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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
COMMISSION FILE NUMBER 0-26996
INVESTORS FINANCIAL
SERVICES CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3279817
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
89 SOUTH STREET
P.O. BOX 1537 02205
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 330-6700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
CLASS A COMMON STOCK, $.01 PAR VALUE
SERIES A JUNIOR PREFERRED STOCK PURCHASE RIGHTS
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 Common Stock held by non-affiliates of the
registrant was $189,006,707 based on the last reported sale price of $34.25 on
The Nasdaq National Market on February 18, 1997 as reported by Nasdaq.
As of February 18, 1997, there were 6,101,636 shares of Common Stock
outstanding and 342,676 shares of Class A Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
regulation 14A within 120 days of the end of the fiscal year ended December 31,
1996. Portions of such proxy statement are incorporated by reference into Part
III of this report.
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ITEM 1. BUSINESS
GENERAL
Investors Financial Services Corp. (the "Company"), based in Boston,
Massachusetts, provides asset administration services for the financial services
industry through its wholly-owned subsidiary, Investors Bank & Trust Company(R).
The Company provides domestic and global custody, multicurrency accounting,
institutional transfer agency, performance measurement, foreign exchange,
securities lending, mutual fund administration and investment advisory services
to a variety of financial asset managers, including mutual fund complexes,
investment advisors, banks and insurance companies. The Company provides
financial asset administration services for assets that totaled approximately
$122 billion at December 31, 1996, including assets managed by 51 mutual fund
complexes and insurance companies and approximately $9 billion of foreign
assets. The Company also engages in private banking transactions, including
secured lending and deposit accounts.
The Company operated as a subsidiary of Eaton Vance Corp. ("Eaton Vance"),
an investment management firm conducting business through subsidiaries, from its
formation in 1969 through November 1995. In 1995, the boards of directors of
the Company and Eaton Vance determined to separate the business operations of
the Company from those of Eaton Vance by means of a tax free, pro rata
distribution of Eaton Vance's ownership interest in the Company to the
stockholders of Eaton Vance (the "Spin-Off Transaction"). The principal reasons
for the Spin-Off Transaction were to eliminate certain regulatory restrictions
to which the Company was subject under the Competitive Equality Banking Act of
1987 ("CEBA"), and to enable the Company to pursue its business goals
independent of Eaton Vance. In order to avoid being regulated as a bank holding
company under the Bank Holding Company Act of 1956, Eaton Vance had operated
Investors Bank & Trust Company under certain growth and activity restrictions.
The elimination of the CEBA growth and activity restrictions enabled the Company
to expand its current business activities and participate in certain additional
business activities. The Spin-Off Transaction was completed on November 10,
1995, prior to the completion of an initial public offering of 2,300,000 shares
of the Company's Common Stock, $.01 par value, (the "Common Stock") on November
14, 1995 (the "Offering"). As used herein, the defined term "Company" shall
mean Investors Financial Services Corp. from and after June 29, 1995, the date
of organization of Investors Financial Services Corp., and shall mean Investors
Bank & Trust Company prior to that date, unless the context otherwise indicates.
Investors Bank & Trust Company is sometimes referred to herein as the "Bank."
Prior to the completion of the Spin-Off Transaction, the Company's fiscal
year end was October 31, the fiscal year end observed by Eaton Vance and the
Company filed an annual report on Form 10-K with the Securities and Exchange
Commission for the year ended October 31, 1995. In December 1995, the Company
elected to change its fiscal year end from October 31 to December 31 in order to
align its fiscal year end with its regulatory, tax and budget reporting period.
The Company filed a Transition Report on Form 10-K for the two-month period from
November 1, 1995 through December 31, 1995 (the "Transition Period").
Accordingly, this report contains certain financial information and operating
results for the years ended October 31, 1994 and 1995, for the Transition Period
and for the year ended December 31, 1996. The operating results for the
Transition Period are not necessarily indicative of annualized results.
OVERVIEW OF THE FINANCIAL SERVICES INDUSTRY
In the financial services industry, asset managers, whether independent or
affiliated with investment management companies, banks or insurance companies,
manage and invest financial assets entrusted to them. Asset managers utilize a
broad range of pooled investment products such as mutual funds, unit investment
trusts, separate accounts and variable annuities to achieve their clients'
investment goals. Asset administration companies, such as the Company, perform
various services for the asset managers and the pooled products they sponsor,
including domestic and global custody, multicurrency accounting, transfer
agency, portfolio performance measurement, foreign exchange, securities lending,
administration and advisory services.
The Company believes that the rapid pace of financial asset creation
through the flow of assets into pooled products and other investment products
and the related asset administration of those products is the key to revenue
growth for asset administration companies. As shown in the chart below, total
financial assets managed by mutual fund companies, insurance companies, private
pension funds and banks have grown at an average annual rate of over 12% since
1990. Mutual funds, such as those serviced by the Company, make up a large part
of the financial assets in pooled investment vehicles and have grown at the most
rapid pace. The U.S. mutual fund market has grown at an average annual rate of
19.32% since 1990, with over $3.0 trillion in assets at September 30, 1996.
According to Bank Securities Journal, worldwide fund assets were over $5.4
trillion in June 1996, an increase of $3.0 trillion in approximately five years.
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<TABLE>
<CAPTION>
TOTAL U.S. FINANCIAL ASSETS
(in billions) DECEMBER 31, 1990 SEPTEMBER 30, 1996 GROWTH RATE
<S> <C> <C> <C>
Mutual Funds 1,154.6 3,197.7 19.32%
Life Insurance Companies 1,367.4 2,199.0 8.60
Private Pension Funds 1,610.9 2,873.1 10.57
Bank Personal Trusts and Estates 522.1 773.5 7.07
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Total 4,655.0 9,043.3 12.22%
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Source: Federal Reserve Bank
The asset administration environment differs by asset management
organization and operational philosophy. Most asset managers outsource custody
services. In many cases, they use multiple custodians to foster cost reduction
through competition. Large asset managers may have the critical mass necessary
to justify the cost of in-house facilities to handle accounting, administration
and transfer agency services, while smaller asset managers outsource these
services as well. The Company believes that asset administration companies such
as the Company operate most efficiently when bundling services such as custody
and accounting with value-added services such as securities lending and foreign
exchange. The Fund Accounting and Custody Tracking System ("FACTS"), the
software system developed and owned by the Company, with its integrated
functionality, supports these services, so that information is input once and is
entered into various administrative subsystems without manual intervention.
Providing asset administration services offshore is a growing activity in
the financial services industry. Non-U.S. investors in certain pooled
investment vehicles are subject to U.S. income tax if their income is
effectively connected with the conduct of a trade or business in the U.S.
Operating an investment fund from an offshore location is a requirement for
sheltering an investment fund from U.S. taxation. In July 1993, the Company
opened a subsidiary in Toronto, Canada to service the growing offshore mutual
fund market. In July 1994, the Company opened an office in Dublin, Ireland to
service European clients. In February 1996, the Company opened a small
administration site in the Cayman Islands to service Caribbean-based funds.
Another driving force in the financial services industry is information
technology. Asset managers are able to create innovative investment products
using data from world markets as a result of more powerful and affordable
information processing power, coupled with the ability to send large volumes of
information instantly through widely dispersed communication networks. Timely
on-line access to electronic information on security positions, prices and price
shifts facilitate on-line currency trading, indexation of assets, real time
arbitrage, and hedging through the use of derivative securities. Asset
administration providers use technology as a competitive tool to deliver precise
and functional information to the asset managers, and to increase value-added
services. Value-added services include performance measurement and analytical
tools for asset managers, such as reports showing time-weighted return,
performance by sector, and time-weighted return by sector. Other factors, such
as the reduction in settlement times in world markets, have created greater
demand for asset administration service providers to have on-line, real-time
systems. The Company believes that the integrated nature of FACTS, compared
with the disparate systems used for different tasks by many other financial
service providers, provides the Company with a competitive advantage and
positions the Company well to respond to the changing technological demands of
the financial services industry.
Competition in the asset administration industry has reduced pricing in
almost all business segments, particularly with respect to custody services and
trustee services. Partially offsetting this trend is the development of new
services that have higher margins. The Company's continuous investment in
technology has permitted it to offer new value-added services to clients, such
as offshore custody and fund accounting, securities lending and foreign exchange
at competitive prices around the globe. Technological evolution and new service
innovation enable the Company to generate additional revenues to offset price
pressure in maturing service lines.
Asset managers create different investment structures in an effort to
capture the efficiencies of larger pools of assets. One example of this
innovation is the master-feeder structure. In the master-feeder structure, one
or more investment vehicles (the "feeder funds") with identical investment
objectives pool their assets in a common portfolio held by a separate investment
vehicle (the "master fund"). This structure permits each of the feeder funds to
be sold to a separate target market and through a different distribution channel
even if the feeder fund, on a stand alone basis, would not be large enough to
support its operating costs. The feeder funds benefit from economies of scale
available to the larger pool of funds invested in the master fund. A
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patented variation of the master-feeder structure, Hub and Spoke(R), is marketed
by Signature Financial Group, Inc. ("SFG"). At December 31, 1996, the Company
processed over $30 billion of assets in the master-feeder structures, including
$27 billion of assets processed in the Hub and Spoke structure. See "The
Company - Company Strategy."
In addition, a growing number of mutual funds have been structured as
multiple class funds in order to address the differing requirements and
preferences of potential investors. In the typical multiple class environment,
investors have the option of purchasing fund shares with the sales load
structure that best meets their short-term and long-term investment strategy.
Multiple class arrangements allow an investment company to sell interests in a
single investment portfolio to separate classes of stockholders. Multiple class
funds, due to the increased complexity of their structure, present new
opportunities for asset administration companies.
The financial asset service industry has recently experienced a
consolidation among service providers. The Company believes that its size and
its responsiveness to client needs provide the financial services industry with
an asset administration alternative to superregional and money center banks and
other administration providers. In addition, consolidation within the industry
creates opportunity for the Company as prospective clients review their
relationships with existing service providers. The Company's sales and
marketing group actively monitors these situations as they develop.
COMPANY STRATEGY
Global and domestic custody and multicurrency accounting are the principal
asset administration services provided to the Company's clients. The Company's
securities lending, foreign exchange, transfer agency and mutual fund
administration and investment advisory services are value-added services
utilized by clients based on their particular needs. The Company's objective is
to provide a broad range of services to all clients, maximize the use of its
value-added services and increase the size of its client base. To achieve this
objective, the Company has adopted the following strategy:
. Deliver superior service and expand client relationships. Service
quality in asset administration relationships is a key to maintaining
existing business and attracting new clients. The Company takes an
integrated approach to asset administration rather than the functional
approach of some of its competitors. Instead of separate departments
managing components of the custody and accounting task (e.g., trade
settlement, income collection, corporate actions, general ledger
accounting, portfolio accounting and pricing), the Company has
integrated these custody and accounting functions and dedicates a
single operations team to handle all work for a particular account or
fund. In addition, each client is assigned a Client Manager,
independent of the operations team, to anticipate the client's needs,
to coordinate service delivery, and to provide consulting support.
The Company believes that its strong client relationships create
continuing opportunities to provide additional services to existing
customers. Financial assets processed by the Company for existing
clients increased by $21.6 billion during the year ended December 31,
1996.
. Maintain technological expertise. The asset administration industry
requires the technological capability to support a wide range of
global security types and complex portfolio structures in both local
and base currencies, as well as the telecommunications flexibility to
support the diversity of global communications standards. FACTS was
developed in the mid-1980s to support the Company's integrated
approach to the provision of services to its clients. From a systems
standpoint, FACTS is an integrated computerized information system
that provides custody, securities movement and control, portfolio
accounting, general ledger accounting, pricing, net asset value
calculation, and Hub and Spoke or master-feeder processing into a
single information system. By consolidating these functions, the
Company has eliminated redundancy in data capture and reduced the
opportunity for clerical error. The FACTS architecture enables the
Company to modify the system quickly, resulting in increased
processing quality and efficiency for its clients. The Company
believes that this integrated architecture helps differentiate the
Company from its competitors.
System enhancements and upgrades are an ongoing part of asset
administration, both to remain competitive and to create information
delivery mechanisms that add value to the information available as
part of clearing and settling transactions. During the past two
years, the Company has developed standardized data extracts and
automated interfaces that allow its clients to connect electronically
with the Company's host computer and access data collected from
clearance and settlement transactions in multiple currencies on a
real-time basis. Through these information-sharing tools, the Company
is better equipped to expand its custody and accounting services with
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foreign exchange services and asset and transaction reporting and
monitoring services. This electronic linkage also positions the
Company to respond quickly to client requests.
The Company's 75 systems professionals have developed expertise
in various advanced technologies, including graphical user interfaces,
relational database management systems, distributed processing and
imaging technology. The Company intends to continue to utilize these
technologies to provide the responsiveness necessary to keep pace with
the rapidly changing requirements of the industry and the needs of its
clients.
. Expand the range of value-added service offerings. Asset
administration companies gain competitive advantage by offering a
range of value-added services to their financial services clients. The
Company operates most efficiently when bundling basic services such as
custody and accounting with value-added services such as performance
measurement, securities lending and foreign exchange. Since the Spin-
Off Transaction, the Company has not been subject to the activity
restrictions imposed by CEBA and now is able to participate in
additional business activities.
The Company's clients, which consist mainly of managers of mutual
funds, unit investment trusts and other pooled asset products,
typically generate large cash balances from securities sales and other
transactions which they wish to invest on a short-term basis. Because
the Company was subject to a 7% annual asset growth cap under CEBA, it
was not able to accept those deposits and directed those deposits to
other financial institutions, foregoing a potential source of revenue.
The Company directed client deposits averaging almost $1.2 billion
daily to other financial institutions in fiscal year 1995. Similarly,
many of the Company's clients use credit lines to leverage their
portfolios or to handle overnight cash shortfalls; however, CEBA rules
restricted the Company from making commercial loans of this type. As a
result of the Spin-Off Transaction, the Company may now offer these
deposit and lending services directly to existing and potential
clients.
In November 1996, the Bank executed agreements with the Merrimac
Master Portfolio and the Merrimac Funds, newly formed master-feeder
investment companies (the "Funds"), pursuant to which the Company has
agreed to act as investment advisor to the Funds. At the same time,
the Company engaged The Bank of New York to act as sub-advisor to
manage the investments of the Funds. Currently, the Funds have one
operating master fund, the Merrimac Cash Portfolio, and one operating
feeder fund, the Merrimac Cash Fund.
