a loss may occur if a
counterparty becomes unable to meet the terms of a contract. State Street has
policies and procedures to monitor and manage all aspects of credit risk. These
include a comprehensive credit-review and approval process that involves the
assignment of risk ratings to all loans and off-balance sheet credit exposures.
During 1995, all measures of credit quality continued to improve.
It is State Street's policy to place a loan on non-accrual status when
either principal or interest becomes 60 days past due. Loans are returned to
accrual status only when interest and principal payments are brought current and
future payments are considered to be assured. In 1995, loans placed on
non-accrual status were more than offset by charge-offs, payments and the return
to accrual status of several loans. At December 31, 1995, total non-performing
assets were $18.7 million, an $8.7 million decrease from year-end 1994.
Non-performing assets included $15.5 million of non-performing loans, which was
less than one-half of 1% of total loans, and $3.2 million of other real estate
owned. At December 31, 1995, the coverage ratio (allowance for loan losses to
non-performing loans) was 4.10, an improvement from 2.53 at December 31, 1994.
In 1995, net charge-offs declined to $2.7 million from $7.7 million in
1994. Net charge-offs as a percentage of average loans were .07%, compared with
.23% for 1994.
The allowance for loan losses is available to cover potential losses from
current credit exposure in the loan portfolio and certain off-balance sheet
commitments and is increased by the provision for loan losses, which is a charge
to current earnings. The appropriate level of the allowance is determined by a
thorough analysis of credit risk and other factors as discussed in Footnote A to
the Financial Statements, page 45. At December 31, 1995, the allowance for loan
losses was $63.5 million, or 1.59% of loans. This compares with an allowance of
$58.2 million, or 1.80% of loans, a year ago. The decline in the ratio reflects
improvement in measures of credit quality, discussed above, and a continuing
satisfactory outlook for general economic conditions and its effect on
borrowers.
The following table shows the provision for loan losses and credit
experience:
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
CREDIT EXPERIENCE
(Dollars in millions) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for loan losses............................................................. $ 8.0 $11.6 $11.3
Charge-offs........................................................................... 6.7 10.5 18.5
Recoveries............................................................................ 4.0 2.8 2.2
------ ----- -----
Net loan charge-offs............................................................ 2.7 7.7 16.3
Allowance of subsidiary purchased..................................................... 1.4
Allowance for loan losses, year end................................................... 63.5 58.2 54.3
Non-performing loans.................................................................. 15.5 23.0 26.8
Other real estate owned............................................................... 3.2 4.4 11.1
Ratios:
Allowance to ending loans.......................................................... 1.59% 1.80% 2.03%
Net charge-offs to average loans................................................... .07 .23 .63
Non-performing loans to total loans................................................ .39 .71 1.00
</TABLE>
FOREIGN EXCHANGE AND DERIVATIVE FINANCIAL INSTRUMENTS
State Street uses foreign exchange and a variety of financial derivative
instruments to support customers' needs, conduct trading activities, and manage
interest rate and currency risk. These activities either generate trading
revenue or enhance the stability of net interest revenue. In addition, State
Street provides services related to derivative instruments in its role as both a
manager and servicer of financial assets.
State Street's customers use derivatives to manage the financial risks
associated with their investment goals and business activities. With the growth
of cross-border investing, State Street's customers have an increasing need for
foreign exchange forward contracts to convert currency for international
investment and to manage the currency risk in an international investment
portfolio. As an active participant in the foreign exchange markets, State
Street provides foreign exchange contracts and over-the-counter options in
support of these customer needs.
As part of trading activities, State Street also assumes market positions
in both the foreign exchange and interest rate markets using financial
derivatives -- primarily forward foreign exchange contracts, foreign exchange
and interest rate options, and interest rate swaps.
As of December 31, 1995, the notional amount of these instruments was
$58.4 billion, of which $55.0 billion was foreign exchange forward contracts.
Long and short foreign exchange forward positions are closely-matched to
minimize currency and interest rate risk. In order to estimate changes in the
value of the outstanding contracts, all forward foreign exchange contracts are
valued daily at current market rates.
State Street uses various derivatives to minimize the interest rate and
foreign exchange risk associated with balance sheet and global business
activities. As of year-end 1995, the notional amount of these derivatives was
$267 million.
Trading activities involving both foreign exchange and interest rate
derivatives are managed using earnings at risk measures and trading limits as
established by risk management policies. Interest rate and foreign exchange
derivatives used as part of the asset and liability management process are
subjected to the same credit and interest rate risk analyses applied to
financial instruments carried on the balance sheet.
As a manager of financial assets for others, State Street uses
derivative financial instruments to hedge against market risk, adjust portfolio
duration and enable efficient portfolio construction. These activities are
undertaken in accordance with investment guidelines supplied by, or disclosed
to, State Street's customers.
As a servicer of financial assets, State Street acts as trustee,
custodian and/or administrator for its customers' investment funds, certain of
which may use derivative instruments in their investment strategies. These
activities are part of the normal responsibilities of State Street as a service
provider and are discharged in accordance with customer service contracts.
Further discussion of derivatives is included in Footnote R to the Financial
Statements, page 54.
NEW ACCOUNTING DEVELOPMENTS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," and SFAS No. 122, "Accounting for Mortgage Servicing Rights," are effective
for fiscal years beginning after December 15, 1995. State Street plans to adopt
these two new statements in 1996, neither of which will have a material impact
to the financial statements.
SFAS No. 123, "Accounting for Stock Issued to Employees," was issued in
1995. State Street plans to continue to measure compensation cost for
stock-based employee compensation plans using the intrinsic-value-based method
of accounting prescribed by APB Opinion No. 25. State Street will adopt the new
disclosure requirements of this statement in 1996.
<PAGE>
EXHIBIT 13.3
To Our
STOCKHOLDERS
IN 1995, WE SHARPENED STATE STREET'S FOCUS and strengthened our franchise,
confirming our commitment to be the leading full service provider in our
selected markets. Our initiatives this year, building on the accomplishments of
the past, have us looking forward enthusiastically to a future of continued
growth and achievement.
MARSHALL N. CARTER
Our strategy for growth is based Chairman and Chief Executive Officer
on the distinct strengths of the
powerful, global State Street ------------------------------------
franchise. We are the largest servicer [Photo of Marshall N. Carter]
of U.S. mutual funds, the largest
master trustee/master custodian of
U.S. pension plans, the third-largest
U.S. investment manager and the
third-largest manager of defined
contribution plan assets because
customers recognize and -----------------------------------
value our unique service capability and technological superiority. From basic
custody to the most sophisticated information and analysis, we provide the
services they need, in any country and any currency.
In every aspect of our business, our broad customer base is a vital element
of our franchise. Their growth, in both size and sophistication, and the
resultant need for additional and more complex services, is key to our growth.
Our opportunities for internal growth are substantial and global.
Our strategies for creating stockholder value draw on the strengths of our
franchise. We continue to add and enhance products and services, provide
additional services to existing customers, expand globally, and improve our
process and infrastructure. The commentary following this letter discusses these
strategies in detail. Our business tactics maintain State Street's focus on
servicing and managing financial assets.
We have noted the merger and acquisition activity of many of our competitors,
which has done little to alter the competitive landscape in our core businesses.
Given State Street's excellent prospects for internal growth, we will consider
an acquisition only if it enables us to add new products or services that
enhance our established capabilities, expand our geographic reach, or increase,
very selectively, market share, without diluting earnings per share over the
long term.
1995 was a year of considerable challenge for State Street. After a slow
start, we gained momentum as the year progressed, both in financial results and
in the marketplace. A difficult environment prevailed during the first quarter,
and revenue fell short of our plan. However, even with several investment
initiatives under way, we held expenses below plan. Our productivity
improvements enabled us to accommodate significant growth in all businesses
without growth in personnel. As the year progressed, our customers used more
services and we increased penetration of markets around the world, increasing
revenue.
Our primary financial objective continues to be sustainable real growth in
earnings per share. In 1995, we achieved earnings per share growth of 12%. We
have two supporting goals as well, which we discuss further in the Financial
Review. Our revenue goal for the decade is 12.5% real growth per year. In 1995,
revenue grew 11%, with growth accelerating as the year progressed. Our second
supporting goal is an 18% return on equity. For 1995, return on stockholders'
equity was 16.7%.
In the second half of 1995, we won substantial new business from both
- ------------------------------------- existing and new customers, gaining
[Photo of David A. Spina] market share and adding to revenue
for 1996 and beyond. We believe this
continuing success in the market is
in part a result of our investment
spending, which has enabled us to
- ------------------------------------- improve our products and services,
DAVID A. SPINA augment capacity, and expand
President and Chief Operating Officer geographically.
We purchased 416,000 shares of State Street stock on the open market in the
second half of 1995, and at year end had authorization from the Board of
Directors to buy an additional 2.6 million shares. We continued to increase our
dividend semiannually. Dividends per share have grown 16% per year over the last
ten years.
In December 1995, we established a new operating unit for custody and
related services. David A. Spina was promoted to president and chief operating
officer of the corporation, heading up the new unit, which concentrates a broad
range of resources under his leadership. The new unit will allow us to leverage
the many opportunities we see worldwide, and to do so quickly.
Today's State Street is a growing global financial services company,
working with customers around the world to provide the highest quality service
and management for their financial assets. State Street's success is rooted in
our ability to provide customers with a full range of integrated financial asset
services, from cash management to portfolio analytics; from custody and
accounting to active emerging markets investment strategies. As the additional
business we continue to attract from both new and existing customers attests,
State Street is a leader in the field not by virtue of our size but because of
our ability to interweave all the elements, products and services, which the
business environment of today and tomorrow demands.
Our decision to focus our expertise on technology and the service aspects
of finance has offered clear advantages for State Street's stockholders. For
nearly two decades, through economic cycles and bull and bear markets, our
revenue, over 70% of which is now from fees, has grown steadily. Like a
technology or business service company, we view revenue growth as the primary
driver of long-term earnings per share growth. State Street remains committed to
investing in the future. We will not risk our leadership position in the rapidly
changing technological environment of the 1990s. We learn every day from our
customers how much they need and appreciate the speed and flexibility with which
we meet their ever-increasing, and increasingly complex, requirements.
We are confident that State Street is ideally positioned to extend its
record of consistent earnings per share growth in the years ahead. We continue
to improve our position as an established industry leader by remaining focused
on our core businesses while adapting continuously to help set the pace for the
markets we serve. We are proud to stand out in the financial services field as a
distinct and different corporation. This distinction is what makes us so
valuable to our stockholders and our customers.