. Expand offshore processing capabilities. Non-U.S. investors in certain
pooled investment vehicles are subject to U.S. income tax if their
income is effectively connected with the conduct of a trade or
business in the U.S. To shelter effectively an investment fund from
U.S. taxation, the fund's operations, including asset administration
functions, must be conducted outside the U.S. In July 1993, the
Company opened a subsidiary in Toronto, Canada to service the growing
offshore mutual fund market. As of December 31, 1996, the Canadian
subsidiary processed over $12 billion in assets requiring the
calculation of 84 daily net asset values. In July 1994, the Company
opened an office in Dublin, Ireland to service European clients. In
February 1996, the Company opened a small administration site in the
Cayman Islands to service Caribbean based funds. The technology
requirements of the offshore fund accounting operations are
facilitated by the architecture of FACTS. FACTS allows microcomputers
located at offshore processing centers to use the FACTS software
system to perform the components of processing on-site in compliance
with local jurisdiction and Internal Revenue Service requirements for
off-shore investment funds, while utilizing the Company's existing
U.S. based mainframe processing, storage and archive capabilities. In
contrast, other fund accounting providers typically utilize entirely
separate systems for domestic and offshore processing.
. Build expertise in the employee base. The Company believes that in
order to compete successfully for new business and obtain additional
business from existing clients, a qualified employee base is required
together with a commitment to ongoing training to keep employees
abreast of technological advances and industry developments in the
financial services industry. Successful completion of a Professional
Development Training Program is required of all newly hired employees.
Topics covered during the training program include an overview of the
financial services industry and pooled asset vehicles, principles of
mutual fund accounting and custody, instruction in control procedures,
manual performance of fund accounting tasks and intensive training on
FACTS. This training program is supplemented by continuing education
to keep employees informed of industry or client base changes.
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. Seek strategic alliances. The Company intends to continue to pursue
strategic marketing and other alliances with participants in the
financial services industry. In May 1993, the Company signed a Hub
and Spoke license agreement with Signature Financial Group, Inc. the
developer of the Hub and Spoke structure. Hub and Spoke is an
investment structure that makes it possible for investment advisers to
reach new markets and avoid the inefficiencies of maintaining separate
portfolios that have common investment objectives. The Company
processes assets in Hub and Spoke products that totaled approximately
$27 billion as of December 31, 1996. See "The Company - Overview of
Financial Services Industry."
SERVICE OFFERINGS
The Company provides a broad range of asset administration services to the
financial services industry, including domestic and global custody,
multicurrency accounting, securities lending, foreign exchange, mutual fund
administration, institutional transfer agency, performance measurement, private
banking and investment advisory services. Global and domestic custody and
multicurrency accounting are the principal asset administration services
provided to the Company's clients. Fees charged for these services reflect the
highly competitive nature and price-sensitivity of the market for custody and
multicurrency accounting services. Securities lending and foreign exchange
services provide a more favorable pricing environment for the Company and
increased activity by the Company in these areas would not involve a
proportionate increase in personnel or other resources. Mutual fund
administration and institutional transfer agency services provide additional
revenue generating opportunities, but require a corresponding increase in
personnel and processing resources.
Client fees vary from client to client based on the volume of assets under
custody, the number of securities held and portfolio transactions, income
collected and whether other value-added services such as foreign exchange and
performance measurement are needed. Fees are generally billed to the client
monthly in arrears, and upon their approval, charged directly to their account.
The Company takes an integrated approach to asset administration rather
than the functional approach of some of its competitors. The Company has
integrated the components of the custody and accounting task (e.g., trade
settlement, income collection, corporate actions, general ledger accounting,
portfolio accounting and pricing) and dedicates a single operations team to
handle all work for a particular account or fund, instead of using separate
departments to manage these custody and accounting functions. In addition, each
client is assigned a Client Manager, independent of the operations team, to
anticipate the client's needs, to coordinate service delivery, and to provide
consulting support. The Company's accounting control group independently checks
and verifies transfer agency, custody and administrative operations each day.
The following is a description of the various services offered by the
Company.
Domestic Custody. Custody entails overseeing the safekeeping of client
securities and settlement of portfolio transactions. The Company's domestic
assets under custody have grown from $22 billion at October 31, 1990 to $102
billion at December 31, 1996. Custody functions are fully integrated with
security movement and control, portfolio accounting, general ledger accounting,
and pricing and evaluation through FACTS. Custody functions include:
. Settlement of purchases and sales of securities.
. Safekeeping of securities and cash.
. Tracking and collection of income and receivables, such as dividends
and distributions.
. Reconciliation of cash and security positions.
. Disbursement of expenses.
. Calculation and reporting of cash availability to asset managers.
. Reporting and processing of corporate actions, such as stock splits
and bond calls.
. Initiation of settlement inquiries, including reclaims for foreign tax
withholding.
. Periodic reporting of holdings, transactions, income, corporate
actions and cash flow.
Foreign Custody. Foreign custody includes the safekeeping of cross-border
securities for clients, such as the safekeeping of Hong Kong stocks for a Dutch
mutual fund or German bonds held for a U.S. bank-sponsored mutual fund. The
Company entered the foreign custody marketplace in 1988, when the nature of
foreign custody began to change dramatically. In the 1970s, foreign custody was
a series of manual, labor intensive exchanges; settlement was a slow process
where most securities were re-registered and vaulted in the U.S. and the volume
of assets was relatively small. Major developed countries
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throughout the world have evolved to highly automated environments, and the
transition in developing countries is proceeding rapidly. At December 31, 1996,
the Company's foreign assets under custody totaled approximately $9 billion.
Given the evolution of information technology and the industry's acceptance
of computer technology as the preferred vehicle to support foreign custody, the
Company established a worldwide network of global subcustodians. In countries
with centralized clearing houses such as Euroclear, the Company establishes a
subcustodian relationship with the clearing house and is able to receive
information from the subcustodian in electronic format directly onto FACTS. In
nations without automated environments, subcustodians hold physical securities
in their own vaults and provide reporting in hard copy format to the Company for
input onto FACTS. Today, the Company has custody agreements in 72 countries,
typically with regional providers of custody services. Since the Company does
not have its own branches in these countries, it is able to operate in the
foreign custody arena with minimal fixed costs, while the Company's clients
benefit from the ability to use only one custodian, the Company, for their
international investment needs.
Multicurrency Accounting. Multicurrency accounting entails the daily
recordkeeping for each account or investment vehicle, including calculations of
net asset value per share, dividend rates per share, and the maintenance of all
books, records and financial reports required by the Securities and Exchange
Commission and other regulatory agencies. Due to the growth in international
investments by asset managers, traditional fund accounting tasks must be
reconciled across multiple currencies. The primary approach of the Company is
to bundle the sale of fund accounting and custody services in order to work
within the natural efficiencies and control mechanisms of its integrated
custody/fund accounting system and operational philosophy. Multicurrency
accounting functions include:
. Maintenance of the books and records of a fund in accordance with the
Investment Company Act of 1940.
. Tracking of investment transactions for use in the calculation of tax
gains and losses.
. Calculation and accrual of expenses.
. Booking of purchases, redemptions and transfers of fund shares as
directed by the transfer agent.
. Calculation of gains and losses by security and currency.
. Determination of net income.
. Calculation of daily yield in accordance with Securities and Exchange
Commission formula requirements.
. Preparation of statements of assets and liabilities and statements of
operations.
. Computation of the market value of the account.
. Calculation of the daily Net Asset Value of the account and reporting
of this value to National Association of Securities Dealers for
publication in newspapers.
In addition to providing the above services to domestic-based accounts and
investment vehicles, the Company also provides offshore fund accounting. The
Company views the offshore market as a significant business opportunity and will
continue to invest in expansion to support client demand. The Company's Toronto
operations, conducted by the Company's wholly-owned Canadian subsidiary,
currently provide offshore services to 39 portfolios. As of December 31, 1996,
the Canadian subsidiary processed over $12 billion in assets requiring the
calculation of 84 daily net asset values. In 1994, the Company opened a
processing site in Dublin to service European clients and in February 1996, it
opened a small administration site in the Cayman Islands for Caribbean-based
funds.
The technology requirements of the offshore fund accounting operations are
facilitated by the architecture of FACTS. FACTS allows microcomputers located
at offshore processing centers to use the FACTS software system to perform the
components of account processing on-site in compliance with local jurisdiction
and Internal Revenue Service requirements for off-shore investment funds, while
utilizing the Company's mainframe processing, storage and archive capabilities.
In contrast, other fund accounting providers typically utilize entirely separate
systems for domestic and offshore processing.
Mutual Fund Administration. The Company provides mutual fund
administration services, including management reporting, regulatory reporting,
and tax and accounting reporting. Management reporting consists of information
and reporting which is of primary interest to the fund's asset managers and its
board of trustees and includes:
. Preparation of detailed quarterly financial information for
presentation to fund management and its board of trustees.
. Monitoring the reporting of net asset value, settlement of trades, and
processing of stockholder transactions.
. Monitoring compliance with investment portfolio restrictions.
. Calculation of fund dividends to be declared in accordance with
management guidelines.
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. Preparation and monitoring of a fund's expense budget.
Regulatory reporting is the reporting and accumulation of information
required of the fund by the Securities and Exchange Commission and state
securities regulators and includes:
. Coordination of preparation and filing of Securities and Exchange
Commission reports.
. Maintenance of effective "blue sky" registrations in jurisdictions
selected for fund sales.
. Coordination of the preparation and printing of stockholder reports.
. Preparation of prospectus update and proxy material.
. Coordination of on-going "blue sky" compliance.
Tax and accounting reporting is required either by the fund's auditors or
by Internal Revenue Service rules and regulations and includes:
. Performing portfolio compliance testing to establish qualification as
a regulated investment company.
. Preparation of income and excise tax returns.
. Preparation of audit package for use by independent public
accountants.
. Coordination of review of income, capital gains, and distribution
information.
The Company also provides mutual fund start-up services in addition to
ongoing services. The Company has worked with a number of investment advisors
to assist them in the development of new mutual funds. Its services typically
include assistance with product definition, service provider selection, and fund
structuring and registration. The Company's Administration Group is staffed by
48 accounting and legal professionals who have prior experience in either mutual
fund complexes or mutual fund servicing organizations.
Investment Advisory. In November 1996, the Bank executed agreements with
the Merrimac Master Portfolio and the Merrimac Funds, newly formed master-feeder
investment companies, pursuant to which the Company has agreed to act as
investment adviser to the Funds. At the same time, the Company engaged The Bank
of New York to act as sub-adviser to manage the investments of the Funds.
Currently, the Funds have one operating master fund, the Merrimac Cash
Portfolio, and one operating feeder fund, the Merrimac Cash Fund, with assets
totaling over $1 billion at December 31, 1996. The Merrimac Cash Fund offers
its shares only to institutions and other "accredited investors" (as that term
is defined in Rule 501(a) under the Securities Act of 1933) and invests all of
its assets in the Merrimac Cash Portfolio. The Merrimac Cash Portfolio invests
its assets in high quality money market instruments. The Funds may add
additional feeder funds and/or master funds in the future.
Foreign Exchange. The Company offers foreign exchange services to
facilitate settlement of international securities transactions for U.S. dollar
denominated mutual funds and other accounts and to convert income payments
denominated in a non-U.S. currency to U.S. dollars. By using the Company rather
than a third party foreign exchange bank to perform these functions, clients
reduce the amount of time spent coordinating currency delivery and monitoring
delivery failures and claims. The Company, as principal, enters into a foreign
exchange contract with a client and simultaneously enters into a matched trade
with another financial institution. The current volume of trades processed by
the Company is approximately 20,000 trades per year, which vary in size. The
Company initiates foreign exchange transactions only in response to a client's
request and engages in no foreign exchange trading transactions for its own
account. Foreign exchange fee revenue totaled $536,000, $1,044,000, $237,000,
and $2,106,000 for the years ended October 31, 1994 and 1995, for the Transition
Period, and for the year ended December 31, 1996, respectively.
Securities lending. Securities lending involves the lending of clients'
securities to brokers and other institutions for a fee, which improves a
client's return on the underlying securities. The Company acts as agent for its
clients for both international and domestic securities lending services.
Currently, lending services are provided to seven clients, and the current loan
portfolio aggregates approximately $1.1 billion. The Company retains as
compensation a portion of the lending fee due to the client as owner of the
borrowed asset. Securities lending fee revenue totaled $1,181,000, $1,142,000,
$157,000 and $1,947,000 for the years ended October 31, 1994 and 1995, for the
Transition Period, and for the year ended December 31, 1996, respectively.
Through a network of broker/dealers, the Company places the securities out
on loan pursuant to client instruction, delivers the subject securities and
performs the necessary loan accounting. Accounting entails monitoring each
security out on loan by broker, allocating the loans to each fund, tracking the
fixed or variable rebate due the broker, updating the daily
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investments, applying the earnings to each security loan and preparing daily and
monthly earnings statements for each fund and all the brokers.
All loans are fully collateralized with cash, government securities or a
letter of credit. This collateral is reinvested according to each client's
instructions. The Company monitors all outstanding loans on a daily basis by
reviewing exposure by broker, performing asset reconciliations, and marking each
security to market to ensure that proper collateral levels are maintained.
Institutional Transfer Agency. Transfer agency encompasses mutual fund
shareholder recordkeeping and communications. Services include tracking capital
shares, fulfilling purchase, transfer, and redemption requests, and sending
account statements, tax reporting information and distributions to shareholders.
The Company provides mutual fund shareholder servicing and recordkeeping for
clients representing approximately 26,000 shareholder accounts. These services
are generally provided only to institutional clients with smaller numbers of
outstanding shareholders or omnibus positions of retail shareholders.
Performance Measurement. Performance measurement services involve the
creation of systems and databases that enable asset managers to construct,
manage and analyze their portfolios. Services include portfolio profile
analysis, portfolio return analysis, and customized benchmark construction.
Performance measurement uses data already captured by FACTS to calculate
statistics and report them to asset managers. The Company provides this service
for an aggregate of over $16 billion in assets managed by 49 investment
advisors.
Private Banking Services. The Company offers private banking services to
individuals, family groups, trusts, endowments and foundations, and retirement
plans. The Company develops this client base by forming relationships with
investment advisors and working with the advisors to service mutual clients.
The Company services individually managed trust and custody accounts that
numbered approximately 6,100 at December 31, 1996. The Company does not conduct
consumer banking operations.
Acting as a fiduciary, the Company provides trust administration and estate
settlement services. These services include on-going fiduciary review of the
trust instrument, collection and safekeeping of assets, distribution of income,
appropriate reporting for court and tax purposes, preparation of tax returns,
and distribution of assets as required. The Company does not provide investment
advice, but works closely with third-party investment advisors chosen by each
client to carry out the investment of assets. Custody services, such as the
safekeeping of securities and the settlement of securities transactions, are
also provided to these clients. Custody service fees are determined based on
assets under custody and number of transactions in each account.
Because it was a subsidiary of Eaton Vance, prior to the Spin-Off
Transaction the Company was restricted by CEBA from making commercial loans or
from writing residential mortgages. As a result, the Company has traditionally
specialized in lending to individuals and non-profit institutions on a secured
basis.
At December 31, 1996, the Company had gross loans outstanding to
individuals and non-profit institutions of approximately $66 million, which
represented 7% of the Company's total assets. The interest rates charged on the
Bank's loans are indexed to either the prime rate or the rate paid on 90-day
Treasury bills. The Company has never had a loan loss, and has no delinquent
loans. Other than a loan made to a non-profit association for purposes of the
Community Reinvestment Act, all loans are secured by marketable securities and
are due on demand.
Commercial Banking Services. As a result of the Spin-Off Transaction, the
Company is now able to offer commercial banking services. The Company offers
credit lines to its clients for the purpose of leveraging portfolios and
covering overnight cash shortfalls. Since the Spin-Off Transaction, the Company
has entered into agreements to provide up to an aggregate of $40 million under
secured lines of credit to mutual fund clients. Additionally, the Company's
clients, which consist mainly of managers of mutual funds, unit investment
trusts and other pooled asset products, typically generate large cash balances
from securities sales and other transactions which they wish to invest on a
short-term basis. Because the Company was subject to a 7% annual asset growth
cap under CEBA, it was not able to accept those deposits and directed those
deposits to other financial institutions. The Company directed an average of
approximately $1.2 billion of such deposits daily to other financial
institutions in fiscal year 1995. Since the completion of the Spin-Off
Transaction and the Offering, the Company has redirected an average of
approximately $734 million daily of these balances into its own deposit products
and may now offer these deposit services directly to existing and potential
clients.
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SALES, MARKETING AND CLIENT SUPPORT
The Company employs a direct sales staff of five employees that targets
potential market areas, including investment management companies, insurance
companies, banks and investment advisors. Sales personnel are primarily based
at the Company's headquarters in Boston and are given geographic area sales
responsibility. Additionally, the Company provides the sales staff with market
data and presentation materials. Senior managers from all functional areas are
directly involved in obtaining new clients, frequently working as a team with a
sales professional.
New client contacts are generated by a variety of methods, including client
referrals, personal sales calls, attendance at trade shows and seminars,
advertising in trade publications, and direct mailing to targeted clients.
In order to service existing clients, a client management staff of
approximately 12 professionals based in the Company's Boston office provides
client support. Each client is assigned a Client Manager responsible for the
overall satisfaction of the client. The Client Manager is usually a senior
professional with extensive industry experience and works with the client on
contracts, new products and specific systems requirements.
SIGNIFICANT CLIENTS
The Company presently provides services to approximately 51 mutual fund
complexes and insurance companies. The Company's current largest client, Eaton
Vance, accounted for 18%, 14%, 11% and 10% of the Company's net operating
revenues for the years ended October 31, 1994 and 1995, for the Transition
Period, and for the year ended December 31, 1996, respectively. A former client
of the Company, Merrill Lynch, accounted for 16% and 5% of the Company's net
operating revenues for the years ended October 31, 1994 and 1995, respectively.
Merrill Lynch paid the Company to assign the Company's servicing rights to The
Bank of New York effective March 1, 1995 and therefore accounted for no net
operating revenue in the Transition Period or in the year ended December 31,
1996. The percentages of consolidated revenues attributable to Eaton Vance and
Merrill Lynch for the periods referenced above were substantially the same as
the percentages of net operating revenues described above. Eaton Vance
accounted for 10% of the Company's consolidated revenues for the Transition
Period. No single client represented more than 10% of the Company's
consolidated revenues for the year ended December 31, 1996. No other single
client of the Company represented more than 10% of net operating revenues or
consolidated revenues for the periods discussed above. Eaton Vance has been a
client of the Company since 1975. The Company's agreements with mutual funds
managed by Eaton Vance, pursuant to which the Company provides custody and fund
accounting services, extend through August 2000 and continue thereafter until
terminated by either party upon sixty days prior notice. If a majority of non-
interested trustees of a fund determines that the performance of the Company
under any such agreement has been unsatisfactory or adverse to the interests of
the fund's shareholders, or that the terms of the agreement are no longer
consistent with publicly available industry standards, the Company shall have 60
days after receipt of written notice to such effect to (i) correct its
performance or (ii) renegotiate such terms. If such corrective action or
renegotiation is not satisfactory to such trustees, such agreement may be
terminated on sixty days prior notice. The Company has long-term contracts with
15 other clients with terms ranging from two to five years. Total assets
processed under long-term contracts at December 31, 1996 were over $45 billion.
All other client engagements are, and in the future may be, terminable upon 60
days notice.
SOFTWARE SYSTEMS AND DATA CENTER
The Company's asset administration operations are supported by
sophisticated computer technology. The Company receives vast amounts of
information across a world-wide computer network. That information, which
covers a wide range of global security types and complex portfolio structures in
various currencies, must then be processed, resulting in system-wide updating
and reporting. The Company must have the capability to provide not only daily
and periodic reports of asset accounting and performance, but also to provide
measurement and analytical data to asset managers on-line on a real time basis.
These technology requirements call for powerful and sophisticated computer
hardware and software systems operated in a cost effective manner.
The primary software system used by the Company is FACTS. The system was
developed over a four-year period by the Bank of New England, and was put into
operation in 1986. It was acquired by the Company in 1990 in connection with
the acquisition by the Company of the Financial Products Services Division of
the Bank of New England.
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FACTS utilizes microcomputers networked to a mainframe computer system.
The microcomputers can be located in any location with the requisite
telecommunications network for the automated interface to the mainframe,
enabling the Company to provide geographically dispersed processing services
effectively and efficiently. The microcomputer to mainframe configuration also
provides redundant processing capability; if the mainframe fails, FACTS is able
to process independently on the microcomputers.
FACTS emphasizes efficiency and accuracy because it integrates custody,
securities movement and control, portfolio accounting, general ledger
accounting, pricing, net asset value calculation, and Hub and Spoke processing
into a single system. The traditional industry approach is to have separate
applications for each of these functions and to interconnect the component
applications with manual intervention at various points in the process.
The integrated and automated nature of FACTS is best reflected in following
a transaction through the system. For example, a purchase of a security is
entered on a client trading system and the transaction information is
electronically transmitted to FACTS. The receipt of the trade information by
FACTS will trigger the following activities with no manual intervention by the
Company:
. Creation of a Securities Movement and Control transaction to track and
control the trade for the entire settlement cycle (e.g., confirmation,
affirmation, settlement).
. Updating of the portfolio position for the security being purchased.
. Immediate updating of all required general ledger accounts.
. Creation of a pricing record to enable pricing of the security and
inclusion in the total market value and net asset value determination.
. Affirmation and settlement of the trade upon notification from the
counterparty with associated transaction and general ledger updates
occurring simultaneously.
. Accounting for all income for the holding period of the security.
FACTS also complies with current industry standards such as the requirement
that mandates a three business day settlement cycle for public securities
transactions rather than the traditional five business day cycle. The
enhancements made to FACTS to address this change included enabling FACTS to
interact with the Depository Trust Company via its new Interactive Institutional
Delivery System, which allows institutions to confirm trades earlier in the
trade life cycle.
The integrated nature of FACTS architecture allows the Company to affect
modifications and enhancements quickly, resulting in increased processing
quality and efficiency for the Company's clients. This integrated architecture
helps differentiate the Company from its competitors. System enhancements and
upgrades are an ongoing part of asset administration, both to keep ahead of the
competition and to create information delivery mechanisms that add value to the
information available as part of clearing and settling transactions. During the
past two years, the Company has developed standardized data extracts and
automated interfaces that allow its clients to connect electronically with the
Company's host computer and access data collected from clearance and settlement
transactions in multiple currencies on a real-time basis. This electronic
linkage also positions the Company to respond quickly to client requests.
A substantial portion of the Company's electronic transaction processing
services depends upon a mainframe computer system, owned and operated by
Electronic Data Systems ("EDS"), contained in the EDS Information Processing
Center ("IPC") in Camp Hill, Pennsylvania. Processing and networking functions
and equipment are located at the IPC, and in the Boston and Detroit metropolitan
areas. The Company has outsourced its mainframe data processing to EDS since
December 1990. By outsourcing data processing, the Company can focus its
resources on its core line of business and minimize its capital investment in
computer equipment. EDS is able to offer the Company up to date computer
products and services to which it would not otherwise have access, while
removing the risk of product obsolescence. Due to its diverse customer base,
EDS can invest in the latest computer technology and spread the costs over
multiple users. In addition, the defined pricing provided by EDS for products
and services allows the Company to match its data processing cost with the
related revenue stream. The use of EDS as a hardware provider allows the
Company to dedicate its efforts to the ongoing enhancement of its software
systems while receiving the benefit of the continuing investment by EDS in its
computer hardware.
EDS provides mainframe disaster recovery services. EDS maintains
additional processing equipment at the Camp Hill IPC and at a designated
alternate IPC which may be used in the event of equipment failure. The Camp
Hill facility is also supported by an uninterruptable power supply and diesel
generators which can supply power to continue operations for an extended period
of time. Critical software and data files are backed-up daily and stored off-
site. Disaster recovery plans are
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tested through simulations conducted by the Company twice a year.
Notwithstanding these precautions, there can be no assurance that a fire or
other natural disaster affecting the data center would not disable the host
computer system.
The current agreement between the Company and EDS obligates EDS to provide
the Company with comprehensive data processing services and obligates the
Company to utilize EDS's services for substantially all of its data processing
requirements. The Company is billed for these services monthly on an as-used
basis as determined by a pricing schedule for specific products and services.
EDS began providing services to the Company in December 1990 and the current
agreement is scheduled to expire on December 31, 2000.
COMPETITION
The market for asset administration services is highly competitive. The
Company's most significant competitors are State Street Boston Company, The Bank
of New York, Chase Manhattan Corp., Brown Brothers Harriman & Co., and PNC Bank.
These competitors possess substantially greater financial, sales and marketing
resources than the Company and process a greater amount of financial assets than
the Company. In addition, the Company also encounters competition in the sale
of fund accounting services from large in-house accounting departments of mutual
fund complexes, insurance companies and banks offering proprietary mutual funds.
Competitive factors include technological advancement and flexibility, breadth
of services provided and quality of service. The Company believes that it
competes favorably in these categories.
INTELLECTUAL PROPERTY
The Company's success is dependent upon its software development
methodology and other intellectual property rights developed and owned by the
Company, including FACTS. The Company relies on a combination of trade secret,
nondisclosure and other contractual arrangements and technical measures, and
copyright and trademark laws to protect its proprietary rights. The Company
generally enters into confidentiality agreements with its employees and
consultants, and limits access to and distribution of its proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of its proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. Furthermore,
such protections may not preclude competitors from developing products and
services with functionality or features similar to those of the Company. In
addition, effective copyright, trademark and other trade protection may not be
available in certain international markets serviced by the Company. Finally,
there can be no assurance that intellectual property protection will be
available in certain foreign countries. The registration of the service mark
Investors Bank & Trust Company will remain in force until 2006, at which time it
may be renewed.
Although the Company believes that its services do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against the Company in the future.
EMPLOYEES AND TRAINING
As of December 31, 1996, the Company had 792 full-time employees, including
seven in senior management, 19 in marketing and client management, 662 in
operations and 104 in general and administration. None of the Company's
employees are represented by a union. The Company believes that its relations
with its employees are good.
The Company has developed a five-week professional development program for
entry level staff. Successful completion of the program is required of all
newly hired employees. Topics covered during the program include an overview of
the financial services industry and pooled asset vehicles, principles of mutual
fund accounting and custody, instruction in control procedures, manual
performance of fund accounting tasks and intensive training on FACTS. This
training program is supplemented by ongoing education on the industry and client
base.
The Company's business is labor-intensive, and its success depends to a
significant extent upon a number of key management employees and skilled
technical, managerial and marketing personnel, few of which are bound by
employment agreements. From October 31, 1990 to December 31, 1996, the
Company's staff increased from 463 to 792 employees.
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REGULATION AND SUPERVISION
In addition to the generally applicable state and federal laws governing
businesses and employers, the Company and the Bank are further regulated by
federal and state laws and regulations applicable only to financial institutions
and their parent companies. Virtually all aspects of the Company's and the
Bank's operations are subject to specific requirements or restrictions and
general regulatory oversight. State and federal banking laws have as their
principal objective either the maintenance of the safety and soundness of
financial institutions and the federal deposit insurance system or the
protection of consumers or classes of consumers, rather than the specific
protection of stockholders of a bank or its parent company. To the extent the
following material describes statutory or regulatory provisions, it is qualified
in its entirety by reference to the particular statute or regulation.
The Company
General. The Company, as a bank holding company, is subject to regulation
and supervision by the Federal Reserve Board (the "FRB") and by the
Massachusetts Commissioner of Banks (the "Commissioner"). The Company is
required to file annually a report of its operations with, and is subject to
examination by, the FRB and the Commissioner. The FRB has the authority to
issue orders to bank holding companies to cease and desist from unsound banking
practices and violations of conditions imposed by, or violations of agreements
with, the FRB. The FRB is also empowered to assess civil monetary penalties
against companies or individuals who violate the Bank Holding Company Act of
1956, as amended, (the "BHCA") or orders or regulations thereunder, to order
termination of non-banking activities of non-banking subsidiaries of bank
holding companies, and to order termination of ownership and control of a non-
banking subsidiary by a bank holding company.
BHCA -Activities and Other Limitations. The BHCA prohibits a bank holding
company from acquiring substantially all the assets of a bank or acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank, or increasing such ownership or control of any bank, or merging or
consolidating with any bank holding company without prior approval of the FRB.
No approval under the BHCA is required, however, for a bank holding company
already owning or controlling 50% or more of the voting shares of a bank to
acquire additional shares of such bank. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") generally authorizes
bank holding companies to acquire banks located in any state. In addition, the
Interstate Act generally authorizes 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.