In 1996, we expect to see revenue growth from the business won in the
second half of 1995, and to benefit from an intensified focus on gaining more
operating leverage in the custody business. We will continue to build on our
customer relationships, redefine our market, and expand our distribution
channels, and we will establish new business relationships by leading with a
number of services, not just custody and investment management. Through 1996 and
beyond we will continue to capitalize on the growing global demand for our
expertise by implementing our strategies to create stockholder value.
None of our substantial achievements, past, present, or future, would be
possible without the talent and dedication of our more than 11,000 professionals
around the world. They make State Street the powerful institution that has
provided its stockholders with a total return of 18%, compounded annually, on
their investment over the last ten years. We look forward to working with these
professionals to enhance further State Street's value to stockholders, our
employees, and to the world in which we live.
/s/ MARSHALL N. CARTER /s/ DAVID A. SPINA
MARSHALL N. CARTER DAVID A. SPINA
Chairman and Chief Executive Officer President and Chief Operating Officer
<PAGE>
EXHIBIT 13.4
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
STATE STREET BOSTON CORPORATION
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in thousands, except per share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST REVENUE
Deposits with banks ........................................................ $ 286,751 $ 209,280 $ 201,455
Investment securities:
U.S. Treasury and Federal agencies ...................................... 243,936 184,253 124,699
State and political subdivisions (exempt from Federal tax) .............. 53,096 41,521 26,727
Other investments ....................................................... 132,915 137,876 116,238
Loans ...................................................................... 242,015 183,333 127,651
Securities purchased under resale agreements, securities borrowed
and Federal funds sold .................................................. 357,477 156,003 118,518
Trading account assets ..................................................... 20,429 23,978 14,340
----------- ---------- -----------
Total interest revenue ............................................... 1,336,619 936,244 729,628
INTEREST EXPENSE
Deposits ................................................................... 416,047 280,687 213,890
Other borrowings ........................................................... 482,613 254,780 170,176
Long-term debt ............................................................. 8,525 8,625 10,022
----------- ---------- -----------
Total interest expense ............................................... 907,185 544,092 394,088
----------- ---------- -----------
Net interest revenue ................................................. 429,434 392,152 335,540
Provision for loan losses - Note D ......................................... 8,000 11,569 11,320
----------- ---------- -----------
Net interest revenue after provision for loan losses ................. 421,434 380,583 324,220
FEE REVENUE
Fiduciary compensation ..................................................... 823,806 749,802 656,956
Other - Note K ............................................................. 295,266 267,527 208,616
----------- ---------- -----------
TOTAL FEE REVENUE .................................................... 1,119,072 1,017,329 865,572
Revenue Before Operating Expenses .................................... 1,540,506 1,397,912 1,189,792
Operating Expenses
Salaries and employee benefits - Note N .................................... 650,604 587,652 492,365
Occupancy, net ............................................................. 83,686 72,908 61,676
Equipment .................................................................. 123,901 111,759 100,295
Other - Note L ............................................................. 315,825 285,459 244,365
----------- ---------- -----------
Total operating expenses ............................................. 1,174,016 1,057,778 898,701
----------- ---------- -----------
Income before income taxes ........................................... 366,490 340,134 291,091
Income taxes - Note O ...................................................... 119,381 119,791 101,705
----------- ---------- -----------
NET INCOME ........................................................... $ 247,109 $ 220,343 $ 189,386
=========== =========== ==========
EARNINGS PER SHARE
Primary ................................................................. $2.98 $2.66 $2.30
Fully diluted ........................................................... 2.95 2.64 2.28
AVERAGE SHARES OUTSTANDING (in thousands)
Primary ................................................................. 83,058 82,823 82,165
Fully diluted ........................................................... 83,843 83,454 83,149
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CONDITION
-----------------------------------
STATE STREET BOSTON CORPORATION
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in thousands) December 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks - Note Q .................................................... $ 1,421,941 $ 1,097,563
Interest-bearing deposits with banks ................................................ 5,975,178 4,847,069
Securities purchased under resale agreements and securities borrowed - Note F ....... 5,406,619 1,886,759
Federal funds sold .................................................................. 347,500 768,615
Trading account assets .............................................................. 503,839 527,550
Investment securities - Notes C and F:
Held to maturity ................................................................. 824,399 5,187,270
Available for sale ............................................................... 5,535,364 3,482,309
----------- ------------
Total investment securities ................................................... 6,359,763 8,669,579
Loans - Note D ...................................................................... 3,986,142 3,233,221
Allowance for loan losses ........................................................... (63,491) (58,184)
----------- ------------
Net loans ..................................................................... 3,922,651 3,175,037
Premises and equipment - Notes E and H .............................................. 467,588 476,319
Customers' acceptance liability ..................................................... 57,472 55,358
Accrued income receivable ........................................................... 392,074 363,585
Other assets ........................................................................ 930,562 679,509
----------- ------------
TOTAL ASSETS .................................................................. $25,785,187 $22,546,943
=========== ===========
LIABILITIES
Deposits:
Noninterest-bearing .............................................................. $ 5,082,064 $ 4,781,917
Interest-bearing:
Domestic ....................................................................... 2,150,697 1,895,209
Foreign ........................................................................ 9,414,458 7,920,932
----------- ------------
Total deposits ................................................................ 16,647,219 14,598,058
Federal funds purchased ............................................................. 467,305 113,143
Securities sold under repurchase agreements - Note F ................................ 5,120,950 4,798,261
Other short-term borrowings ......................................................... 443,203 649,052
Notes payable - Note G .............................................................. 175,218
Acceptances outstanding ............................................................. 57,387 55,621
Accrued taxes and other expenses - Note O ........................................... 562,304 418,840
Other liabilities ................................................................... 597,501 449,283
Long-term debt - Note H ............................................................. 126,576 127,549
----------- ------------
TOTAL LIABILITIES ............................................................. 24,197,663 21,209,807
Commitments and contingent liabilities - Notes P and R
STOCKHOLDERS' EQUITY - NOTES H, I, J AND Q
Preferred stock, no par: authorized 3,500,000; issued none
Common stock, $1 par: authorized 112,000,000; issued 82,695,000 and 82,447,000 ...... 82,695 82,447
Surplus ............................................................................. 40,090 37,160
Retained earnings ................................................................... 1,465,007 1,273,369
Net unrealized gain (loss) on available-for-sale securities ......................... 12,688 (55,840)
Treasury stock (at cost, 307,000 shares) ............................................ (12,956)
----------- -----------
Total Stockholders' Equity .................................................... 1,587,524 1,337,136
----------- -----------
Total Liabilities and Stockholders' Equity .................................... $25,785,187 $22,546,943
=========== +===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
STATE STREET BOSTON CORPORATION
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................ $ 247,109 $ 220,343 $ 189,386
Noncash charges for depreciation, amortization, provision for
loan losses and foreclosed properties, and deferred income taxes ....... 139,801 171,687 155,402
----------- ----------- -----------
Net income adjusted for noncash charges ............................. 386,910 392,030 344,788
Adjustments to reconcile to net cash provided (used) by operating activities:
Securities (gains) losses, net ......................................... (12,330) (1,707) (15,746)
Net change in:
Trading account assets ............................................... 23,711 (284,900) (52,141)
Accrued income receivable ............................................ (28,489) (93,840) (58,594)
Accrued taxes and other expenses ..................................... 47,595 28,444 27,467
Other, net ........................................................... (106,540) 15,512 (62,193)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES .................... 310,857 55,539 183,581
INVESTING ACTIVITIES
Payments for purchases of:
Held-to-maturity securities ............................................ (2,125,443) (3,742,885) (3,673,561)
Available-for-sale securities .......................................... (2,151,766) (4,711,683) (3,279,084)
Lease financing assets ................................................. (621,006) (643,525) (426,313)
Premises and equipment ................................................. (96,210) (124,599) (116,379)
Proceeds from:
Maturities of held-to-maturity securities .............................. 2,529,251 3,009,057 2,318,776
Maturities of available-for-sale securities ............................ 555,672 1,408,809 1,991,086
Sales of available-for-sale securities ................................. 3,654,042 1,524,662 1,002,271
Principal collected from lease financing ............................... 63,034 41,261 45,536
Net (payments for) proceeds from:
Interest-bearing deposits with banks ................................... (1,128,109) 301,180 (345,003)
Federal funds sold, resale agreements and securities borrowed .......... (3,098,745) (129,828) 795,260
Loans .................................................................. (633,210) (435,355) (617,280)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES ............................... (3,052,490) (3,502,906) (2,304,691)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt ......................................................... 99,025
Notes payable .......................................................... 175,218
Nonrecourse debt for lease financing ................................... 501,357 513,585 347,042
Common and treasury stock .............................................. 5,390 6,228 6,035
Payments for:
Maturity of notes payable .............................................. (150,000)
Nonrecourse debt for lease financing ................................... (61,625) (39,378) (38,695)
Long-term debt ......................................................... (863) (785) (114,213)
Cash dividends ......................................................... (56,121) (45,831) (39,297)
Purchase of common stock ............................................... (17,160)
Net proceeds from (payments for):
Deposits ............................................................... 2,049,161 908,520 2,059,735
Short-term borrowings .................................................. 470,654 1,809,588 (3,217)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................... 3,066,011 3,001,927 2,316,415
----------- ----------- -----------
Net Increase (Decrease) ............................................. 324,378 (445,440) 195,305
Cash and due from banks at beginning of period ............................ 1,097,563 1,543,003 1,347,698
---------- ---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD ............................ $1,421,941 $1,097,563 $1,543,003
========== ========== ==========
SUPPLEMENTAL DISCLOSURE
Interest paid .......................................................... $ 902,617 $ 545,304 $ 394,696
Income taxes paid ...................................................... 97,605 70,479 57,977
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
STATE STREET BOSTON CORPORATION
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
COMMON RETAINED AVAILABLE-FOR- TREASURY
(Dollars in thousands) STOCK SURPLUS EARNINGS SALE SECURITIES STOCK TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ................ $81,033 $14,693 $ 944,034 $ $ $1,039,760
Net income ............................... 189,386 189,386
Cash dividends declared - $.52 per share . (39,297) (39,297)
Issuance of common stock -
812,902 net shares ................... 813 11,252 12,065
Foreign currency translation ............. (758) (758)
------- ------- ---------- --------- -------- ----------
Balance at December 31, 1993 ................ 81,846 25,945 1,093,365 1,201,156
Net income ............................... 220,343 220,343
Cash dividends declared - $.60 per share . (45,831) (45,831)
Issuance of common stock -
601,215 net shares ................... 601 11,215 11,816
Foreign currency translation ............. 5,492 5,492
Net unrealized loss on available-for-sale
securities ........................... (55,840) (55,840)
------- ------- ---------- --------- -------- ----------
Balance at December 31, 1994 ................ 82,447 37,160 1,273,369 (55,840) 1,337,136
Net income ............................... 247,109 247,109
Cash dividends declared - $.68 per share . (56,121) (56,121)
Issuance of common stock -
247,850 net shares ................... 248 5,194 5,442
Common stock acquired - 416,200 shares ... (17,160) (17,160)
Issuance of treasury stock -
108,916 shares ....................... (2,264) 4,204 1,940
Foreign currency translation ............. 650 650
Change in net unrealized gain
on available-for-sale securities ..... 68,528 68,528
------- ------- ---------- --------- -------- ----------
Balance at December 31, 1995 ................ $82,695 $40,090 $1,465,007 $ 12,688 $(12,956) $1,587,524
======= ======= ========== ========= ======== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATE STREET BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATE STREET BOSTON CORPORATION
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
State Street Boston Corporation ("State Street") is a financial services
corporation and provides banking, trust, investment management and securities
processing services to both domestic and global customers. State Street's
primary focus is servicing and managing financial assets on a global scale.
State Street has three lines of business:financial asset services, investment
management and commercial lending. Financial asset services are primarily
accounting, custody, banking and other services for large pools of assets such
as mutual funds and pension plans, participant recordkeeping for defined
contribution plans and corporate trusteeships. Financial asset services is State
Street's predominate line of business. Investment management is comprised of the
business components that manage financial assets worldwide, both institutional
investment management and personal trust services. Commercial lending activities
include regional middle market, specialized and trade finance lending as well
as asset-based finance and leasing.
The accounting and reporting policies of State Street and its
subsidiaries conform to generally accepted accounting principles. The
significant policies are summarized below.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of State Street and its subsidiaries, including its principal
subsidiary, State Street Bank and Trust Company ("State Street Bank"). The
preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. All
significant intercompany balances and transactions have been eliminated upon
consolidation. The results of operations of businesses purchased are included
from the date of acquisition. Investments in 50%-owned affiliates are accounted
for by the equity method. Certain previously reported amounts have been
reclassified to conform to the current method of presentation. For the
Consolidated Statement of Cash Flows, State Street has defined cash equivalents
as those amounts included in the Consolidated Statement of Condition caption,
"Cash and due from banks."
On January 31, 1995, State Street acquired Investors Fiduciary Trust
Company ("IFTC") in a transaction accounted for as a pooling of interests. The
financial information for prior periods has been restated to present the
combined financial condition and results of operations of both companies as if
the acquisition had taken place for all periods presented. See Note B -
Acquisition of Investors Fiduciary Trust Company.
RESALE AND REPURCHASE AGREEMENTS; SECURITIES BORROWED: State Street
enters into purchases of U.S. Treasury and Federal agency securities ("U.S.
Government securities") under agreements to resell the securities, which are
recorded as securities purchased under resale agreements, an asset in the
Consolidated Statement of Condition. These securities can be used as collateral
for repurchase agreements. It is State Street's policy to take possession or
control of the security underlying the resale agreement. The securities are
revalued daily to determine if additional collateral is necessary. State Street
enters into sales of U.S. Government securities under repurchase agreements,
which are treated as financings, and the obligations to repurchase such
securities sold are reflected as a liability in the Consolidated Statement of
Condition. The dollar amount of U.S. Government securities underlying the
repurchase agreements remains in investment securities.
Securities borrowed are recorded at the amount of cash collateral
deposited with the lender. State Street monitors daily its market exposure with
respect to securities borrowed transactions and requests that excess collateral
be returned or that additional securities be provided as needed.
SECURITIES: Debt securities are held in both the investment and trading
account portfolios. State Street accounts for debt and equity securities
classified as available for sale at fair value and the after-tax unrealized
gains and losses are reported as a separate component of stockholders' equity.
Securities classified as held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Gains or losses on sales of
available-for-sale securities are computed based on identified costs and
included in fee revenue. Trading account assets are held in anticipation of
short-term market movements and for resale to customers. Trading account assets
are carried at market value and the resulting adjustment is reflected in fee
revenue.
LOANS AND LEASE FINANCING: Loans are placed on a non-accrual basis when
they become 60 days past due as to either principal or interest, or when in the
opinion of management, full collection of principal or interest is unlikely.
When the loan is placed on non-accrual the accrual of interest is discontinued
and previously recorded but unpaid interest is reversed and charged against
current earnings.
Subsidiaries of State Street provide asset-based financing to customers
through a variety of lease arrangements. Leveraged leases are carried net of
nonrecourse debt. Revenue on leveraged leases is recognized on a basis
calculated to achieve a constant rate of return on the outstanding investment in
the leases, net of related deferred tax liabilities, in the years in which the
net investment is positive. Gains and losses on residual values of leased
equipment sold are included in fee revenue.
NOTE A-SUMMARY OF SIGNIfiCANT ACCOUNTING POLICIES (CONTINUED)
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.
State Street adopted Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS
No. 118 on January 1, 1995. SFAS No. 114 requires that the allowance for loan
losses related to certain loans be evaluated based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
underlying collateral for certain collateral dependent loans. Prior to January
1, 1995, the allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans. The adoption of SFAS No. 114 did not have a material effect on
the financial statements of State Street.
PREMISES AND EQUIPMENT: Premises, equipment and leasehold improvements
are carried at cost less accumulated depreciation and amortization. Depreciation
and amortization charged to operating expenses are computed using the
straight-line method over the estimated useful life of the related asset or the
remaining term of the lease. In 1995, SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
was issued. This statement addresses how long-lived assets and certain
identifiable intangibles held and used should be evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. State Street will adopt this new statement in
1996, and it is not expected to have a material impact.
OTHER REAL ESTATE OWNED: Properties acquired in satisfaction of debt are
carried at the lower of cost or fair market value and included in other assets.
Reductions in carrying value are recognized through charges to other operating
expenses. The costs of maintaining and operating foreclosed properties are
expensed as incurred.
REVALUATION GAINS AND LOSSES ON FINANCIAL CONTRACTS: The gross amount of
unrealized gains and losses on foreign exchange and interest rate contracts are
reported separately as other assets and other liabilities, respectively, in the
Consolidated Statement of Condition, except where such gains and losses arise
from contracts covered by qualifying master netting agreements.
FOREIGN CURRENCY TRANSLATION: The assets and liabilities of foreign
operations are translated at month-end exchange rates, and revenue and expenses
are translated at average monthly exchange rates. Gains or losses from the
translation of the net assets of certain foreign subsidiaries, net of any
foreign currency hedges and related taxes, are credited or charged to retained
earnings. Gains or losses from other translations are included in fee revenue.
INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS: State Street uses interest
rate contracts as part of its overall interest rate risk management. Gains and
losses on interest rate futures and option contracts that are designated as
hedges and effective as such are deferred and amortized over the remaining life
of the hedged assets or liabilities as an adjustment to interest revenue or
interest expense. Interest rate swap contracts that are entered into as part of
interest rate management are accounted for using the accrual method as an
adjustment to interest revenue or interest expense. Interest rate contracts
related to trading activities are adjusted to market value with the resulting
gains or losses included in fee revenue.
Foreign exchange trading positions are valued daily at prevailing
exchange rates, and the resulting gain or loss is included in fee revenue.
INCOME TAXES: The provision for income taxes includes deferred income
taxes arising as a result of reporting some items of revenue and expense in
different years for tax and financial reporting purposes.
EARNINGS PER SHARE: The computation of primary earnings per share is
based on the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. Stock option grants are included
only in periods when the results are dilutive. The computation of fully diluted
earnings per share additionally includes the assumption that the convertible
debt had been converted as of the beginning of each period, with the elimination
of related interest expense less the income tax benefit.
NOTE B-ACQUISITION OF INVESTORS FIDUCIARY TRUST COMPANY
On January 31, 1995, State Street acquired IFTC in a transaction
accounted for as a pooling of interests. IFTC was acquired for 5,972,222 shares
of State Street common stock. IFTC provides custody and fund accounting services
to mutual funds, unit investment trusts, insurance portfolios and bank
portfolios.
NOTE C -INVESTMENT SECURITIES
Investment securities consisted of the following at December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
AMORTIZED UNREALIZED FAIR Amortized Unrealized Fair
(Dollars in thousands) COST GAINS LOSSES VALUE Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY (at amortized cost)
U.S. Treasury and
Federal agencies ... $ 824,399 $ 5,217 $ 483 $ 829,133 $1,668,987 $ 590 $ 35,836 $1,633,741
State and political
subdivisions ....... 1,130,197 317 19,210 1,111,304
Asset-backed securities 2,346,931 1,104 75,823 2,272,212
Other investments ..... 41,155 84 155 41,084
---------- ------- ------- ---------- ---------- ------ -------- ----------
Total .............. $ 824,399 $ 5,217 $ 483 $ 829,133 $5,187,270 $2,095 $131,024 $5,058,341
========== ======= ======= ========== ========== ====== ======== ==========
AVAILABLE FOR SALE (at fair value)
U.S. Treasury and
Federal agencies ... $2,270,695 $17,579 $ 4,292 $2,283,982 $3,410,711 $0,496 $ 91,790 $3,319,417
State and political
subdivisions ....... 1,299,720 10,411 3,898 1,306,233
Asset-backed securities 1,672,822 4,347 11,808 1,665,361
Other investments ..... 271,028 10,050 1,290 279,788 170,823 4,780 12,711 162,892
---------- ------- ------- ---------- ---------- ------ -------- ----------
Total .............. $5,514,265 $42,387 $21,288 $5,535,364 $3,581,534 $5,276 $104,501 $3,482,309
========== ======= ======= ========== ========== ====== ======== ==========
</TABLE>
The amortized cost and fair value of available-for-sale and
held-to-maturity securities by maturity at December 31, 1995, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
WITHIN AFTER ONE AFTER FIVE AFTER
ONE YEAR BUT WITHIN BUT WITHIN TEN
(Dollars in thousands) OR LESS FIVE YEARS TEN YEARS YEARS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Amortized cost .................................................. $ 444,480 $ 379,919
Fair value ...................................................... 445,624 383,509
AVAILABLE FOR SALE
Amortized cost .................................................. 2,151,694 3,012,062 184,458 166,051
Fair value ...................................................... 2,157,381 3,025,345 185,869 166,769
</TABLE>
The maturity of asset-backed securities is based upon the expected
principal payments. Securities carried at $2,226,579,000 and $4,246,809,000 at
December 31, 1995 and 1994, respectively, were designated as security for public
and trust deposits, borrowed funds and for other purposes as provided by law.