The BHCA also prohibits a bank holding company from acquiring a direct or
indirect interest in or control of more than 5% of the voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in activities other than those of banking, managing or controlling
banks or furnishing services to its subsidiary banks, except that it may engage
in and may own shares of companies engaged in certain activities the FRB has
determined to be so closely related to banking or managing and controlling banks
as to be a proper incident thereto. In making such determinations, the FRB is
required to weigh the expected benefit to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interests or unsound banking practices.
The FRB has by regulation determined that certain activities are closely
related to banking within the meaning of the BHCA. Should the Company desire to
expand its activities beyond its current financial services activities, it would
generally be limited to the following activities: operating a mortgage company,
finance company, credit card company, factoring company, trust company or
savings association; performing certain data processing operations; providing
limited securities brokerage services; acting as an investment or financial
advisor; acting as an insurance agent for certain types of credit-related
insurance; leasing personal property on a full-payout, non-operating basis;
providing tax planning and preparation services; operating a collection agency;
and providing certain courier services. The FRB also has determined that
certain other activities, including real estate brokerage and syndication, land
development, property management and underwriting of life insurance not related
to credit transactions, are not closely related to banking and a proper incident
thereto.
Commitments to Affiliated Institutions. Under FRB policy, the Company is
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances when it might not do so absent
such policy and is expected to maintain the financial flexibility and capital-
raising capacity to obtain additional resources for assisting the Bank. The
legality and precise scope of this policy is unclear, however, in light of
federal judicial precedent. Additionally, the
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Federal Deposit Insurance Act (the "FDIA") requires the holding company parent
of an undercapitalized bank to guarantee, up to certain limits, the bank's
compliance with a capital restoration plan approved by the bank's primary
federal supervisory agency. Because Investors Financial Services Corp., as a
holding company for the Bank, has no assets other than its ownership interest in
the Bank, its ability to serve as a source of strength to the Bank through the
contribution of capital is, presently, limited to contributing proceeds from the
sale of securities such as the Capital Securities discussed under "Market for
Registrant's Common Equity and Related Stockholder Matters - Recent Sales of
Unregistered Securities."
Capital Requirements. The FRB has adopted capital adequacy guidelines
pursuant to which it assesses the adequacy of capital in examining and
supervising a bank holding company and in analyzing applications to it under the
BHCA. These capital adequacy guidelines generally require bank holding
companies to maintain total capital equal to 8% of total risk-adjusted assets
and off-balance sheet items, with at least one-half of that amount consisting of
Tier I or core capital and the remaining amount consisting of Tier II or
supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill. Tier II capital
generally consists of hybrid capital instruments; perpetual preferred stock
which is not eligible to be included as Tier I capital; term subordinated debt
and intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different risk characteristics, with the categories ranging
from 0% (requiring no additional capital) for assets such as cash to 100% for
such assets as premises, plant and equipment and traditional consumer loans.
Claims on, or guaranteed by, U.S. government agencies, as well as the portion of
claims that are collateralized by securities issued or guaranteed by the U.S.
Treasury are assigned a 20% level in the risk-weighting system. Off-balance
sheet items also are adjusted to take into account certain risk characteristics.
In addition to the risk-based capital requirements, the FRB requires bank
holding companies to maintain a minimum leverage capital ratio of Tier I capital
(defined by reference to the risk-based capital guidelines) to total assets of
3.0%. Total assets for this purpose does not include goodwill and any other
intangible assets and investments that the FRB determines should be deducted
from Tier I capital. The FRB has announced that the 3.0% Tier I Leverage
Capital Ratio requirement is the minimum for the top-rated bank holding
companies without any supervisory, financial or operational weaknesses or
deficiencies or those which are not experiencing or anticipating significant
growth. Because the Bank, and consequently, the Company, anticipates
significant future growth, the Company will be required to maintain Tier I
Leverage Capital Ratios of at least 4.0% to 5.0% or more. Management currently
intends to maintain Tier I Leverage Capital Ratios of 6.0%.
The Company currently is in compliance with both the Risk Based Capital
Ratios and the Leverage Capital Ratio requirements. At December 31, 1996, the
Company had Tier I Risk Based Capital Ratio and Total Risk Based Capital Ratio
equal to 24.67% and 24.71%, respectively and Tier I Leverage Capital Ratio equal
to 6.30%.
Limitations of Acquisitions of Common Stock. The Federal Change in Bank
Control Act prohibits a person or group of persons from acquiring "control" of a
bank holding company unless the FRB has been given 60 days prior written notice
of such proposed acquisition and within that time period the FRB has not issued
a notice disapproving the proposed acquisition or extending for up to another 30
days the period during which such a disapproval may be issued. An acquisition
may be made prior to expiration of the disapproval period if the FRB issues
written notice of its intent not to disapprove the action. Under a rebuttable
presumption established by the FRB, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") would, under the circumstances set forth in the presumption,
constitute the acquisition of control.
In addition, any company, as that term is defined in the statute, would be
required to obtain the approval of the FRB under the BHCA before acquiring 25%
(5% in the case of an acquirer that is a bank holding company) or more, or such
lesser percentage as the FRB deems to constitute control over the Company, of
the outstanding Common Stock of the Company. Such approval would be contingent
upon, among other things, the acquirer registering as a bank holding company,
divesting all impermissible holdings and ceasing any activities not permissible
for a bank holding company.
Massachusetts Law. Massachusetts law generally defines a bank holding
company as a company which owns or controls two or more financial institutions.
Although the Company owns or controls only one financial institution, it is
deemed a bank holding company for purposes of Massachusetts law due to the
manner in which it acquired the Bank. Accordingly, the Company has registered
with the Commissioner and is obligated to make reports to the Commissioner.
Further, as a Massachusetts bank holding company, the Company may not acquire
all or substantially all of the assets of a banking institution or merge or
consolidate with another bank holding company without the prior consent of the
Board of Bank Incorporation (the
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"BBI"). As a condition of such consent, the BBI must receive notice from the
Massachusetts Housing Partnership Fund (the "Fund") that arrangements
satisfactory to the Fund have been made by the Company to make 0.9% of its
assets available for financing, down payment assistance, share loans, closing
costs and other costs related to programs promoted by the Fund, including those
related to creating affordable rental housing, limited equity cooperatives, and
tenant management programs.
The Bank
General. The Bank is subject to extensive regulation and examination by
the Commissioner and by the FDIC, which insures its deposits to the maximum
extent permitted by law, and to certain requirements established by the FRB.
The federal and state laws and regulations which are applicable to banks
regulate among other things, the scope of their business, their investments,
their reserves against deposits, the timing of the availability of deposited
funds and the nature and amount of and collateral for certain loans.
FDIC Insurance Premiums. The Bank pays deposit insurance premiums to the
FDIC based on an assessment rate established by the FDIC for Bank Insurance
Fund-member institutions. The FDIC has established a risk-based assessment
system under which institutions are assigned to one of three capital groups -
"well capitalized," "adequately capitalized" and "undercapitalized" - which are
defined in substantially the same manner as under the regulations establishing
the prompt corrective action system pursuant to Section 38 of the FDIA, as
discussed below. These three capital groups are then each divided into three
subgroups which reflect varying levels of supervisory concern, from those which
are considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with corresponding assessment rates ranging from .04% for well
capitalized, healthy institutions to .31% for undercapitalized institutions with
substantial supervisory concerns. There is a statutory minimum assessment of
$1,000 per semi-annual period. The Bank is currently subject to the statutory
minimum assessment.
Capital Requirements. The FDIC has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered banks
which, like the Bank, are not members of the Federal Reserve System. These
requirements are substantially similar to those adopted by the FRB regarding
bank holding companies, as described above.
The FDIC's capital regulation establishes a minimum 3.0% Tier I Leverage
Capital Ratio requirement for the most highly-rated state-chartered, non-member
banks, with an additional cushion of at least 100 to 200 basis points for all
other state-chartered, non-member banks, which effectively will increase the
minimum Tier I Leverage Capital Ratio for such other banks to 4.0% to 5.0% or
more. Under the FDIC's regulation, highest-rated banks are those that the FDIC
determines are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and, in general, which are
considered a strong banking organization, rated composite 1 under the Uniform
Financial Institutions Rating System. A bank having less than the minimum Tier
I Leverage Capital Ratio shall, within 60 days of the date as of which it fails
to comply with such requirement, submit to its FDIC regional director for review
and approval a reasonable plan describing the means and timing by which the bank
shall achieve its minimum leverage capital requirement. A bank which fails to
file such plan with the FDIC is deemed to be operating in an unsafe and unsound
manner, and could be subject to a cease-and-desist order from the FDIC. The
FDIC's amended regulation also provides that any insured depository institution
with a Tier 1 Leverage Capital Ratio less than 2.0% is deemed to be operating in
an unsafe or unsound manner pursuant to Section 8(a) of the FDIA and is subject
to potential termination of deposit insurance. Such an institution, however,
will not be subject to an enforcement proceeding thereunder, solely on account
of its capital ratios if it has entered into and is in compliance with a written
agreement with the FDIC to increase its Tier I Leverage Capital Ratio to such
level as the FDIC deems appropriate and to take such other action as may be
necessary for the institution to be operated in a safe and sound manner. The
FDIC capital regulation also provides, among other things, for the issuance by
the FDIC or its designee(s) of a capital directive, which is a final order
issued to a bank that fails to maintain minimum capital to restore its capital
to the minimum leverage capital requirement within a specified time period.
Such directive is enforceable in the same manner as a final cease-and-desist
order.
The FDIC has augmented the capital leverage ratios described above with a
risk-based capital framework which is more explicitly and systematically
sensitive to the risk profiles of individual banks. Under the risk-based
capital framework, the assets of the Bank are weighted pursuant to the risk
category in which each asset falls. These risk categories are substantially the
same as those described in the discussion of FRB capital requirements above.
Banks generally will be expected to maintain a minimum Tier I Risk Based Capital
Ratio of 4.0% and a Total Risk Based Capital Ratio of 8.0%. Any bank that does
not meet the minimum requirements, or whose capital is otherwise considered
inadequate, generally will be expected to develop and
15
<PAGE>
implement a capital plan for achieving an adequate level of capital, consistent
with the provisions of the risk-based capital framework.
At December 31, 1996, the Bank was in compliance with all minimum Federal
regulatory capital requirements which are generally applicable to FDIC insured
banks. As of such date, the Bank had Tier I Risk Based Capital Ratio and Total
Risk Based Capital Ratio equal to 24.67% and 24.71%, respectively, and Tier I
Leverage Capital Ratio equal to 6.30%.
Prompt Corrective Action. Under Section 38 of the FDIA, each federal
banking agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be (i) "well capitalized" if it has Total Risk Based Capital
Ratio of 10.0% or more, has a Tier I Risk Based Capital Ratio of 6.0% or more,
has a Tier I Leverage Capital Ratio of 5.0% or more and is not subject to any
written capital order or directive; (ii) "adequately capitalized" if it has a
total Risk Based Capital Ratio of 8.0% or more, a Tier I Risk Based Capital
Ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized," (iii) "undercapitalized" if it has a Total
Risk Based Capital Ratio that is less than 8.0%, a Tier I Risk Based Capital
Ratio that is less than 4.0% or a Tier I Leverage Capital Ratio that is less
than 4.0% (3.0% under certain circumstances), (iv) "significantly
undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
6.0%, a Tier I Risk Based Capital Ratio that is less than 3.0% or a Tier I
Leverage Capital Ratio that is less than 3.0%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. Section 38 of the FDIA and the regulations also
specify circumstances under which a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category, except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized.
An institution generally must file a written capital restoration plan which
meets specified requirements with an appropriate federal banking agency within
45 days of the date that the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval with 60 days after receiving a capital
restoration plan, subject to extensions by the agency.
An institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measure of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guarantee shall expire after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calendar quarters. An institution which fails to
submit a written capital restoration plan within the requisite period, including
any required performance guarantee, or fails in any material respect to
implement a capital restoration plan, shall be subject to the restrictions in
Section 38 of the FDIA which are applicable to significantly undercapitalized
institutions.
A critically undercapitalized institution is to be placed in
conservatorship or receivership with 90 days unless the FDIC formally determines
that forbearance from such action would better protect the deposit insurance
fund. Unless the FDIC or other appropriate federal banking regulatory agency
makes specific further findings and certifies that the institution is viable and
is not expected to fail, an institution that remains critically undercapitalized
on average during the fourth calendar quarter after the date it becomes
critically undercapitalized must be placed in receivership.
Immediately upon becoming undercapitalized, an institution becomes subject
to the provisions of Section 38 of the FDIA (i) restricting payment of capital
distributions and management fees, (ii) requiring that the appropriate federal
banking agency monitor the condition of the institution and its efforts to
restore its capital, (iii) requiring submission of a capital restoration plan,
(iv) restricting the growth of the institution's assets and (v) requiring prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any of a number of
discretionary supervisory actions if the agency determines that any of these
actions is necessary to resolve the problems of the institution at the least
possible long-term cost to the deposit insurance fund, subject in certain cases
to specified procedures. These discretionary supervisory actions include
requiring the institution to raise additional capital; restricting transactions
with affiliates; restricting interest rates paid by the institution on deposits;
requiring replacement of senior executive officers and directors; restricting
the activities of the institution and its affiliates; requiring divestiture of
the institution or the sale of the
16
<PAGE>
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.
At December 31, 1996, the Bank was deemed to be a well capitalized
institution for the above purposes. Bank regulators may raise capital
requirements applicable to banking organizations beyond current levels. Because
the Company is unable to predict whether higher capital requirements will be
imposed and, if so, at what levels and on what schedules, it therefore cannot
predict what effect such higher requirements may have on the Company and the
Bank.
Brokered Deposits. The FDIA restricts the use of brokered deposits by
certain depository institutions. Under the FDIA and applicable regulations, (i)
a well capitalized institution may solicit and accept, renew or roll over any
brokered deposit without restriction, (ii) an adequately capitalized institution
may not accept, renew or roll over any brokered deposit unless it has applied
for and been granted a waiver of this prohibition by the FDIC and (iii) an
undercapitalized institution may not (x) accept, renew or roll over any brokered
deposits or (y) solicit deposits by offering an effective yield that exceeds by
more than 75 basis points the prevailing effective yields on insured deposits of
comparable maturity in such institution's normal market area or in the market
area in which such deposits are being solicited. The term "undercapitalized
insured depository institution" is defined to mean any insured depository
institution that fails to meet the minimum regulatory capital requirement
prescribed by its appropriate federal banking agency. The FDIC may, on a case-
by-case basis and upon application by an adequately capitalized insured
depository institution, waive the restriction on brokered deposits upon a
finding that the acceptance of brokered deposits does not constitute an unsafe
or unsound practice with respect to such institution. Currently, the Bank is
deemed to be a well capitalized insured depository institution for purposes of
the restriction on the use of brokered deposits by such institutions. The bank
historically has not relied upon brokered deposits as a source of funding and,
at December 31, 1996, the Bank did not have any brokered deposits.