During 1995, gains of $17,414,000 and losses of $5,084,000 were realized
on sales of available-for-sale securities of $3,654,042,000. During 1994, gains
of $5,843,000 and losses of $4,136,000 were realized on sales of
available-for-sale securities of $1,524,662,000. During 1993, gains of
$16,630,000 and losses of $884,000 were realized on sales of available-for-sale
securities of $1,002,271,000.
The excess of fair value over the amortized cost of available-for-sale
securities on the January 1, 1994 adoption of SFAS No. 115 was $11,918,000 with
an after-tax increase to stockholders' equity of $7,030,000.
In November 1995, the Financial Accounting Standards Board issued a
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." In accordance with
provisions in that Special Report, State Street chose to reclassify certain
securities from held to maturity to available for sale on December 1, 1995. At
the date of transfer, the amortized cost of those securities was $3,828,808,000
and the net unrealized gain on those securities was $2,684,000, which was
recorded net of tax in stockholders' equity at the date of transfer.
NOTE D-LOANS
The loan portfolio consisted of the following at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and financial ................................................................. $2,572,553 $2,070,146
Real estate .............................................................................. 95,782 100,549
Consumer ................................................................................. 47,355 41,323
Foreign .................................................................................. 699,191 569,508
Lease financing .......................................................................... 571,261 451,695
---------- ----------
Total loans ........................................................................ $3,986,142 $3,233,221
========== ==========
Non-accrual loans ........................................................................ $15,502 $23,043
Interest revenue under original terms ................................................. 2,034 2,245
Interest revenue recognized ........................................................... 445 834
</TABLE>
Changes in the allowance for loan losses for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year ........................................................ $58,184 $54,316 $57,931
Provision for loan losses ........................................................... 8,000 $11,569 11,320
Loan charge-offs .................................................................... (6,726) (10,477) (18,545)
Recoveries .......................................................................... 4,033 2,776 2,205
Allowance of subsidiary purchased ................................................... 1,405
------- ------- -------
Balance at end of year ........................................................ $63,491 $58,184 $54,316
======= ======= =======
</TABLE>
During 1995 and 1994, loans totaling $1,742,000 and $191,000 were
transferred to other real estate owned.
NOTE E-PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buildings and land ........................................................................... $272,933 $268,162
Leasehold improvements ....................................................................... 135,059 120,308
Equipment and furniture ...................................................................... 477,461 450,356
885,453 838,826
Accumulated depreciation and amortization .................................................... (417,865) (362,507)
Total premises and equipment, net ...................................................... $467,588 $476,319
</TABLE>
State Street has entered into noncancelable operating leases for premises
and equipment. At December 31, 1995, future minimum payments under noncancelable
operating leases with initial or remaining terms of one year or more totaled
$572,925,000. This consisted of $45,340,000, $43,421,000, $37,042,000,
$34,011,000 and $30,660,000 for the years 1996 to 2000, respectively, and
$382,451,000 thereafter. The minimum rental commitments have been reduced by
sublease rental commitments of $5,659,000. Substantially all leases include
renewal options.
Total rental expense amounted to $41,782,000, $35,023,000 and $26,673,000
in 1995, 1994 and 1993, respectively. Rental expense has been reduced by
sublease revenue of $556,000, $1,083,000 and $2,149,000 in 1995, 1994 and 1993,
respectively.
NOTE F-INVESTMENT SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
State Street enters into sales of U.S. Government securities under
repurchase agreements that are treated as financings, and the obligations to
repurchase such securities sold are reflected as a liability in the Consolidated
Statement of Condition. The dollar amount of U.S. Government securities
underlying the repurchase agreements remains in investment securities.
Information on these U.S. Government securities, and the related
repurchase agreements including accrued interest, is shown in the table below.
This table excludes repurchase agreements that are secured by securities
purchased under resale agreements and securities borrowed.
Information at December 31, 1995 was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT REPURCHASE
SECURITIES SOLD AGREEMENTS
BOOK BOOK
(Dollars in thousands) AMOUNT MARKET AMOUNT RATE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity of repurchase agreements:
Overnight ........................................................... $ 557,986 $ 564,290 $ 557,683 5.25%
2 to 30 days ........................................................ 577,847 576,706 575,338 5.33
31 to 90 days ....................................................... 53,851 53,913 53,670 4.75
Over 90 days ........................................................ 550 550 550 2.25
---------- ---------- ----------
Total .......................................................... $1,190,234 $1,195,459 $1,187,241 5.27
========== ========== ==========
</TABLE>
NOTE G-NOTES PAYABLE
State Street Bank issues Bank Notes from time to time, in an aggregate
amount not to exceed $750,000,000 and with original maturities ranging from 14
days to five years.
The Bank Notes, which are not subject to redemption, represent unsecured
debt obligations of State Street Bank. The Bank Notes are neither obligations of
nor guaranteed by State Street and are recorded net of original issue discount.
At December 31, 1995, there was a total of $175,218,000 of Bank Notes
outstanding. This included $126,868,000 with an average maturity of 45 days and
a weighted average interest rate of 5.79% and $48,350,000 of two year foreign
currency denominated notes due October 1997, with an interest rate of 1.05%.
NOTE H-LONG-TERM DEBT
Long-term debt, less unamortized original issue discount, consisted of
the following at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
5.95% Notes due 2003 ........................................................................ $ 99,710 $ 99,672
7.75% Convertible subordinated debentures due 2008 .......................................... 3,210 3,358
9.50% Mortgage note due 2009 ................................................................ 23,656 24,519
-------- --------
Total long-term debt ................................................................. $126,576 $127,549
======== ========
</TABLE>
The 5.95% notes are unsecured obligations of State Street.
The 7.75% debentures are convertible to common stock at a price of $5.75
per share, subject to adjustment for certain events. The debentures are
redeemable, at State Street's option, at a price of approximately 101.6%,
declining annually to par by 1998. During 1995 and 1994, $148,000 and $563,000
of debentures were converted into 25,734 and 137,711 shares of common stock,
respectively. At December 31, 1995, 558,261 shares of authorized common stock
had been reserved for issuance upon conversion.
The 9.50% mortgage note was fully collateralized by property at December
31, 1995. The aggregate maturities of this mortgage note for the years 1996
through 2000 are $948,000, $1,042,000, $1,146,000, $1,260,000 and $1,385,000,
respectively.
In August 1993, a shelf registration statement became effective that
allows State Street to issue up to $250 million of unsecured debt securities. In
September 1993, State Street issued $100 million of 5.95% Notes due 2003, and
the remaining balance of $150 million at December 31, 1995, is available for
issuance.
NOTE I-STOCKHOLDERS' EQUITY
The Board of Directors has authorized the repurchase of up to three
million shares of State Street's common stock. Shares purchased under the
authorization could be used for employee benefit plans or general corporate
purposes. During the third quarter of 1995, the stock purchase program was
initiated and 416,200 shares of State Street's common stock were purchased for
employee benefit plans at an average cost of $41 per share through December 31,
1995.
State Street has a long-term incentive plan from which stock options,
stock appreciation rights (SARs) and performance units can be awarded. The
exercise price of non-qualified and incentive stock options may not be less
than fair value of such shares at date of grant and expire no longer than ten
years from date of grant. Performance units have been granted to officers at
the policy-making level. Performance units are earned over a performance period
based on achievement of goals. Payment for performance units is made in cash
equal to the fair market value of State Street's common stock after the
conclusion of each performance period. Compensation expense related to
performance units was $3,439,000, $333,000 and $2,126,000 for 1995, 1994 and
1993, respectively.
Under the 1994 Stock Option and Performance Unit Plan, options and SARs
covering 3,500,000 shares of common stock and 1,000,000 performance units may be
issued. State Street has stock options and performance shares outstanding from
previous plans under which no further grants can be made.
Option activity during 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTION PRICE
(In thousands, except per share amounts) SHARES PER SHARE TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1993 ..................................................... 2,396 $ 3.95-45.31 $ 48,776
Granted ......................................................................... 907 28.94-39.25 28,087
Exercised ....................................................................... (460) 3.95-32.25 (6,088)
Canceled ........................................................................ (41) 13.41-45.31 (1,056)
----- --------
Outstanding, December 31, 1994 ..................................................... 2,802 6.42-45.31 69,719
Granted ......................................................................... 378 32.50-44.00 12,985
Exercised ....................................................................... (327) 6.42-36.38 (5,306)
Canceled ........................................................................ (67) 20.72-45.31 (2,094)
----- --------
Outstanding, December 31, 1995 ..................................................... 2,786 11.23-45.31 $ 75,304
===== ========
</TABLE>
At December 31, 1995, 1,175,814 shares under options were exercisable and
2,391,366 shares under options and SARs were available for future grants. During
1993, 393,000 options were exercised at per share prices of $3.52 to $20.38.
In 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was
issued. This statement addresses financial accounting and reporting standards
for stock-based employee compensation plans. State Street plans to continue to
measure compensation cost for these plans using the intrinsic value-based method
of accounting prescribed by APB Opinion No. 25. State Street will adopt the new
disclosure requirements of this statement in 1996.
NOTE J-SHAREHOLDERS' RIGHTS PLAN
In 1988, State Street declared a dividend of one preferred share purchase
right for each outstanding share of common stock. Under certain conditions, a
right may be exercised to purchase one two-hundredths share of a series of
participating preferred stock at an exercise price of $75, subject to
adjustment. The rights become exercisable if a party acquires or obtains the
right to acquire 20% or more of State Street's common stock or after
commencement or public announcement of an offer for 20% or more of State
Street's common stock. When exercisable, under certain conditions, each right
also entitles the holder thereof to purchase shares of common stock, of either
State Street or of the acquiror, having a market value of two times the then
current exercise price of that right.
The rights expire in 1998 and may be redeemed at a price of $.005 per
right at any time prior to expiration or the acquisition of 20% of State
Street's common stock. Also, under certain circumstances, the rights may be
redeemed after they become exercisable and may be subject to automatic
redemption.