Transactions with Affiliates. The FDIA restricts the range of permissible
transactions between a member bank and an affiliated company. The Bank is
subject to certain restrictions on loans to the Company, on investment in the
stock or securities thereof, on the taking of such stock or securities as
collateral for loans to any borrower, and on the issuance of a guarantee or
letter of credit on behalf of the Company. The Bank also is subject to certain
restrictions on most types of transactions with the Company, requiring that the
terms of such transactions be substantially equivalent to terms to similar
transactions with non-affiliates.
Activities and Investments of Insured State-Chartered Banks. Section 24 of
the FDIA generally limits the activities and equity investments of FDIC-insured,
state-chartered banks to those that are permissible for national banks. Under
the FDIC's regulations dealing with equity investments, an insured state bank
generally may not directly or indirectly acquire or retain any equity investment
of a type, or in an amount, that is not permissible for a national bank. An
insured state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a qualified
housing project, provided that such limited partnership investments may not
exceed 2% of the Bank's total assets, (iii) acquiring up to 10% of the voting
stock of a company that solely provides or reinsures directors', trustees', and
officers' liability insurance coverage or bankers' blanket bond group insurance
coverage for insured depository institutions, and (iv) acquiring or retaining
the voting shares of a depository institution if certain requirements are met.
Community Reinvestment Act. The Federal Community Reinvestment Act ("CRA")
requires the FDIC and the Commissioner to evaluate the Bank's performance in
helping to meet the credit needs of the community. The Bank has been designated
as a "wholesale institution" for CRA purposes by the Commissioner and has an
application for similar treatment pending with the FDIC. This designation
reflects the nature of the Company's business as other than a retail financial
institution and proscribes CRA review criteria applicable to the Bank's
particular type of business. As a part of the CRA program, the Bank is subject
to periodic examinations by the FDIC and the Commissioner, and maintains
comprehensive records of its CRA activities for this purpose. The Bank is
currently in compliance with all CRA requirements.
Massachusetts Law - Dividends. Under Massachusetts law trust companies
such as the Bank may pay dividends only out of "net profits" and only to the
extent that such payments will not impair the Bank's capital stock and surplus
account. If, prior to declaration of a dividend, the Bank's capital stock and
surplus accounts do not equal at least 10.0% of its deposit liabilities, then
prior to the payment of the dividend the Bank must transfer from net profits to
its surplus account the amount required to make its surplus account equal to
either (i) together with capital stock, 10.0% of deposit liabilities or, (ii)
subject to
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<PAGE>
certain adjustments, 100% of capital stock. These restrictions on the ability of
the Bank to pay dividends to the Company may restrict the ability of the Company
to pay dividends to its stockholders.
Regulatory Enforcement Authority. The enforcement powers available to
federal banking regulators include, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and institution-
affiliated parties, as defined. In general, these enforcement actions may be
initiated for violations of law and regulations and unsafe or unsound practices.
Other actions or inactions may provide the basis for enforcement action,
including misleading or untimely reports filed with regulatory authorities.
Federal law requires, except under certain circumstances, public disclosure of
final enforcement actions by the federal banking agencies.
Transfer Agency. In order to serve as transfer agent to its clients that
execute transactions in publicly traded securities, the Company must register as
a transfer agent under the Exchange Act. As a registered transfer agent, the
Company is subject to certain reporting and recordkeeping requirements.
Currently, the Company is in compliance with these registration, reporting and
recordkeeping requirements.
Regulation of Investment Companies. Certain of the Company's mutual fund
and unit investment trust clients are regulated as "investment companies" as
that term is defined under the Investment Company Act of 1940, as amended (the
"ICA"), and are subject to examination and reporting requirements applicable to
the services provided by the Company.
The provisions of the ICA and the regulations promulgated thereunder
prescribe the type of institution which may act as a custodian of investment
company assets, as well as the manner in which a custodian administers the
assets in its custody. Because the Company serves as custodian for a number of
its investment company clients, these regulations require, among other things,
that the Company maintain certain minimum aggregate capital, surplus, and
undivided profits. Additionally, arrangements between the Company and clearing
agencies or other securities depositories must meet ICA requirements for
segregation of assets, identification of assets and client approval. Future
legislative and regulatory changes in the existing laws and regulations
governing custody of investment company assets, particularly with respect to
custodian qualifications, may have a material and adverse impact on the Company.
Currently, the Company is in compliance with all minimum capital and securities
depository requirements. Further, the Company is not aware of any proposed or
pending regulatory developments, which, if approved, would adversely affect the
ability of the Company to act as custodian to an investment company.
Investment companies are also subject to extensive recordkeeping and
reporting requirements. These requirements dictate the type, volume and
duration of the record-keeping undertaken by the Company, either in its role as
custodian for an investment company or as a provider of administrative services
to an investment company. Further, the Company must follow specific ICA
guidelines when calculating the net asset value of a client mutual fund.
Consequently, changes in the statutes or regulations governing recordkeeping and
reporting or valuation calculations will affect the manner in which the Company
conducts its operations.
New legislation or regulatory requirements could have a significant impact
on the information reporting requirements applicable to the Company's clients
and may in the short term adversely affect the Company's ability to service
those clients at a reasonable cost. Any failure by the Company to provide such
support could cause the loss of customers and have a material adverse effect on
the Company's financial results. Additionally, legislation or regulations may
be proposed or enacted to regulate the Company in a manner which may adversely
affect the Company's financial results.
18
<PAGE>
ITEM 2. PROPERTIES.
As of December 31, 1996, the Company leased four offices located in Boston,
as well as foreign offices in Toronto, Canada and Dublin, Ireland for its
offshore funds processing business.
The following table provides certain summary information with respect to
the principal properties that the Company leases:
<TABLE>
<CAPTION>
Location Function Sq. Ft. Expiration Date
- -------- -------- ------ ---------------
<S> <C> <C> <C>
89 South St., Boston, MA Principal Executive Offices 115,504 1997
and Operations Center
200 Clarendon St., Boston, MA Operations Center 25,300 2007
1 Exeter Plaza, Boston, MA Training Center 11,375 2001
24 Federal Street, Boston, MA Operations Center 3,658 Tenant at will
1 First Canadian Place, Toronto Offshore Processing Center 13,674 1997
Earlsfort Terrace, Dublin Offshore Processing Center 3,400 1997
</TABLE>
In November 1995, the Company entered into an agreement to lease 158,656
square feet at the 200 Clarendon Street location for a ten-year term to commence
in 1997 in order to consolidate its Boston operations. See Note 14 of Notes to
Consolidated Financial Statements. In December 1996, the Company exercised an
option under this ten-year lease to activate an additional 24,834 square feet at
this location.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time subject to claims arising in the ordinary
course of business. While the outcome of any claim cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the results of operations and financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1996.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is currently included in The Nasdaq National Market
under the symbol IFIN. The Company's Common Stock began trading on November 8,
1995 in connection with the Company's initial public offering priced at $16.50
per share. The following table sets forth, on a per share basis for the periods
shown, the range of high and low sales prices of the Company's Common Stock as
reported by Nasdaq.
_____________________
HIGH LOW
---- ---
First Quarter $23.125 $20.500
Second Quarter $23.500 $21.000
Third Quarter $26.000 $20.875
Fourth Quarter $28.000 $25.750
As of February 18, 1997, there were approximately 2,045 stockholders of record.
19
<PAGE>
DIVIDENDS
The Company currently intends to retain the majority of future earnings to
fund the development and growth of its business. The Company's ability to pay
dividends on the Common Stock and Class A Common Stock depends on the receipt of
dividends from Investors Bank & Trust Company. In addition, the Company may not
pay dividends on its Common Stock or Class A Common Stock if it is in default
under certain agreements which the Company entered into in connection with the
sale of the 9.77% Capital Securities described below. Any dividend payments by
Investors Bank & Trust Company are subject to certain restrictions imposed by
the Massachusetts Commissioner of Banks. See "Business -Regulation and
Supervision." Subject to regulatory requirements, Investors Bank & Trust
Company expects to pay an annual dividend to the Company, which the Company
expects to pay to its stockholders, currently estimated to be in an amount equal
to $.08 per share of outstanding Common Stock and Class A Stock (approximately
$515,545 based upon 6,444,312 shares outstanding as of December 31, 1996). The
Company expects to declare and pay such dividend ratably on a quarterly basis.
RECENT SALES OF UNREGISTERED SECURITIES
On January 31, 1997, the Company completed the issuance and sale of
$25,000,000 in 9.77% Capital Securities (the "Capital Securities"). The Capital
Securities were issued by Investors Capital Trust I, a Delaware statutory
business trust sponsored by the Company. The sale of the Capital Securities was
underwritten by Keefe, Bruyette & Woods, Inc. ("Keefe"), pursuant to which Keefe
received compensation in the amount of $562,500. The Capital Securities were
sold only to "Qualified Institutional Buyers" (as defined in Rule 144A under the
Securities Act of 1933 (the "Act") and institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Act) pursuant to the
exemption provided by Section 4(2) of the Act. See Exhibits 10.19 through 10.24
to this Report.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Except as discussed below, the selected financial data presented below have
been derived from the Company's audited financial statements. This data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's Consolidated Financial
Statements, and other financial information appearing elsewhere in this Report.
<TABLE>
<CAPTION>
For the Two Months For the Year
For the Year Ended October 31, Ended December 31, Ended December 31,
----------------------------------------------------------------------------------------------
1992 1993 1994 1995(1) 1995 1996
-------------- ----------- ----------- ---------- ----------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net interest income $ 3,659 $ 4,494 $ 4,778 $ 5,870 $ 1,966 $ 17,944
Noninterest income 29,664 32,967 43,049 51,562 8,085 56,632
Gain on sale of investment securities - 48 - - - -
-------------- ----------- ----------- ---------- ----------- ------------
Net operating revenues 33,323 37,509 47,827 57,432 10,051 74,576
Operating expenses 30,589 33,939 42,503 50,224 8,481 61,935
-------------- ----------- ----------- ---------- ----------- ------------
Income before income taxes 2,734 3,570 5,324 7,208 1,570 12,641
Income taxes 1,163 1,211 1,863 2,800 670 4,867
-------------- ----------- ----------- ---------- ----------- ------------
Net income $ 1,571 $ 2,359 $ 3,461 $ 4,408 $ 900 $ 7,774
============== =========== =========== ========== =========== ============
PER SHARE DATA
Earnings per share $ 0.14 $ 1.20
=========== ============
Average number of shares outstanding 6,467 6,504
=========== ============
AVERAGE BALANCE SHEET DATA:
Interest earning assets $ 81,148 $ 87,965 $ 94,351 $ 106,130 $ 219,775 $ 575,662
Total assets 99,609 109,477 116,810 128,174 249,064 628,893
Total deposits 88,684 99,523 102,664 106,446 197,013 377,219
Stockholders'equity 7,053 9,022 11,779 16,119 34,000 56,137
SELECTED FINANCIAL RATIOS:
Return on equity (2) 22.27% 26.15% 29.38% 27.35% 15.11% 13.85%
Return on assets (2) 1.58% 2.15% 2.96% 3.44% 2.12% 1.24%
Equity as % of total assets 6.52% 8.24% 10.08% 12.58% 16.57% 6.41%
Dividend payout ratio (3) 3.82% 2.54% 1.73% 1.36% 0.00% 2.49%
Tier 1 capital ratio (4) 37.78% 37.08% 42.53% 37.62% 62.10% 24.67%
Noninterest income as % of net
operating income 89.02% 87.89% 90.01% 89.78% 80.44% 75.94%
Nonperforming assets as % of
total assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Allowance for loan losses as %
of total loans 0.59% 0.34% 0.26% 0.26% 0.15% 0.15%
OTHER STATISTICAL DATA:
Assets processed at end of period (5) $43,348,597 $61,239,242 $72,418,449 $91,099,976 $94,208,228 $122,563,401
Employees at end of period 460 522 678 671 674 792
</TABLE>
_______________
(1) Noninterest income for the year ended October 31, 1995 includes the
recognition of net proceeds of $2,572,000 from the assignment to a third
party of asset administration rights associated with $5 billion of unit
investment trust assets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Ratios for the two months ended December 31, 1995 have been annualized. The
ratios for the year ended October 31, 1995 include the effect of the unit
investment trust transaction described in (1) above. Without the earnings
associated with this transaction, return on equity and return on assets for
the year ended October 31, 1995 would have been 18.10% and 2.28%,
respectively.
(3) The Company intends to retain the majority of future earnings to fund
development and growth of its business but the Company currently expects to
pay cash dividends at an annualized rate of $.08 per share, subject to
receipt of a like dividend from the Bank and further subject to regulatory
requirements and the terms of certain documents entered into in connection
with the sale of the Capital Securities described under "Market for
Registrant's Common Equity and Related Stockholder Matters - Recent Sales of
Unregistered Securities. "
(4) Tier I capital consists of the sum of common stockholders' equity and non-
cumulative perpetual preferred stock minus all intangible assets (other than
certain qualifying goodwill) and excess deferred tax assets.
(5) Assets processed is the total dollar value of financial assets on the
reported date for which the Company provides one or more of the following
services: custody, multicurrency accounting, institutional transfer agency,
performance measurement, foreign exchange, securities lending and mutual
fund administration and investment advisory services.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
Company's Consolidated Financial Statements and related notes, which are
included elsewhere in this Report. The Company, through its wholly owned
subsidiary, Investors Bank & Trust Company, provides domestic and global
custody, multicurrency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending and mutual fund administration
and investment advisory services to a variety of financial asset managers,
including mutual fund complexes, investment advisors, banks and insurance
companies. The Company provides financial asset administration services for
assets that totaled approximately $122 billion at December 31, 1996, including
approximately $9 billion of assets based outside the United States. The Company
also engages in private banking transactions, including secured lending and
deposit accounts.
The Company's historical business and financial results have been
significantly influenced by the restrictions imposed under CEBA. Under the CEBA
restrictions, the Company could not: (a) engage in any activity in which it was
not engaged as of March 5, 1987; (b) increase its assets by more than 7% during
any 12-month period beginning after August 10, 1988; (c) engage in certain
cross-marketing activities with affiliates; or (d) permit overdrafts by or incur
overdrafts on behalf of affiliates at a Federal Reserve Bank. As a result of
the Offering and the Spin-Off Transaction, the Company is no longer subject to
such restrictions. Accordingly, the Company's historical operating results may
not necessarily be indicative of either the full scope of the future conduct of
the Company's business or its future operating results.
The Company is now able to expand current business activities and
participate in certain additional business activities which may result in
increased revenues generated by a possible increase in client deposits and
lending opportunities. The Company's clients typically generate cash balances
from securities sales and other transactions which they seek to invest on a
short-term basis. Because the Company had been subject to the CEBA 7% annual
asset growth cap, it was not able to accept those deposits prior to the
completion of the Spin-Off Transaction and directed them to other financial
institutions, foregoing a potential source of revenue. The Company directed
client deposits averaging approximately $1.2 billion daily to other financial
institutions in fiscal year 1995. Since the completion of the Spin-Off
Transaction and the Offering, the Company has redirected an average of
approximately $734 million daily of these balances into its own deposit
products. Similarly, many of the Company's clients use credit lines to leverage
their portfolios or to handle overnight cash shortfalls. CEBA requirements
restricted the Company from making commercial loans of this type. As a result
of the removal of CEBA limitations, the Company is now able to make commercial
loans. Additionally, since the Spin-Off Transaction, the Company has entered
into agreements to provide up to an aggregate of $40 million in secured lines of
credit to mutual fund clients.
In November 1996, the Bank executed agreements with the Merrimac Master
Portfolio and the Merrimac Funds, newly formed master-feeder investment
companies (the "Funds"), pursuant to which the Company has agreed to act as
investment adviser to the Funds. At the same time, the Company engaged the Bank
of New York to act as sub-adviser to manage the investments of the Funds. In
addition to acting as adviser to the Funds, the Bank has entered into agreements
to provide custody, fund accounting, administration, transfer agency and certain
other related services to the Funds. Currently, the Funds have one operating
master fund, the Merrimac Cash Portfolio, and one operating feeder fund, the
Merrimac Cash Fund, with assets totaling over $1 billion at December 31, 1996.
The Merrimac Cash Fund offers its shares only to institutions and other
"accredited investors" (as that term is defined in Rule 501(a) under the
Securities Act of 1933) and invests all of its assets in the Merrimac Cash
Portfolio. The Merrimac Cash Portfolio invests its assets in high quality money
market instruments. The Funds may add additional feeder funds and master funds
in the future.
The Company's current largest client, Eaton Vance, accounted for 18%, 14%,
11% and 10% of the Company's net operating revenues for the years ended October
31, 1994 and 1995, for the Transition Period, and for the year ended December
31, 1996, respectively. The Company believes its relationship with Eaton Vance
is good and expects it to continue. The Company's agreements with mutual funds
managed by Eaton Vance, pursuant to which the Company provides custody and fund
accounting services, extend through August 2000 and continue thereafter until
terminated by either party upon sixty days prior notice. If a majority of
noninterested trustees of a fund determines that the performance of the Company
under any such agreement has been unsatisfactory or adverse to the interests of
the fund's shareholders, or that the terms of the agreement are no longer
consistent with publicly available industry standards, the Company shall have 60
days after receipt of written notice to
22
<PAGE>
such effect to (i) correct its performance or (ii) renegotiate such terms. If
such corrective action or renegotiation is not satisfactory to such trustees,
such agreement may be terminated on sixty days prior notice. There have been no
requests for corrective action or renegotiation to date pursuant to these
contract clauses.
The Company derives its revenues from financial asset administration
services and private banking transactions. Although interest income and
noninterest income are reported separately for financial statement presentation
purposes, the Company's clients view the pricing of the Company's asset
administration and banking service offerings on a bundled basis. In
establishing a fee structure for a specific client, management analyzes the
expected revenue and related expenses, as opposed to separately analyzing fee
income and interest income and related expenses for each from such relationship.
Accordingly, management believes net operating revenue (net interest income plus
noninterest income) and net income are meaningful measures of financial results.
Noninterest income consists primarily of fees for financial asset
administration and is principally derived from custody, multicurrency
accounting, transfer agency and administration services for financial asset
managers and the assets they control. The Company's clients pay fees based on
the volume of assets under custody, the number of securities held and portfolio
transactions, income collected and whether other value-added services such as
foreign exchange, securities lending and performance measurement are needed.
Asset-based fees are usually-charged on a sliding scale. As such, when the
assets in a portfolio under custody grow as a result of changes in market values
or cash inflows, the Company's fees may be a smaller percentage of those assets.
Fees for individually managed accounts, such as custodial, trust and portfolio
accounting services for individuals, investment advisors, private trustees,
financial planners, other banks and fiduciaries, and other institutions are also
included in noninterest income.
Net interest income represents the difference between income generated from
interest-earning assets and expense on interest-bearing liabilities. Interest-
bearing liabilities are generated by the Company's clients who, in the course of
their financial asset management, generate cash balances which they deposit on a
short-term basis with the Company. The Company invests these cash balances and
remits a portion of the earnings on these investments to its clients. The
Company's share of earnings from these investments is viewed as part of the
total package of compensation paid to the Company from its clients for
performing asset administration services.
The Company, because it is no longer subject to the CEBA balance sheet
growth restrictions, is able to accept client deposits it had historically
directed to other financial institutions. As compensation for directing these
deposits to other financial institutions, the Company had retained a portion of
the earnings on the deposits; this amount was recognized as fee income.
Generally, the Company invests these deposits in various interest-earning assets
and pays its clients interest expense. As a result, the mix of fee income and
interest income that comprise the total compensation package from clients is
shifting as the relative amount of fee income decreases while the relative
amount of interest income increases.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K) may contain statements which are
not historical facts, so-called "forward-looking statements," which involve
risks and uncertainties. The Company's actual future results may differ
significantly from those stated in any forward-looking statements. Factors that
may cause such differences include, but are not limited to, the factors
discussed below. Each of these factors, and others, are discussed from time to
time in the Company's filings with the Securities and Exchange Commission.
The Company's future results may be subject to substantial risks and
uncertainties. Because certain fees charged by the Company for its services are
based on the market values of assets processed, such fees and the Company's
quarterly and annual operating results are sensitive to changes in interest
rates, declines in stock market values, and investors seeking alternatives to
investment offerings of the Company's clients. Also, the Company's interest-
related services, along with the market value of the Company's investments, may
be adversely affected by rapid changes in interest rates. In addition, many of
the Company's client engagements are, and in the future are likely to continue
to be, terminable upon 60 days notice. Also, a substantial portion of the
assets held in the Merrimac Cash Fund are contributed by accounts managed by the
fund's sub-advisor, The Bank of New York. Because the Company's fee income from
its investment advisory services is based on a percentage of assets invested in
the Merrimac Cash Fund, withdrawal from the fund by the accounts managed by The
Bank of New York could have an adverse affect on the Company's revenues. Also,
the Company relies on certain intellectual property protections to preserve its
intellectual property rights. Any invalidation of the Company's intellectual
property rights or lengthy and expensive defense of
23
<PAGE>
those rights could have a material adverse affect on the Company. The segment of
the financial services industry in which the Company is engaged is extremely
competitive. Certain current and potential competitors of the Company are more
established and benefit from greater market recognition and have substantially
greater financial, development and marketing resources than the Company.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: the timing of the commencement or termination of
client engagements, the rate of net inflows and outflows of investor funds in
the debt and equity-based investment vehicles offered by the Company's clients,
the introduction and market acceptance of new services by the Company and
changes or anticipated changes in economic conditions. Because the Company's
operating expenses are relatively fixed, any unanticipated shortfall in revenues
in a specified period may have an adverse impact on the Company's results of
operations for that period. As a result of the foregoing and other factors,
the Company may experience material fluctuations in future operating results on
a quarterly or annual basis which could materially and adversely affect its
business, financial condition, operating results and stock price.
STATEMENT OF OPERATIONS
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
Noninterest Income
Noninterest income increased $4,705,000 to $56,632,000 for the year ended
December 31, 1996 from $51,927,000 for the year ended December 31, 1995.
Noninterest income consists of the following items:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------- -----------
1995 1996 Change
---------------- -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Asset administration fees $48,779 $56,076 15%
Proceeds from assignment of
UIT servicing, net 2,572 0 -
Computer service fees 501 482 (4)
Other operating income 75 76 1
Net loss on sale of securities - (2) -
------------ ------------
Total Noninterest Income $51,927 $56,632 9%
============ ============
</TABLE>
Asset administration fees increased due principally to higher levels of
assets processed. Assets processed is the total dollar value of financial
assets on the reported date for which the Company provides one or more of the
following services: custody, multicurrency accounting, institutional transfer
agency, performance measurement, foreign exchange, securities lending and mutual
fund administration. Total assets processed increased to $122 billion at
December 31, 1996 from $94 billion at December 31, 1995. Of the $28 billion net
increase in assets processed from December 31, 1995 to December 31, 1996,
approximately 24% of the increase reflects assets processed for new clients, and
the remainder of the increase reflects growth of assets processed for existing
clients and improved methods for tracking the amount of assets processed, offset
in part by the assets of clients no longer serviced by the Company. The
remainder of the growth in asset administration fees was due to the net
expansion of relationships with existing clients and increased use of the
Company's cash management and foreign exchange services. In addition, because
the Company is now able to accept deposits that had been historically directed
to other financial institutions due to CEBA asset growth restrictions, the
Company has experienced a shift in the mix of compensation received from its
clients. See "Overview" in this Item 7. A larger portion of the Company's
compensation from clients is now in the form of interest income generated from
client deposits, resulting in a decrease to asset administration fees and a
related increase in net interest income. The growth in asset administration
fees was also offset by the transfer of unit investment trust assets discussed
below. The administration of these assets accounted for approximately
$1,491,000 in asset administration fees in the year ended December 31, 1995.
Unit investment trust ("UIT") assets processed by the Company have
decreased over the last five years, a reflection of declining investor demand
for this type of unmanaged investment product. Declining asset levels led one
client, Merrill, Lynch, to consolidate its asset administration service
providers, and it agreed, effective March 1, 1995, to pay the Company to assign
the Company's servicing rights to The Bank of New York. The Company recognized
proceeds of $2,572,000, net of expenses, resulting from the assignment of the
rights to service approximately $5.0 billion of the client's unit investment
trust assets. The
24
<PAGE>
Company has made the strategic decision to focus its marketing and processing
efforts on mutual funds and other pooled investments which typically experience
higher growth in asset levels and can utilize a wider variety of services
provided by the Company, as compared to unit investment trusts. See Note 10 of
Notes to Consolidated Financial Statements.
Computer service fees consist of amounts charged by the Company to Eaton
Vance for data processing services related to individual accounts managed by
Eaton Vance. Other operating income consists of miscellaneous private banking
fees for safe deposit and checking account services.
Operating Expenses
Total operating expenses increased by $10,672,000 to $61,935,000 for the
year ended December 31, 1996 compared to $51,263,000 for the year ended December
31, 1995. The components of operating expenses were as follows:
Compensation of officers and employees increased by $4,013,000 or 14% from
period to period due to several factors. The number of employees increased 18%
to 792 at December 31, 1996 from 674 at December 31, 1995. In addition,
compensation expense related to the Company's management incentive plan
increased because of the increase in earnings subject to incentive in 1996
compared to 1995. The remainder of the increase in compensation expense
resulted from salary increases.
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------- ---------
1995 1996 Change
---------------------------------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Compensation $ 28,135 $ 32,148 14%
Pension and other employee
benefits 4,764 5,354 12
Occupancy 4,163 4,283 3
Equipment 4,833 5,586 16
Insurance 1,078 853 (21)
Subcustodian Fees 1,698 4,151 144
Depreciation and amortization 1,388 1,502 8
Professional Fees 1,506 2,363 57
Travel and sales promotion 785 1,158 48
Other operating expenses 2,913 4,537 56
---------------- -----------
Total Noninterest Expenses $ 51,263 $ 61,935 21%
================ ===========
</TABLE>
Pension and other employee benefits, including payroll taxes, group
insurance plans, retirement plan contributions and tuition reimbursement,
increased to $5,354,000 for the year ended December 31, 1996 from $4,764,000 for
the same period in 1995. The 12% increase was due to increased payroll taxes
attributable to the increase in compensation expense and a decrease in the
discount rate used to calculate the expense associated with the defined benefit
retirement plan.
Equipment expenses vary with the level of assets processed by the Company.
The $753,000 increase between periods was due principally to the growth in
assets processed by the Company.
Insurance expense decreased by $225,000 or 21% between the periods due to
the renegotiation of the Company's coverage for errors and omissions liability,
directors and officers liability and blanket bond.
Subcustodian expense consists of fees paid to centralized clearinghouses
and depositories for settling and holding securities on the Company's behalf.
This expense increased $2,453,000 to $4,151,000 for the year ended December 31,
1996 from $1,698,000 for the year ended December 31, 1995. This increase
results from the increase in foreign assets processed, which are subject to
higher subcustodian fees, from $6.4 billion at December 31, 1995 to $9.3 billion
at December 31, 1996, and from the movement by clients into emerging markets
which have higher costs due to structural inefficiencies. These costs are
passed through to clients and contribute to the increase in asset administration
fees.
Professional fees increased $857,000 to $2,363,000 for the year ended
December 31, 1996 from $1,506,000 for the year ended December 31, 1995. This
57% increase resulted primarily from the Company's increased use of independent
contractors to perform certain information systems development projects, rather
than adding permanent staff. Additionally, legal
25
<PAGE>
fees incurred in connection with the Company's initial compliance with year-end
related filings with the Securities and Exchange Commission and the change of
the Company's fiscal year contributed to this increase. The Company has hired
general counsel to, among other things, assist with these reporting requirements
in the future.
Travel and sales promotion expense consists of expenses incurred by the
sales force, client management staff and other employees in connection with
making sales calls on potential clients, traveling to existing client sites and
the Company's foreign subsidiaries, and attending industry conferences. This
expense increased $373,000 to $1,158,000 for the year ended December 31, 1996
from $785,000 for the year ended December 31, 1995 due primarily to increased
travel to the foreign subsidiaries.
Other operating expenses increased $1,624,000 to $4,537,000 for the year
ended December 31, 1996 from $2,913,000 for the year ended December 31, 1995.