NOTE K-FEE REVENUE-OTHER
The Other category of fee revenue consisted of the following for the
years ended December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign exchange trading ......................................................... $140,687 $113,842 $ 82,705
Service fees ..................................................................... 59,469 48,205 40,717
Processing service fees .......................................................... 53,734 66,837 46,083
Securities gains, net ............................................................ 12,330 1,707 15,746
Trading account profits (losses) ................................................. 3,717 (327) 3,892
Other ............................................................................ 25,329 37,263 19,473
-------- -------- --------
Total fee revenue-other ................................................... $295,266 $267,527 $208,616
======== ======== ========
</TABLE>
NOTE L-OPERATING EXPENSES-OTHER
The Other category of operating expenses consisted of the following for
the years ended December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract services ................................................................ $117,061 $104,551 $ 74,850
Professional services ............................................................ 48,096 48,199 35,784
Advertising and sales promotion .................................................. 25,847 23,368 19,011
Postage, forms and supplies ...................................................... 23,803 20,593 18,583
Telecommunications ............................................................... 22,417 21,520 21,712
Other ............................................................................ 78,601 67,228 74,425
-------- -------- --------
Total operating expenses-other ............................................ $315,825 $285,459 $244,365
======== ======== ========
</TABLE>
NOTE M-QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except 1995 QUARTERS 1994 Quarters
per share data) FOURTH THIRD SECOND FIRST Fourth Third Second First
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue ....... $346,436 $341,301 $330,128 $318,754 $284,049 $243,638 $209,423 $199,137
Interest expense ....... 232,252 232,320 224,309 218,303 182,246 144,017 112,451 105,379
-------- -------- -------- -------- -------- -------- -------- --------
Net interest revenue 114,184 108,981 105,819 100,451 101,803 99,621 96,972 93,758
Provision for loan losses 2,000 2,000 2,000 2,000 2,058 3,159 3,182 3,170
-------- -------- -------- -------- -------- -------- -------- --------
Net interest revenue
after provision for
loan losses ...... 112,184 106,981 103,819 98,451 99,745 96,462 93,790 90,588
Fee revenue ............ 296,831 283,782 276,724 261,735 255,950 252,681 249,666 259,035
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue ....... 409,015 390,763 380,543 360,186 355,695 349,143 343,456 349,623
Operating expenses ..... 309,304 300,686 289,214 274,813 268,610 264,618 260,770 263,783
-------- -------- -------- -------- -------- -------- -------- --------
Income before
income taxes ..... 99,711 90,077 91,329 85,373 87,085 84,525 82,686 85,840
Income taxes ........... 34,235 25,441 28,668 31,037 29,972 29,372 28,807 31,643
-------- -------- -------- -------- -------- -------- -------- --------
Net Income .......... $ 65,476 $64,636 $ 62,661 $ 54,336 $ 57,113 $ 55,153 $ 53,879 $ 54,197
======== ======== ======== ======== ======== ======== ======== ========
Earnings Per Share:
Primary ............. $.79 $.78 $.75 $.66 $.69 $.66 $.65 $.66
Fully diluted ....... .78 .77 .75 .65 .68 .66 .65 .65
Average Shares Outstanding:
Primary ............. 83,113 83,172 83,019 82,890 82,851 82,958 82,854 82,649
Fully diluted ....... 83,720 83,911 83,697 83,488 83,436 83,543 83,512 83,346
</TABLE>
NOTE N-EMPLOYEE BENEfiT PLANS
RETIREMENT PLANS
State Street and nearly all of its U.S. subsidiaries participate in a
noncontributory cash balance defined benefit plan covering employees based on
age and service. The plan provides individual account accumulations that are
increased annually based on salary, service and interest credits. State Street
uses the projected unit credit method as its actuarial valuation method. It is
State Street's funding policy to contribute annually the maximum amount that can
be deducted for Federal income tax purposes. Employees in non-U.S. offices
participate in local plans, and the cost of these plans is not material.
The following table sets forth the primary plan's funded status,
actuarial assumptions and amounts recognized in the Consolidated Financial
Statements as of and for the years ended December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested ....................................................................... $113,614 $ 91,706 $ 91,186
Nonvested .................................................................... 12,631 9,184 10,527
Additional benefits based on estimated future salary levels ..................... 22,691 17,003 12,465
-------- --------- ---------
Projected benefit obligation ............................................. 148,936 117,893 114,178
Plan assets at fair value, primarily listed stocks and fixed income securities . 178,377 156,769 162,690
-------- --------- ---------
Excess of plan assets over projected benefit obligation .................. 29,441 38,876 48,512
Unrecognized net asset at transition being amortized over 17.2 years ........... (15,916) (17,844) (19,771)
Unrecognized net (gain) loss .................................................... 7,244 2,937 (3,152)
Unrecognized prior service cost ................................................. (3,228) (3,499) (3,770)
-------- --------- ---------
Total prepaid pension expense included in other assets .................... $ 17,541 $ 20,470 $ 21,819
======== ========= =========
Pension expense (income) included the following components:
Service cost-benefits earned during period ................................... $ 11,005 $ 11,392 $ 10,030
Interest cost on projected benefit obligation ................................ 9,927 8,253 6,142
Actual return on plan assets ................................................. (33,607) (3,076) (22,874)
Net amortization and deferral ................................................ 15,604 (15,220) 5,809
-------- --------- ---------
Total pension expense (income) ............................................ $ 2,929 $ 1,349 $ (893)
======== ========= =========
Actuarial assumptions:
Discount rate used to determine benefit obligation ........................... 8.00% 8.75% 7.50%
Rate of increase in future compensation level ................................ 5.00 5.00 5.00
Expected long-term rate of return on plan assets ............................. 10.25 10.25 10.25
</TABLE>
State Street has unfunded, non-qualified supplemental retirement plans
that provide certain officers with defined pension benefits in excess of
limits imposed by Federal tax law. At December 31, 1995, 1994 and 1993, the
projected benefit obligation of these plans was $15,259,000, $5,168,000 and
$2,790,000, and the related pension expense was $2,224,000, $436,000 and
$430,000, respectively.
Total pension expense for all plans was $8,300,000, $4,546,000 and
$2,050,000 for 1995, 1994 and 1993, respectively.
Employees of State Street Bank and certain subsidiaries with one or more
years of service are eligible to contribute a portion of their pre-tax salary to
a 401(k) Salary Savings Plan. State Street matches a portion of these
contributions, and the related expenses were $8,572,000, $7,456,000 and
$7,034,000 for 1995, 1994 and 1993, respectively.
POSTRETIREMENT PLAN
State Street Bank and certain subsidiaries provide health care and life
insurance benefits for retired employees. Upon adoption of SFAS No. 106, State
Street elected to amortize the accumulated postretirement benefit obligation
(APBO), which at the date of adoption was $22,100,000, over a 20-year period.
State Street continues to fund medical and life insurance benefit costs on a
pay-as-you-go basis.
The following table sets forth the financial status of the plan and
amounts recognized in the Consolidated Financial Statements as of and for the
years ended December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ................................................................................... $ 5,468 $ 6,768
Fully eligible active employees ............................................................ 4,698 5,204
Other active employees ..................................................................... 10,887 11,668
-------- ---------
21,053 23,640
Unrecognized transition obligation ............................................................ (18,760) (19,864)
Unrecognized net gain (loss) .................................................................. 8,762 3,775
-------- ---------
Accrued postretirement benefit cost included in liabilities ............................ $ 11,055 $ 7,551
======== =========
Postretirement benefits expense included the following components:
Service cost-benefits earned during the period ............................................. $ 1,504 $ 1,887
Interest cost on APBO ...................................................................... 2,021 2,122
Net amortization and deferral .............................................................. 1,015 1,202
-------- ---------
Total postretirement benefits expense .................................................. $ 4,540 $ 5,211
======== =========
</TABLE>
The discount rate used in determining the APBO was 8.00% and 8.75% for
1995 and 1994, respectively. The assumed health care cost trend rate used in
measuring the APBO was 6.00% for 1996 and thereafter. If the health care trend
rate assumptions were increased by 1%, the APBO would have increased by 6.0%, as
of December 31, 1995, and the aggregate of service and interest costs for 1995
would have increased by 8.0%.
NOTE O-INCOME TAXES
The provision for income taxes included in the Consolidated Statement of
Income consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ........................................................................ $ 31,626 $ 26,901 $ 23,609
State .......................................................................... 22,598 22,223 18,111
Foreign ........................................................................ 21,084 24,945 16,456
-------- -------- --------
Total current ............................................................... 75,308 74,069 58,176
-------- -------- --------
Deferred:
Federal ........................................................................ 33,640 33,542 29,422
State .......................................................................... 10,433 12,180 14,107
-------- -------- --------
Total deferred .............................................................. 44,073 45,722 43,529
-------- -------- --------
Total income taxes .......................................................... $119,381 $119,791 $101,705
======== ======== ========
</TABLE>
Current and deferred taxes for 1994 and 1993 have been reclassified to
reflect the tax returns as actually filed. Income tax benefits of $1,845,000,
$4,949,000 and $3,603,000 in 1995, 1994 and 1993, respectively, related to
certain employee stock option exercises were recorded directly to stockholders'
equity and are not included in the table above. Income tax expense related to
net securities gains were $5,142,000, $573,000 and $6,782,000 for 1995, 1994 and
1993, respectively.
Pre-tax income attributable to operations located outside the United
States was $66,712,000, $75,655,000 and $51,823,000 in 1995, 1994 and 1993,
respectively.
Significant components of the deferred tax liabilities and assets at
December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Lease financing transactions .............................................................. $323,975 $264,698
Prepaid pension expense ................................................................... 9,421 8,593
Investment securities ..................................................................... 5,963 9,009
Depreciation, net ......................................................................... 2,291
Other ..................................................................................... 7,999 6,548
-------- --------
Total deferred tax liabilities ......................................................... 347,358 291,139
-------- --------
Deferred tax assets:
Operating expenses ........................................................................ 36,535 37,481
Allowance for loan losses ................................................................. 27,217 26,246
Non-U.S. tax loss carryforwards ........................................................... 9,625 4,429
Depreciation, net ......................................................................... 7,944
Alternative minimum tax credit ............................................................ 10,606 25,553
Loan interest revenue ..................................................................... 4,608 3,327
Other ..................................................................................... 7,198 3,313
-------- --------
Total deferred tax assets .............................................................. 103,733 100,349
Valuation allowance for deferred tax assets ............................................... (9,625) (4,429)
-------- --------
Net deferred tax assets ................................................................ 94,108 95,920
-------- --------
Net deferred tax liabilities ........................................................... $253,250 $195,219
======== ========
</TABLE>
At December 31, 1995, State Street had non-U.S. carryforward tax losses
of $27,260,000 and U.S. tax credit carryforwards of $10,606,000. If not
utilized, $12,100,000 of the losses will expire in the years 1998-2002. The tax
credits and the remaining tax losses carry forward indefinitely.