Other operating expenses include fees for daily market pricing data, telephone,
photocopy service outsourcing, office supplies, and Delaware excise tax. Fees
for daily market pricing data vary with the level of assets processed. Other
expenses such as telephone and office supplies vary with staffing levels. The
outsourcing of photocopy service commenced in 1996 and accounted for
approximately $240,000 of the increase between periods. The Delaware excise tax
is based on the number of shares authorized for issuance by the Company. This
tax was imposed on the Company after its formation as a Delaware Corporation in
June 1995 and accounts for $180,000 of the increase between periods. The
remainder of the increase relates to the increases in assets processed and
staffing levels.
Net Interest Income
Net interest income is affected by the volume and mix of assets and
liabilities, and the movement and level of interest rates. The table below
presents the changes in net interest income resulting from changes in the volume
of interest-earning assets or interest-bearing liabilities and changes in
interest rates for the year ended December 31, 1996 compared to the same period
in 1995.
<TABLE>
<CAPTION>
Change Change
Due to Due to
Volume Rate Net
--------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold and
interest-earning deposits $ 1,256 $ (45) $ 1,211
Investment securities 25,876 491 26,367
Loans 1,341 (250) 1,091
--------- -------- --------
Total interest-earning assets 28,473 196 28,669
--------- -------- --------
INTEREST-BEARING LIABILITIES
Deposits 8,249 180 8,429
Borrowings 9,236 (41) 9,195
--------- ------ -------
Total interest-bearing liabilities 17,485 139 17,624
--------- ------ -------
Change in net interest income $10,988 $ 57 $11,045
========= ====== =======
</TABLE>
Net interest income increased $11,045,000 or 159% to $18,009,000 for the
year ended December 31, 1996 from $6,964,000 for the 1995 period. This net
increase resulted from an increase in interest income of $28,669,000 offset by
an increase in interest expense of $17,624,000. The net impact of the above
changes was a 240 basis point decrease in net interest margin.
The increase in interest income resulted primarily from a higher level of
interest earning assets. Prior to the Spin-Off Transaction, the Company was
subject to a 7% annual asset growth cap under CEBA. The elimination of the CEBA
growth restriction has allowed the Company to accept deposits from clients which
it had historically directed to other financial institutions. The Company's
average assets for the year ended December 31, 1996 increased $483,710,000 or
333% compared to the 1995 period. This growth primarily resulted from an
increase in average interest earning assets of $449,720,000.
Interest expense increased $17,624,000 due primarily to the higher level of
deposits and borrowings and to a lesser extent to an increase in the interest
rate paid by the Company. Prior to the Spin-Off Transaction, the Company was
not trying to
26
<PAGE>
attract deposits to its balance sheet and therefore did not pay a competitive
interest rate. The average rate paid on deposits and short-term borrowings
increased from 4.12 % to 4.83% between periods.
Income Taxes
The Company's earnings were taxed on the federal level at 34% for the 1995
period and 35% for the 1996 period. State taxes on the gross earnings from the
Company's portfolio of investment securities, held by a wholly-owned subsidiary,
were assessed at the tax rate for Massachusetts securities corporations of
1.32%. State taxes on the remainder of the Company's taxable income were
assessed at the tax rate for Massachusetts banks of 11.72%. The provision for
income taxes for the year ended December 31, 1996 increased by $1,856,000 over
the 1995 provision. The overall effective tax rate decreased to 38.5% for the
year ended December 31, 1996, from 39.5% for the year ended December 31, 1995.
The decrease in the effective tax rate was due to a decrease in the income of
the Company's Canadian subsidiary, which was taxed at the Canadian effective
rate of 45.37%, and the related increase in the income of the Company's
subsidiaries in Dublin and the Cayman Islands, which are lower tax
jurisdictions. The reduction of the income in the Company's Canadian subsidiary
resulted as the Company transferred certain offshore processing activities from
Toronto to Dublin and the Cayman Islands.
Comparison of Operating Results for the Two Months Ended December 31, 1995 and
1994
Noninterest Income
Noninterest income increased $204,000 to $8,085,000 for the two months
ended December 31, 1995 from $7,881,000 for the prior period. Noninterest
income consists of the following items:
<TABLE>
<CAPTION>
For the Two Months Ended December 31,
------------------------------------- ---------
1994 1995 Change
--------------- ------------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Asset administration fees $7,782 $7,988 3%
Computer service fees 88 83 (6)
Other operating income 11 14 27
------------ -----------
Total Noninterest Income $7,881 $8,085 3%
============ ===========
</TABLE>
An increase in asset administration fees, due principally to higher levels
of assets processed, represented a significant part of the increase. Assets
processed is the total dollar value of financial assets on the reported date for
which the Company provides one or more of the following services: custody,
multicurrency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending and mutual fund
administration. Total assets processed grew to $94 billion at December 31, 1995
compared to $71 billion at December 31, 1994, a 32% net increase. Approximately
20% of this growth resulted from assets processed for new clients. The
remainder of the growth was due to the net expansion of relationships with
existing clients, including growth in assets processed and increased use of the
Company's foreign exchange services. In addition, because the Company is now
able to accept deposits that had been historically directed to other financial
institutions due to CEBA asset growth restrictions, the Company has experienced
a shift in the mix of compensation received from its clients. See "Overview" in
this Item 7. A larger portion of the Company's compensation from clients is now
in the form of interest income generated from client deposits, resulting in a
decrease to asset administration fees and a related increase in net interest
income. The growth in asset administration fees was also offset by the transfer
of $5 billion of unit investment trust assets to another financial institution
on March 1, 1995; the administration of these assets accounted for approximately
$1,148,000 in asset administration fees in the two months ended December 31,
1994.
Computer service fees consist of amounts charged by the Company to Eaton
Vance for data processing services related to individual accounts managed by
Eaton Vance. Other operating income consists of miscellaneous private banking
fees for safe deposit and checking account services.
27
<PAGE>
Operating Expenses
Total operating expenses increased by $879,000 to $8,481,000 for the two
months ended December 31, 1995 compared to $7,602,000 for the two months ended
December 31, 1994. The components of operating expenses were as follows:
<TABLE>
<CAPTION>
For the two months ended December 31,
---------------------------------------- ------------
1994 1995 Change
------------------- ------------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Compensation $ 4,197 $ 4,957 18%
Pension and other employee benefits 761 840 10
Occupancy 677 625 (8)
Equipment 804 808 1
Insurance 176 194 10
Subcustodian Fees 363 217 (40)
Depreciation and amortization 19 186 879
Professional Fees 213 202 5
Travel and sales promotion 175 123 (30)
Other operating expenses 217 329 52
------------------- ------------------
Total Noninterest Expenses $ 7,602 $ 8,481 12%
=================== ==================
</TABLE>
Compensation of officers and employees increased by $761,000 or 18% from
period to period due to several factors. The number of employees decreased 1%
to 674 at December 31, 1995 from 681 at December 31, 1994. During the two
months ended December 31, 1994, the Company deferred approximately $200,000 of
personnel-related start-up costs associated with serving a new client for whom
services were not provided until calendar year 1995. These costs were amortized
during 1995. Compensation expense for the two months ended December 31, 1995
included an increase of $152,000 related to the Company's management incentive
plan, which is based on calendar year pre-tax operating income. The total
expense of this plan for the 1995 calendar year was lower than the total expense
for the 1994 calendar year, but because of the timing of various income and
expense items, the expense for the two months ended December 31, 1994 and 1995
increased. The remainder of the increase in compensation expense resulted from
salary increases.
Pension and other employee benefits, including payroll taxes, group
insurance plans, retirement plan contributions and tuition reimbursement,
increased to $840,000 for the two months ended December 31, 1995 from $761,000
for the same period in 1994. The 10% increase was due to increased payroll
taxes attributable to the increase in compensation expense and increased
participation by employees in the retirement plans and the tuition reimbursement
plan.
Subcustodian expense consists of fees paid to centralized clearinghouses
and depositories for settling and holding securities on the Company's behalf.
This expense decreased $146,000 to $217,000 for the two months ended December
31, 1995 from $363,000 for the two months ended December 31, 1994. This
decrease resulted from abnormally high compensating deposit balances held by one
client at a Hong Kong subcustodian, which reduced the fees charged by that
subcustodian.
Depreciation and amortization expense increased $167,000 between periods
due to a nonrecurring adjustment to the useful life of capitalized software
development costs related to the SEI Trust 3000 system used for individually
managed accounts. The Company leases this system from SEI and software
development costs were amortized over the original term of the lease, which
expired on December 31, 1994. At that time, the Company exercised a renewal
option to extend the lease for two additional years, and the accumulated
amortization of the software developments costs was adjusted for the change in
the lease term.
Travel and sales promotion consists of expenses incurred by the sales force
and client management staff in connection with making sales calls on potential
clients, traveling to existing client sites and attending industry conferences.
This expense decreased $52,000 to $123,000 for the two months ended December 31,
1995 from $175,000 for the prior period due to the timing of various conferences
and sales trips.
Other operating expenses increased $112,000 to $329,000 for the two months
ended December 31, 1995 from $217,000 for the two months ended December 31,
1994. Other operating expenses include fees for daily market pricing data,
telephone, office supplies, and the FDIC assessment on deposits. Fees for daily
market pricing data vary with the level of assets processed.
28
<PAGE>
Other expenses such as telephone and office supplies vary with staffing levels.
The FDIC assessment is based on deposit balances as of four annual measurement
dates. A majority of the increase in other operating expenses resulted from a
decrease in client reimbursement of charges for telephone, office supplies, and
fees for daily market pricing. The Company was reimbursed for a portion of these
charges by the Merrill Lynch unit investment trust accounts prior to the
transfer of these accounts in March 1995.
Net Interest Income
Net interest income is affected by the volume and mix of assets and
liabilities, and the movement and level of interest rates. The table below
presents the changes in net interest income resulting from changes in the volume
of interest-earning assets or interest-bearing liabilities or changes in
interest rates for the two months ended December 31, 1995 compared to the same
period in 1994.
<TABLE>
<CAPTION>
Change Change
Due to Due to
Volume Rate Net
-------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold and
interest-earning deposits $ 280 $ 1 $ 281
Investment securities 901 105 1,006
Loans 28 1 29
-------- ------- -------
Total interest-earning assets 1,209 107 1,316
-------- ------- -------
INTEREST-BEARING LIABILITIES
Deposits 28 83 111
Borrowings 111 0 111
-------- ------- -------
Total interest-bearing liabilities 139 83 222
-------- ------- -------
Change in net interest income $1,070 $ 24 $1,094
======== ======= =======
</TABLE>
Net interest income increased $1,094,000 or 125% to $1,966,000 for the two
months ended December 31, 1995 from $872,000 for the same period in 1994. This
net increase resulted from an increase in interest income of $1,316,000 offset
by an increase in interest expense of $222,000. The net impact of the above
changes was a 30 basis point increase in net interest margin.
The increase in interest income resulted primarily from a higher level of
interest earning assets. Prior to the Spin-Off Transaction, the Company was
subject to a 7% annual asset growth cap under CEBA. The elimination of the CEBA
growth restriction has allowed the Company to accept deposits from clients which
it had historically directed to other financial institutions. The Company's
average assets for the two months ended December 31, 1995 increased $118,744,000
or 91% compared to the same period in 1994. This growth primarily resulted from
an increase in average interest earning assets of $116,607,000.
Interest expense increased $222,000 due to the higher level of deposits and
an increase in the interest rate paid by the Company. Prior to the Spin-Off
Transaction, the Company was not trying to attract deposits and therefore did
not pay a competitive interest rate. The average rate paid on deposits
increased from 2.23% to 4.20% during the period.
29
<PAGE>
Income Taxes
The Company's earnings were taxed on the federal level at 34% for the 1995
and 1994 periods. State taxes on the gross earnings from the Company's
portfolio of investment securities, held by a wholly-owned subsidiary, were
assessed at the tax rate for Massachusetts securities corporations of 1.32%.
State taxes on the remainder of the Company's taxable income were assessed at
the tax rate for Massachusetts banks of 12.54%. The provision for income taxes
for the two months ended December 31, 1995 increased by $253,000 over the same
period in 1994. The overall effective tax rate increased to 43% for the two
months ended December 31, 1995, from 36% for the same period in 1994. The
Company files its tax return on a calendar year basis and thus the effective tax
was affected for the entire 1995 calendar year by the net proceeds from the
assignment of servicing rights for unit investment trust assets which were taxed
at the higher state tax rate and the profits of the Company's Canadian
subsidiary which were taxed at the Canadian effective rate of 45.37%.
Comparison of Operating Results for the Years Ended October 31, 1995 and 1994
Noninterest Income
Noninterest income increased $8,513,000 to $51,562,000 for the year ended
October 31, 1995 from $43,049,000 for the prior fiscal year. Noninterest income
consists of the following items:
<TABLE>
<CAPTION>
For the Year Ended October 31,
--------------------------------- ---------
1994 1995 Change
--------------- --------------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Asset administration fees $42,423 $48,413 14%
Proceeds from assignment of
UIT servicing, net 0 2,572 -
Computer service fees 552 505 (9)
Other operating income 74 72 (3)
--------------- ---------------
Total Noninterest Income $43,049 $51,562 20%
=============== ===============
</TABLE>
An increase in asset administration fees, due principally to higher levels
of assets processed, represented a significant part of the increase. Total
assets processed grew to $91 billion at October 31, 1995 compared to $72 billion
at October 31, 1994, a 26% increase, despite the transfer of $5 billion of unit
investment trust assets discussed below. Approximately 25% of this growth
resulted from assets processed for new clients. The remainder of the growth was
due to the net expansion of relationships with existing clients, including
growth in assets processed and increased use of the Company's securities lending
and foreign exchange services.
Unit investment trust ("UIT") assets processed by the Company decreased
over the last five years, a reflection of declining investor demand for this
type of unmanaged investment product. Declining asset levels led one client,
Merrill, Lynch, to consolidate its asset administration service providers, and
it agreed, effective March 1, 1995, to pay the Company to assign the Company's
servicing rights to The Bank of New York. The Company recognized proceeds of
$2,572,000, net of expenses, resulting from the assignment of the rights to
service approximately $5.0 billion of the client's unit investment trust assets.
The administration of these assets accounted for $5,954,000 in asset
administration fees for the year ended October 31, 1994 and $2,570,000 in such
fees for the 1995 fiscal year in addition to the assignment fee. The Company
has made the strategic decision to focus its marketing and processing efforts on
mutual funds and other pooled investments which typically experience higher
growth in asset levels and can utilize a wider variety of services provided by
the Company, as compared to unit investment trusts. See Note 10 of Notes to
Consolidated Financial Statements.