A reconciliation of the differences between the U.S. statutory income tax
rate and the effective tax rates based on income before taxes is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax rate ........................................................... 35.0% 35.0% 35.0%
Changes from statutory rate resulting from:
State taxes, net of Federal benefit ................................................. 3.2 6.7 6.9
Tax-exempt interest revenue, net of disallowed interest ............................. (4.3) (4.1) (3.8)
Tax credits ......................................................................... (1.7) (2.3) (3.5)
Other, net .......................................................................... .4 ( .1) .3
---- ---- ----
Effective tax rate ............................................................... 32.6% 35.2% 34.9%
==== ==== ====
</TABLE>
For years beginning on or after January 1, 1995, the Commonwealth of
Massachusetts reduced the tax rate applicable to financial institutions and
permitted apportionment of income. The change in tax law resulted in a
revaluation of the deferred tax assets and liabilities which existed at the
beginning of 1995. This revaluation and the reduction of current year state tax
expense reduced the 1995 provision for state taxes. In addition, during 1995 a
settlement of prior years' state taxes resulted in a net $3.6 million reduction
in taxes. The settlement resolved a claim over the taxability of interest
revenue on certain Massachusetts bonds.
NOTE P-CONTINGENT LIABILITIES
State Street provides custody, securities processing, 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 a fiduciary or custody capacity, are not
included in the Consolidated Statement of Condition since such 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 December 31, 1995 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.
NOTE Q-CASH, DIVIDEND, LOAN AND OTHER RESTRICTIONS
During 1995, subsidiary banks of State Street were required by the
Federal Reserve Bank to maintain average reserve balances of $271,684,000.
State Street's principal source of funds for the payment of cash
dividends to stockholders and purchase of its common stock is from dividends
paid by State Street Bank. Federal and state banking regulations place certain
restrictions on dividends paid by subsidiary banks to State Street. At December
31, 1995, State Street Bank had $426,266,000 of retained earnings available for
distribution to State Street in the form of dividends.
The Federal Reserve Act requires that extensions of credit by State
Street Bank to certain affiliates, including State Street, be secured by
specific collateral, that the extension of credit to any one affiliate be
limited to 10% of capital and surplus (as defined), and that extensions of
credit to all such affiliates be limited to 20% of capital and surplus.
At December 31, 1995, consolidated retained earnings included $13,417,000
representing undistributed earnings of 50%-owned affiliates.
State Street has a committed line of credit amounting to $50,000,000 to
support its commercial paper program.
NOTE R-OFF-BALANCE SHEET FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES
State Street uses various off-balance sheet financial instruments,
including derivatives, to satisfy the financing and risk management needs of
customers, to manage interest rate and currency risk and to conduct trading
activities. In general terms, derivative instruments are contracts or agreements
whose value can be derived from interest rates, currency exchange rates and
financial indices. Derivative instruments include forwards, futures, swaps,
options and other instruments with similar characteristics. These instruments
generate fee, interest or trading revenue. Associated with these instruments are
market and credit risks that could expose State Street to potential losses.
Market risk relates to the possibility that financial instruments may
change in value due to future fluctuations in market prices. There may be
considerable day-to-day variation in market-risk exposure because of changing
expectations of future currency values or interest rates. State Street actively
manages its market-risk exposure.
Credit risk relates to the possibility that a loss may occur from the
failure of another party to perform according to the terms of a contract. The
credit risk associated with off-balance sheet financial instruments is managed
in conjunction with State Street's balance sheet activities. State Street
minimizes its credit risk by performing credit reviews of counterparties or by
conducting activities through organized exchanges. Historically, credit losses
with respect to these instruments have been immaterial.
State Street uses derivative financial instruments in trading and
balance sheet management activities. The objectives of trading activities are to
act as an intermediary in arranging transactions for customers and to assume
positions in interest rate or foreign currency markets based upon expectations
of future market movements. The objective of balance sheet management activities
is to utilize derivatives in minimizing the risk inherent in State Street's
asset and liability structure from interest rate and currency exchange
movements.
The following table summarizes the contractual or notional amounts of
derivative financial instruments held or issued by State Street at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRADING:
Interest rate contracts:
Swap agreements ............................................................................. $ 420 $ 109
Options and caps purchased .................................................................. 25 13
Options and caps written .................................................................... 36 25
Futures - short position .................................................................... 1,042 335
Futures - long position ..................................................................... 8
Options on futures purchased ................................................................ 1,000
Options on futures written .................................................................. 800 225
Foreign exchange contracts:
Forward, swap and spot ...................................................................... 54,965 43,126
Options purchased ........................................................................... 20 40
Options written ............................................................................. 43
BALANCE SHEET MANAGEMENT:
Interest rate contracts:
Swap agreements ............................................................................. 217 223
Futures - short position .................................................................... 165
Caps purchased .............................................................................. 50 50
Foreign exchange contracts ..................................................................... 83
</TABLE>
Interest rate contracts involve an agreement with a counterparty to
exchange cash flows based on the movement of an underlying interest rate index.
A swap agreement involves the exchange of a series of interest payments, either
at a fixed or variable rate, based upon the notional amount without the
exchange of the underlying principal amount. An option contract provides the
purchaser, for a premium, the right but not the obligation to buy or sell the
underlying financial instrument at a set price at or during a specified period.
A futures contract is a commitment to buy or sell at a future date a financial
instrument at a contracted price and may be settled in cash or through the
delivery of the contracted instrument.
Foreign exchange contracts involve an agreement to exchange the currency
of one country for the currency of another country at an agreed upon rate and
settlement date. Foreign exchange contracts consist of swap agreements, and
forward and spot contracts.
State Street's exposure from these interest rate and foreign exchange
contracts results from the possibility that one party may default on its
contractual obligation or from movements in exchange or interest rates. Credit
risk is limited to the positive market value of the derivative financial
instrument, which is significantly less than the notional value. The notional
value provides the basis for determining the exchange of contractual cash flows.
The exposure to credit loss can be estimated by calculating the cost on a
present value basis to replace at current market rates all profitable contracts
at year-end. The estimated aggregate replacement cost of derivative financial
instruments in a net positive position was $658,000,000 and $413,000,000 at
December 31, 1995 and 1994, respectively.
FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING
The following table represents the fair value and average fair value of
financial instruments held or issued for trading purposes as of and for the
years ended December 31, 1995 and 1994. The following amounts have been reduced
by offsetting balances with the same counterparty where a master netting
agreement exists:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1995 1994
AVERAGE AVERAGE
(DOLLARS IN MILLIONS) FAIR VALUE FAIR VALUE FAIR VALUE FAIR VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange contracts:
Contracts in a receivable position ................................ $539 $751 $298 $376
Contracts in a payable position ................................... 466 704 288 $360
Other financial instrument contracts:
Contracts in a receivable position ................................ 4 2 2 1
Contracts in a payable position ................................... 3 3 2 1
</TABLE>
State Street is an active participant in the global foreign exchange
market in support of a large institutional customer base engaged in
international investing. Trading is conducted through eight treasury centers
located in major financial centers throughout the world serving the needs of
investment managers and their customers in the region. State Street operates in
the spot and forward markets in over 30 currencies today as investors expand
their horizons. State Street is also active in the foreign exchange interbank
market where it trades with approximately 300 counterparty banks globally to
facilitate customer transactions.
State Street Bank uses interest rate futures and, to a lesser extent,
options on interest rate futures, to minimize the impact of the market valuation
of a portion of the bank's trading securities portfolio and to take positions on
interest rate movements.
Foreign exchange contracts and other contracts used in trading activities
are carried at fair value. The fair value of the instruments is recorded in the
balance sheet as part of other assets or other liabilities. Net trading gains
and (losses) recognized in other fee revenue related to foreign exchange
contracts totaled $141,000,000 and $114,000,000 and for other financial
instrument contracts totaled ($1,000,000) and $1,000,000 in 1995 and 1994,
respectively. Future cash requirements, if any, related to foreign currency
contracts are represented by the gross amount of currencies to be exchanged
under each contract unless State Street and the counterparty have agreed to pay
or receive the net contractual settlement amount on the settlement date. Future
cash requirements on other financial instruments are limited to the net amounts
payable under the agreements.
FINANCIAL INSTRUMENTS HELD OR ISSUED FOR BALANCE SHEET MANAGEMENT
State Street enters into various interest rate and foreign exchange
contracts in managing its balance sheet risk. State Street utilizes interest
rate swaps and caps to manage interest rate risk and foreign exchange contracts
to minimize currency translation risk. Interest rate derivative contracts are
used to convert short-term floating rate liabilities into longer term fixed rate
liabilities corresponding to long-term balance sheet assets. Income or expense
on financial instruments used to manage interest rate exposure is recorded on
an accrual basis as an adjustment to the yield of the related interest-earning
asset or interest-bearing liability over the period covered by the contracts.
Foreign exchange contracts are utilized to minimize the exposure to
currency loss from balance sheet investments denominated in foreign currencies.
The foreign exchange contracts and the currency translation of the investment
are marked to market, and the unrealized gain or loss is recorded in other fee
revenue.
CREDIT-RELATED FINANCIAL INSTRUMENTS
Credit-related financial instruments include commitments to extend
credit, standby letters of credit, letters of credit and indemnified securities
lent. The maximum credit risk associated with credit-related financial
instruments is measured by the contractual amounts of these instruments.
The following is a summary of the contractual amount of State Street's
credit-related, off-balance sheet financial instruments at December 31:
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loan commitments ................................................................................ $ 3,626 $ 2,536
Standby letters of credit ....................................................................... 1,286 929
Letters of credit ............................................................................... 179 168
Indemnified securities lent ...................................................................... 28,949 22,300
</TABLE>
In conjunction with its lending activities, State Street enters into
various commitments to extend credit and issues letters of credit. Loan
commitments (unfunded loans and unused lines of credit), standby letters of
credit and letters of credit are issued to accommodate the financing needs of
State Street's customers. Loan commitments are essentially agreements by State
Street to lend monies at a future date, so long as there are no violations of
any conditions established in the agreement. Standby letters of credit and
letters of credit commit State Street to make payments on behalf of customers
when certain specified events occur.
These loan and letter-of-credit commitments are subject to the same
credit policies and reviews as loans on the balance sheet. Collateral, both the
amount and nature, is obtained based upon management's assessment of the credit
risk. Approximately 70% of the loan commitments expire in one year or less from
the date of issue. Since many of the extensions of credit are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
On behalf of its customers, State Street lends their securities to
creditworthy brokers and other institutions. In certain circumstances, State
Street indemnifies its customers for the fair market value of those securities
against a failure of the borrower to return such securities. State Street
requires the borrowers to provide collateral in an amount equal to or in excess
of 102% of the fair market value of the securities borrowed. The borrowed
securities are revalued daily to determine if additional collateral is
necessary. State Street held as collateral, cash and U.S. Government securities
totaling $30.2 billion and $23.3 billion for indemnified securities at December
31, 1995 and 1994, respectively.
NOTE S-FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires the calculation and disclosure of the fair value of
financial instruments. State Street uses the following methods to estimate the
fair value of financial instruments.
For financial instruments that have quoted market prices, those quotes
were used to determine fair value. Financial instruments that have no defined
maturity, have a remaining maturity of 180 days or less, or reprice frequently
to a market rate, are assumed to have a fair value that approximates reported
book value, after taking into consideration any applicable credit risk. If no
market quotes were available, financial instruments were valued by discounting
the expected cash flow(s) using an estimated current market interest rate for
the financial instrument. For off-balance sheet derivative instruments, fair
value is estimated as the amounts that State Street would receive or pay to
terminate the contracts at the reporting date, taking into account the current
unrealized gains or losses on open contracts.
The short maturity of State Street's assets and liabilities results in
having a significant number of financial instruments whose fair value equals or
closely approximates reported balance sheet value. Such financial instruments
are reported in the following balance sheet captions: Cash and due from banks;
Interest-bearing deposits with banks; Securities purchased under resale
agreements and securities borrowed; Federal funds sold; Deposits; Federal funds
purchased; Securities sold under repurchase agreements; and Other short-term
borrowings. Fair value of trading activities equals its balance sheet value. In
1995, the fair value of interest rate contracts used for balance sheet
management would be a payable of $4 million; in 1994, the fair value of such
interest rate contracts would be a receivable of $6 million. There is no cost
for loan commitments.
The reported value and fair value for other balance sheet captions at
December 31 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1995 1994
REPORTED FAIR Reported Fair
(Dollars in millions) VALUE VALUE Value Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
Held to maturity .................................................... $ 824 $ 829 $5,187 $5,058
Available for sale .................................................. 5,535 5,535 3,482 3,482
Net loans (excluding leases) ........................................... 3,415 3,415 2,723 2,717
Notes payable .......................................................... 175 175
Long-term debt ......................................................... 127 132 128 113
</TABLE>
NOTE T-FOREIGN ACTIVITIES
Foreign activities, as defined by the Securities and Exchange
Commission, are considered to be those revenue-producing assets and transactions
that arise from customers domiciled outside the United States.
Due to the nature of the Corporation's business, it is not possible to
segregate precisely domestic and foreign activities. The determination of
earnings attributable to foreign activities requires internal allocations for
resources common to foreign and domestic activities. Subjective judgments have
been used to arrive at these operating results for foreign activities. Interest
expense allocations are based on the average cost of short-term domestic
borrowed funds. Allocations for operating expenses and certain administrative
costs are based on services provided and received.
<PAGE>
The following data relates to foreign activities, based on the domicile
location of customers, for the years ended and as of December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Condensed Statement of Income:
Interest revenue ............................................................ $ 450,568 $ 308,997 $ 226,213
Interest expense ............................................................ 343,240 223,001 158,392
---------- ---------- ----------
Net interest revenue ................................................. 107,328 85,996 67,821
Provision for loan losses ................................................... 4,211 2,084 1,073
Fee revenue ................................................................. 226,272 180,851 129,942
---------- ---------- ----------
Total revenue ........................................................ 329,389 264,763 196,690
Operating expenses .......................................................... 240,921 187,409 140,492
---------- ---------- ----------
Net income before taxes .............................................. 88,468 77,354 56,198
Income taxes ................................................................ 31,781 31,819 22,171
---------- ---------- ----------
Net Income ........................................................... $ 56,687 $ 45,535 $ 34,027
========== ========== ==========
Assets:
Interest-bearing deposits with banks ........................................ $5,975,178 $4,847,019 $5,148,201
Loans and other assets ...................................................... 1,446,674 784,817 645,579
---------- ---------- ----------
Total Assets ......................................................... $7,421,852 $5,631,836 $5,793,780
========== ========== ==========
</TABLE>
<PAGE>
NOTE U-FINANCIAL STATEMENTS OF STATE STREET BOSTON CORPORATION (PARENT ONLY)
Statement of Income
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from bank subsidiary .............................................. $ 96,000 $ 37,500 $ 46,400
Dividends and interest revenue .............................................. 12,198 6,793 4,228
Securities gains, net ....................................................... 5,217
-------- -------- --------
Total revenue ........................................................ 113,415 44,293 50,628
Interest on commercial paper ................................................ 7,826 3,458
Interest on long-term debt .................................................. 6,353 6,370 7,276
Other expenses .............................................................. 4,134 1,198 1,678
-------- -------- --------
Total expenses ....................................................... 18,313 11,026 8,954
Income tax expense (benefit) ................................................ 455 (1,483) (1,873)
-------- -------- --------
Income before equity in undistributed income of subsidiaries ......... 94,647 34,750 43,547
Equity in undistributed income of subsidiaries and affiliate:
Consolidated bank ........................................................ 132,176 161,402 132,688
Consolidated nonbank ..................................................... 15,127 19,706 11,085
Unconsolidated affiliate ................................................. 5,159 4,485 2,066
-------- -------- --------
152,462 185,593 145,839
-------- -------- --------
Net Income ........................................................... $247,109 $220,343 $189,386
======== ======== ========
</TABLE>
<PAGE>
Statement of Condition
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) December 31, 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks .................................................................. $ 585 $ 864
Interest-bearing deposits with bank subsidiary ........................................... 165,378 182,831
Available-for-sale securities ............................................................ 28,196 29,935
Investment in consolidated subsidiaries:
Bank .................................................................................. 1,455,036 1,208,913
Nonbank ............................................................................... 101,533 136,803
Investment in unconsolidated affiliate ................................................... 20,609 15,449
Notes receivable from nonbank subsidiaries ............................................... 15,597 5,958
Other assets ............................................................................. 2,550 10,527
Total Assets ...................................................................... $1,789,484 $1,591,280
Liabilities
Commercial paper ......................................................................... $ 74,115 $ 135,411
Accrued taxes and other expenses ......................................................... 10,095 3,467
Other liabilities ........................................................................ 14,831 12,236
Long-term debt ........................................................................... 102,919 103,030
Total Liabilities ................................................................. 201,960 254,144
Stockholders' Equity ..................................................................... 1,587,524 1,337,136
Total Liabilities and Stockholders' Equity ........................................ $1,789,484 $1,591,280
</TABLE>
<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income ...................................................................... $ 247,109 $220,343 $189,386
Equity in undistributed income of subsidiaries and affiliate .................... (154,110) (185,593) (145,839)
Securities gains, net ........................................................... (5,217)
Other, net ...................................................................... 18,772 (20,912) 5,403
--------- -------- --------
Net Cash Provided by Operating Activities ................................ 106,554 13,838 48,950
Investing Activities
Net (payments for) proceeds from:
Investment in bank subsidiary ................................................ (4,289)
Investment in nonbank subsidiaries ........................................... (2,468) (1,000) (1,000)
Securities purchased under resale agreement .................................. 65,068 (36,491)
Purchase of available-for-sale securities .................................... (13,343) (9,985)
Maturity of available-for-sale securities .................................... 5,175 35,000
Sales of available-for-sale securities ....................................... 25,176
Interest bearing deposits with banks ......................................... 17,453 (182,810)
Notes receivable from nonbank subsidiaries ................................... (9,639) (2,342) (2,248)
Other, net ................................................................... 413 400
--------- -------- --------
Net Cash Provided (Used) by Investing Activities ......................... 22,354 (99,945) (39,339)
Financing Activities
Net proceeds from commercial paper .............................................. (61,296) 135,805
Proceeds from issuance of long-term debt ........................................ 99,025
Payment of long-term debt ....................................................... (9,685) (75,000)
Proceeds from issuance of common and treasury stock ............................. 5,390 6,228 6,035
Payments for cash dividends ..................................................... (56,121) (45,831) (39,297)
Payments for purchase of common stock ........................................... (17,160)
--------- -------- --------
Net Cash Provided (Used) by Financing Activities ......................... (129,187) 86,517 (9,237)
--------- -------- --------
Net Increase (Decrease) .................................................. (279) 410 374
--------- -------- --------
Cash and due from banks at beginning of period .................................. 864 454 80
--------- -------- --------
Cash and Due from Banks at End of Period ................................. $ 585 $ 864 $ 454
========= ======== ========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
STATE STREET BOSTON CORPORATION
The Stockholders and Board of Directors
State Street Boston Corporation
We have audited the accompanying consolidated statements of condition of
State Street Boston Corporation as of December 31, 1995 and 1994, and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of State
Street Boston Corporation at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
Boston, Massachusetts
January 10, 1996
/S/ ERNST & YOUNG LLP
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------
STATE STREET BOSTON CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------------
CONDENSED AVERAGE STATEMENT OF CONDITION WITH NET
INTEREST REVENUE ANALYSIS (TAXABLE EQUIVALENT BASIS) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE Average Average
(Dollars in millions) BALANCE INTEREST RATE Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks ............................ $ 5,466 $ 287.0 5.25% $ 5,183 $209.4 4.04%
Securities purchased under resale agreements and
securities borrowed ........................................... 5,569 329.1 5.91% 3,102 132.1 4.26%
Federal funds sold .............................................. 475 28.4 5.97% 537 23.9 4.45%
Trading account assets .......................................... 412 21.1 5.13% 532 26.1 4.90%
Investment securities:
U.S. Treasury and Federal agencies ........................... 4,139 243.9 5.89% 3,455 184.3 5.33%
State and political subdivisions ............................. 1,183 70.5 5.96% 1,120 57.0 5.09%
Other investments ............................................ 2,212 133.7 6.05% 2,597 138.8 5.35%
------- --------- ------- ------
Total investment securities ............................... 7,534 448.1 5.95% 7,172 380.1 5.30%
Loans:
Commercial and financial ..................................... 2,474 166.3 6.72% 2,304 119.3 5.18%
Real estate .................................................. 99 8.3 8.39% 96 7.3 7.57%
Consumer ..................................................... 45 4.1 8.96% 43 3.3 7.72%
Foreign ...................................................... 536 41.8 7.80% 586 37.6 6.41%
Lease financing .............................................. 510 37.3 7.31% 372 22.2 5.98%
------- --------- ------- ------
Total loans ............................................... 3,664 257.8 7.04% 3,401 189.7 5.58%
------- --------- ------- ------
TOTAL INTEREST-EARNING ASSETS ............................. 23,120 1,371.5 5.93% 19,927 961.3 4.82%
Cash and due from banks ......................................... 1,026 1,286
Allowance for loan losses ....................................... (62) (58)
Premises and equipment .......................................... 481 462
Customers' acceptance liability ................................. 63 30
Other assets .................................................... 1,554 1,148
------- -------
TOTAL ASSETS .............................................. $26,182 $22,795
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings ...................................................... $ 1,913 85.1 4.45% $ 1,992 56.7 2.85%
Time ......................................................... 131 7.2 5.47% 172 7.8 4.52%
Foreign ...................................................... 8,470 323.7 3.82% 7,392 216.2 2.93%
------- --------- ------- ------
Total interest-bearing deposits ........................... 10,514 416.0 3.96% 9,556 280.7 2.93%
Federal funds purchased ......................................... 504 29.7 5.89% 411 16.0 3.90%
Securities sold under repurchase agreements ..................... 7,080 400.2 5.65% 4,958 202.0 4.07%
Other short-term borrowings ..................................... 761 40.5 5.32% 563 24.8 4.40%
Notes payable ................................................... 214 12.3 5.73% 258 12.0 4.64%
Long-term debt .................................................. 127 8.5 6.71% 128 8.6 6.73%
------- --------- ------- ------
TOTAL INTEREST-BEARING LIABILITIES ........................ 19,200 907.2 4.72% 15,874 544.1 3.43%
--------- ---- ------ ----
Noninterest-bearing deposits .................................... 4,113 4,701
Acceptances outstanding ......................................... 64 30
Other liabilities ............................................... 1,322 906
Stockholders' equity ............................................ 1,483 1,284
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................ $26,182 $22,795
======= =======
Net interest revenue ...................................... $ 464.3 $417.2
========= ======
Excess of rate earned over rate paid ...................... 1.21% 1.39%
==== ====
NET INTEREST MARGIN* ...................................... 2.01% 2.09%
==== ====
*Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks .... $ 5,022 $201.4 4.01% $ 5,102 $257.7 5.05% $ 3,646 $262.1 7.19%
Securities purchased under resale
agreements and securities borrowed .... 3,255 102.3 3.14% 2,603 97.6 3.75% 913 51.4 5.63%
Federal funds sold ...................... 534 16.2 3.03% 458 18.0 3.93% 425 24.4 5.74%
Trading account assets .................. 416 16.7 4.02% 238 10.6 4.44% 152 11.9 7.83%
Investment securities:
U.S. Treasury and Federal agencies ... 2,181 124.7 5.72% 1,771 120.8 6.82% 1,471 124.4 8.46%
State and political subdivisions ..... 732 39.8 5.43% 444 31.9 7.18% 384 34.7 9.05%
Other investments .................... 2,169 117.9 5.43% 1,818 115.7 6.36% 1,581 132.2 8.36%
------- ------ ------- ------ ------- ------
Total investment securities ....... 5,082 282.4 5.55% 4,033 268.4 6.65% 3,436 291.3 8.48%
Loans:
Commercial and financial ............. 1,865 89.8 4.81% 1,556 87.7 5.64% 1,583 124.7 7.88%
Real estate .......................... 97 6.8 6.97% 114 8.1 7.11% 144 12.2 8.47%
Consumer ............................. 53 3.6 6.81% 66 5.0 7.65% 90 9.3 10.39%
Foreign .............................. 282 16.4 5.82% 117 7.1 6.08% 87 6.5 7.43%
Lease financing ...................... 279 15.7 5.61% 217 10.5 4.84% 204 9.9 4.84%
------- ------ ------- ------ ------- ------
Total loans ....................... 2,576 132.3 5.14% 2,070 118.4 5.72% 2,108 162.6 7.72%
------- ------ ------- ------ ------- ------
TOTAL INTEREST-EARNING ASSETS ..... 16,885 751.3 4.45% 14,504 770.7 5.31% 10,680 803.7 7.53%
Cash and due from banks ................. 979 876 826
Allowance for loan losses ............... (58) (67) (64)
Premises and equipment .................. 435 361 269
Customers' acceptance liability ......... 33 52 61
Other assets ............................ 653 529 422
------- ------- -------
TOTAL ASSETS ...................... $18,927 $16,255 $12,194
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings .............................. $ 2,253 55.2 2.45 $ 2,323 76.3 3.28% $ 1,985 106.6 5.37%
Time ................................. 234 12.3 5.24 294 13.0 4.42% 417 26.6 6.38%
Foreign .............................. 4,954 146.1 2.95 3,955 174.6 4.42% 2,648 173.4 6.55%
------- ------ ------- ------ ------- ------
Total interest-bearing deposits ... 7,441 213.6 2.87 6,572 263.9 4.02% 5,050 306.6 6.07%
Federal funds purchased ................. 741 21.0 2.84 919 30.8 3.35% 837 45.9 5.48%
Securities sold under repurchase
agreements ............................ 4,181 121.4 2.90 3,346 114.9 3.43% 1,811 93.3 5.15%
Other short-term borrowings ............. 216 8.2 3.78 194 8.3 4.27% 156 8.3 5.29%
Notes payable ........................... 511 19.9 3.90 389 18.4 4.74% 234 20.3 8.69%
Long-term debt .......................... 122 10.0 8.19 146 13.3 9.10% 146 13.2 9.04%
------- ------ ------- ------ ------- ------
TOTAL INTEREST-BEARING LIABILITIES 13,212 394.1 2.98 11,566 449.6 3.89% 8,234 487.6 5.92%
------ ---- ------ ---- ------ ----
Noninterest-bearing deposits ............ 4,059 3,305 2,674
Acceptances outstanding ................. 34 52 61
Other liabilities ....................... 497 362 381
Stockholders' equity .................... 1,125 970 844
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .......................... $18,927 $16,255 $12,194
======= ======= =======
Net interest revenue .............. $357.2 $321.1 $316.1
====== ====== ======
Excess of rate earned over rate paid 1.47% 1.42% 1.61%
==== ==== ====
NET INTEREST MARGIN* .............. 2.12% 2.21% 2.96%
==== ==== ====
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF STATE STREET BOSTON CORPORATION
The following table sets forth the name of each subsidiary and the state or
other jurisdiction of its organization. Certain subsidiaries of State Street
have been ommitted in accordance with the SEC rules because, when considered in
the aggregate, they did not constitute a "significant subsidiary" of State
Street.
STATE OR JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------------
State Street Bank and Trust Company Massachusetts
State Street Bank and Trust Company, N.A. New York
State Street Bank and Trust Company of Connecticut, N.A. Connecticut
State Street Bank and Trust Company of Maryland, N.A. Maryland
State Street Bank and Trust Company of New Hampshire, N.A. New Hampshire
State Street Boston Capital Corporation Massachusetts
State Street Boston Leasing Company, Inc. Massachusetts
SPLS, Inc. Massachusetts
State Street Massachusetts Securities Corporation Massachusetts
State Street Bank International New York
Wendover Financial Services Corporation North Carolina
State Street International Holdings Massachusetts
State Street Australia Limited New South Wales
State Street Bank GmbH Germany
State Street Bank Luxembourg, S.A. Luxembourg
State Street Banque, S.A. France
State Street Gestion, S.A. France
State Street Trust Company, Canada Canada
State Street Trust and Banking Company Limited Japan
Clarke and Tilley Data Services (50% owned) United Kingdom
SSB Investments, Inc. Massachusetts
SSB Realty, Inc. Massachusetts
State Street Florida, Inc. Florida
Investors Fiduciary Trust Company Missouri
State Street Global Advisors, Inc. Delaware
State Street Global Advisors, United Kingdom, Limited United Kingdom
State Street Global Advisors, Australia, Limited New South Wales
Boston Financial Data Services (50% owned) Massachusetts
All of the above wholly-owned subsidiaries are included in the consolidated
financial statements of State Street.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of State Street Boston Corporation of our report dated January 10, 1996,
included in the 1995 annual Report to Shareholders of State Street Boston
Corporation.
We consent to the incorporation by reference in Registration Statements
(Forms S-8 Nos. 33-57359, 33-38672, 33-38671, 33-2882, 2-93157, 2-88641 and
2-68698) and in Post-Effective Amendment No. 2 to Registration Statement (Form
S-8 No. 2-68696) pertaining to various stock option and performance share plans,
in Registration Statement (Form S-3 No. 33-49885) pertaining to the registration
of debt securities of State Street Boston Corporation, and in Amendment No. 1 to
Registration Statement (Form S-3 No. 33-59505) pertaining to the registration of
2,986,111 shares of the common stock of State Street Boston Corporation of our
report dated January 10, 1996, with respect to the consolidated financial
statements of State Street Boston Corporation incorporated by reference in this
Annual Report (Form 10-K) for the year ended December 31, 1995.
Ernst & Young LLP
Boston, Massachusetts
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION
AND ANALYSIS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND MANAGEMENT DISCUSSION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,421,941
<INT-BEARING-DEPOSITS> 5,975,178
<FED-FUNDS-SOLD> 5,754,119
<TRADING-ASSETS> 503,839
<INVESTMENTS-HELD-FOR-SALE> 5,535,364
<INVESTMENTS-CARRYING> 824,399
<INVESTMENTS-MARKET> 829,133
<LOANS> 3,986,142
<ALLOWANCE> 63,491
<TOTAL-ASSETS> 25,785,187
<DEPOSITS> 16,647,219
<SHORT-TERM> 6,206,676
<LIABILITIES-OTHER> 1,217,192
<LONG-TERM> 126,576
0
0
<COMMON> 82,695
<OTHER-SE> 1,504,829
<TOTAL-LIABILITIES-AND-EQUITY> 25,785,187
<INTEREST-LOAN> 242,015
<INTEREST-INVEST> 429,947
<INTEREST-OTHER> 664,657
<INTEREST-TOTAL> 1,336,619
<INTEREST-DEPOSIT> 416,047
<INTEREST-EXPENSE> 907,185
<INTEREST-INCOME-NET> 429,434
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 12,330
<EXPENSE-OTHER> 1,174,016
<INCOME-PRETAX> 336,490
<INCOME-PRE-EXTRAORDINARY> 366,490
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247,109
<EPS-PRIMARY> 2.98
<EPS-DILUTED> 2.95
<YIELD-ACTUAL> 5.93
<LOANS-NON> 15,502
<LOANS-PAST> 250
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 58,184
<CHARGE-OFFS> 6,726
<RECOVERIES> 4,033
<ALLOWANCE-CLOSE> 63,491
<ALLOWANCE-DOMESTIC> 53,802
<ALLOWANCE-FOREIGN> 9,689
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