Computer service fees decreased $47,000 to $505,000 for the year ended
October 31, 1995 from $552,000 for fiscal year 1994 due to fewer special
processing requests for those accounts. Other operating income consists of
miscellaneous private banking fees for safe deposit and checking account
services.
30
<PAGE>
Operating Expenses
Total operating expenses increased by $7,721,000 to $50,224,000 for the
year ended October 31, 1995 compared to $42,503,000 for the year ended October
31, 1994. The components of operating expenses were as follows:
<TABLE>
<CAPTION>
For the year ended October 31,
--------------------------------- ----------
1994 1995 Change
--------------- -------------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Compensation $ 23,163 $ 27,214 17%
Pension and other employee benefits 4,136 4,685 13
Occupancy 3,736 4,215 13
Equipment 4,292 4,829 13
Insurance 1,070 1,060 (1)
Subcustodian Fees 1,327 1,844 39
Depreciation and amortization 1,376 1,221 (11)
Professional Fees 955 1,517 59
Travel and sales promotion 735 837 14
Other operating expenses 1,713 2,802 64
--------------- --------------
Total Noninterest Expenses $ 42,503 $ 50,224 18%
=============== ===============
</TABLE>
Compensation of officers and employees increased by $4,051,000 or 17% from
period to period due to higher staffing levels throughout 1995 compared to the
prior fiscal year. The number of employees decreased 1% to 671 at October 31,
1995 from 678 at October 31,1994. However, the principal portion of headcount
growth for the 1994 fiscal year occurred in the last four months of the period
and, as a result, the compensation expense associated with this growth is not
reflected in the full 1994 fiscal year. Approximately 40 employees staffed the
unit investment trust accounts which were transferred on March 1, 1995. These
employees were retained to support future business growth. The average
annualized salary increase for Company employees during the 1995 fiscal year was
approximately 5%.
Pension and other employee benefits, including payroll taxes, group
insurance plans, retirement plan contributions and tuition reimbursement,
increased to $4,685,000 for the year ended October 31, 1995 from $4,136,000 for
the same period in 1994. The increase was due to increased payroll taxes
attributable to the increase in compensation expense and increased participation
by employees in the tuition reimbursement plan.
Occupancy expense increased $479,000 between periods, as additional office
space was leased in Boston and Toronto and a new office was opened in Dublin
during the 1995 fiscal year. The additional space was needed due to the growth
in assets processed and the corresponding client base.
Equipment expenses vary with the level of assets processed by the Company.
The $537,000 increase between periods was due principally to the growth in
assets processed by the Company. In addition, the Company increased its usage
of EDS services during the year ended October 31, 1995 during implementation of
new functionality in FACTS to support shorter settlement periods for securities
transactions.
Subcustodian expense increased $517,000 to $1,844,000 for the year ended
October 31, 1995 from $1,327,000 for the year ended October 31, 1994. This
increase was due to two factors: the growth in assets processed, and the
movement by clients into emerging markets with higher cost structures and where
subcustodians are required.
Depreciation and amortization expense decreased $155,000 between periods as
certain assets purchased in 1990, 1991 and 1992 were fully depreciated.
Professional fees increased $562,000 to $1,517,000 for the year ended
October 31, 1995 from $955,000 for the year ended October 31, 1994. This
increase was primarily due to the Company's increased use of independent
contractors to perform certain information systems development projects, rather
than adding permanent staff.
31
<PAGE>
Travel and sales promotion expense increased $102,000 to $837,000 for the
year ended October 31, 1995 from $735,000 for the prior year due to the
strategic decision to increase the Company's visibility at industry conferences
in the U.S. and abroad.
Other operating expenses increased $1,089,000 to $2,802,000 for the year
ended October 31, 1995 from $1,713,000 for the year ended October 31, 1994. Fees
for daily market pricing data vary with the level of assets processed. Other
expenses such as telephone and office supplies vary with staffing levels. The
FDIC assessment is based on deposit balances as of four annual measurement
dates. A majority of the increase in other operating expenses resulted from a
decrease in client reimbursement of charges for telephone, office supplies, and
fees for daily market pricing. The Company was reimbursed for a portion of
these charges by the Merrill Lynch unit investment trust accounts prior to the
transfer of these accounts in March 1995.
Net Interest Income
Net interest income is affected by the volume and mix of assets and
liabilities, and the movement and level of interest rates. The table below
presents the changes in net interest income resulting from changes in the volume
of interest-earning assets or interest-bearing liabilities or changes in
interest rates for the year ended October 31, 1995 compared to the same period
in fiscal 1994.
<TABLE>
<CAPTION>
Change Change
Due to Due to
Volume Rate Net
-------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold and
interest-earning deposits $291 $ 24 $ 315
Investment securities 353 33 386
Loans 63 280 343
-------- ------- -------
Total interest-earning assets 707 337 1,044
-------- ------- -------
INTEREST-BEARING LIABILITIES
Deposits 453 (578) (125)
Borrowings 76 1 77
-------- ------- -------
Total interest-bearing liabilities 529 (577) (48)
-------- ------- -------
Change in net interest income $178 $ 914 $1,092
======== ======= =======
</TABLE>
Net interest income increased $1,092,000 or 23% to $5,870,000 for the year
ended October 31, 1995 from $4,778,000 for the same period in 1994. This net
increase resulted from an increase in interest income of $1,044,000 and a
decrease in interest expense of $48,000. The net impact of the above changes
was a 47 basis point increase in net interest margin.
The increase in interest income resulted from both a higher level of
interest earning assets and higher interest rates. The Company's average assets
for the year ended October 31, 1995 increased $11,364,000 or 10% compared to the
same period in 1994. This growth was significantly affected by an increase in
average interest earning assets of $11,779,000. The prime rate increased 100
basis points between October 31, 1994 and October 31, 1995, improving the yield
on the Company's prime-based loan portfolio.
Interest expense decreased $48,000 due largely to the shift from interest-
bearing deposits to noninterest-bearing deposits. The average rate paid on
deposits increased from 2.01% to 2.85% during the period.
Income Taxes
The Company's earnings were taxed on the federal level at 34% for the 1995
and 1994 periods. State taxes on the gross earnings from the Company's
portfolio of investment securities, held by a wholly-owned subsidiary, were
assessed at the tax rate for Massachusetts securities corporations of 1.32%.
State taxes on the remainder of the Company's taxable income were assessed at
the tax rate for Massachusetts banks of 12.54%. The provision for income taxes
for the year ended October 31, 1995 increased by $937,000 over the same period
in 1994. The overall effective tax rate increased to 39% for the year ended
October 31, 1995,
32
<PAGE>
from 35% for the same period in 1994 as the net proceeds from the assignment of
servicing rights for unit investment trust assets were taxed at the higher state
tax rate.
FINANCIAL CONDITION
Investment Portfolio
The following table summarizes the Company's investment portfolio for the dates
indicated:
<TABLE>
<CAPTION>
October 31, December 31,
-------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------ ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury securities $ 76,158
Mortgage-backed securities 12,120
----------
Total investment securities $ 88,278
==========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 60,408 $ 0 $ 0
Mortgage-backed securities 49,609 144,124 414,665
Federal Agency securities 10,000 37,517
Foreign Government Securities - 7,828
----------- --------- ---------
Total securities held to maturity $ 110,017 $ 154,124 $ 460,010
=========== ========= =========
SECURITIES AVAILABLE FOR RESALE:
U.S. Treasury securities $ 50,652 $ 40,259
Mortgage-backed securities 40,167 230,862
---------- ---------
Total securities held to maturity $ 90,819 $ 271,121
========== =========
</TABLE>
The investment portfolio is used to invest depositors funds and provide a
secondary source of earnings for the Company. In addition, the Company uses the
investment portfolio to secure open positions at securities clearing banks in
connection with its custody services. The portfolio is composed of U.S.
Treasury securities, mortgage-backed securities issued by the Federal National
Mortgage Association ("FNMA" or "Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("FHLMC" or "Freddie Mac"), and Federal Agency callable bonds issued
by FHLMC and the Federal Home Loan Bank ("FHLB").
The Company invests in mortgage-backed securities and Federal Agency
securities to supplement its portfolio of U.S. Treasury securities and increase
the total return of the investment portfolio. Mortgage-backed securities
generally have a higher yield than U.S. Treasury securities due to credit risk
and prepayment risk. Federal Agency callable bonds generally have a higher yield
than U.S. Treasury securities due to credit risk and call risk. Mortgage-backed
securities and Federal Agency callable bonds have credit risk, even though
payment guarantees and credit enhancements substantially reduce it. Mortgage-
backed securities are also subject to the risk that fluctuating interest rates
and other factors may alter the prepayment rate of the loans underlying the
mortgage-backed securities, and so affect both the prepayment speed and the
value of such securities, while Federal Agency callable bonds are subject to the
risk that fluctuating interest rates and other factors may result in the
exercise of the call option by the Federal Agency.
Effective November 1, 1994, the Company classified its investment portfolio
as held-to-maturity. Management had the intent and the Company had the ability
to hold these securities until maturity. In connection with the initial
adoption of the Financial Accounting Standards Board's Special Report, A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, the Company reassessed the appropriateness of the
classifications of all securities held as of December 31, 1995. As a result of
this reassessment, the Company reclassified debt securities with a carrying
value of $90 million from held-to-maturity to available for sale. The held-to-
maturity portfolio is carried at cost, adjusted for amortization of premiums and
accretion of discounts. The available-for-sale portfolio is carried at fair
value, with the net unrealized gains and losses recognized as an adjustment to
capital until final disposition or recovery.
33
<PAGE>
The book value and weighted average yield of the Company's securities held
to maturity at December 31, 1996, by effective maturity, are reflected in the
following table.
<TABLE>
<CAPTION>
Weighted
Average
Book Value Yield
---------- ---------
<S> <C> <C>
Due within one year $ 19,052 6.25%
Due from one to five years 114,459 6.90%
Due after five years up to ten years 240,621 6.93%
Due after ten years 85,878 6.73%
----------
Total securities $ 460,010
==========
</TABLE>
The book value and weighted average yield of the Company's securities
available for sale at December 31, 1996, by effective maturity, are reflected in
the following table.
<TABLE>
<CAPTION>
Weighted
Average
Book Value Yield
---------- ----------
<S> <C> <C>
Due within one year $ 20,047 6.19%
Due from one to five years 214,526 6.69%
Due after five years up to ten years 36,548 6.84%
----------
Total securities $ 271,121
==========
</TABLE>
Loan Portfolio
The following table summarizes the Company's loan portfolio for the dates
indicated:
<TABLE>
<CAPTION>
October 31, December 31,
--------------------------------------------------------------------
1992 1993 1994 1995 1995 1996
------------- --------- --------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans to individuals $5,103 $ 8,435 $12,085 $13,446 $12,610 $23,449
Loans to not-for-profit
organizations 814 1,821 1,520 289 289 13
Loans to mutual funds 0 0 0 0 10,000 42,875
------------- --------- -------- -------- -------- ---------
5,917 10,256 13,605 13,735 22,899 66,337
Less: allowance for loan losses (35) (35) (35) (35) (35) (100)
------------- --------- -------- -------- -------- ---------
Net loans $5,882 $10,221 $13,570 $13,700 $22,864 $66,237
============= ========= ======== ======== ======== =========
Floating Rate $5,892 $10,231 $13,580 $13,675 $22,839 $66,224
Fixed Rate 25 25 25 25 25 13
------------- --------- -------- -------- -------- ---------
$5,917 $10,256 $13,605 $13,700 $22,864 $66,237
============= ========= ======== ======== ======== =========
</TABLE>
Historically, the Company's loan portfolio has been composed primarily of
loans to individually managed account customers. Although many of its clients
with pooled investment vehicles such as mutual funds use credit lines to
leverage their portfolios or to handle overnight cash shortfalls, CEBA
requirements restricted the Company from making commercial loans of this type.
As a result of the removal of CEBA limitations due to the Spin-Off Transaction,
the Company may now offer lending services directly to all clients and made its
first commercial loan in December 1995.
Virtually all loans to individually managed account customers are written
on a demand basis, bear variable interest rates tied to the prime rate and are
fully secured by liquid collateral, primarily freely tradeable securities held
in custody by the Company for the borrower. Since December 1995, the Company
has entered into agreements to provide up to an aggregate of $40 million under
secured lines of credit to mutual fund clients. Loans to mutual funds also
include advances by the Company to certain mutual fund clients pursuant to the
terms of the custody agreements between the Company and those clients. The
advances facilitate securities transactions and redemptions involving those
mutual funds and are fully secured by liquid collateral, primarily freely
tradable securities held in custody by the Company for those mutual funds.
34
<PAGE>
At December 31, 1996, the Company's only lending concentrations which
exceeded 10% of total loans were the revolving lines of credit to mutual fund
clients discussed above. These loans were made in the ordinary course of
business on the same terms and conditions prevailing at the time for comparable
transactions. The Company also had a lending relationship at December 31, 1996
with Landon T. Clay, a principal stockholder of the Company and an officer of
Eaton Vance, representing two loans aggregating $1,200,000 in principal amount
These loans to Mr. Clay were made in the ordinary course of business on the same
terms and conditions prevailing at the time for comparable transactions with
unrelated third parties. Each of these loans was secured with non-voting common
stock of Eaton Vance.
The Company's credit loss experience has been excellent. There have been
no loan chargeoffs or adverse credit actions in the history of the Company. It
is the Company's policy to place a loan on non-accrual status when either
principal or interest becomes 60 days past due and the loan's collateral is not
sufficient to cover both principal and accrued interest. As of December 31,
1996, there were no past due loans, troubled debt restructurings, or any loans
on nonaccrual status. Although virtually all of the Company's loans are fully
collateralized with freely tradeable securities, management recognizes some
credit risk inherent in the loan portfolio, and has recorded an allowance for
loan losses of $100,000 at December 31, 1996. This amount is not allocated to
any particular loan, but is intended to absorb any risk of loss inherent in the
loan portfolio. Management actively monitors the loan portfolio and the
underlying collateral and regularly assesses the adequacy of the allowance for
loan losses.
As a result of the removal of CEBA limitations, the Company is now able to
make commercial loans such as the credit lines and advances to mutual fund
clients discussed above. The Company hopes to increase its lending activities
with clients in 1997.
INTEREST RATE SENSITIVITY
The Company, like all financial intermediaries, is subject to interest rate
risk. Rapid changes in interest rates could adversely affect the profitability
of the Company by causing changes in the market value of the Company's assets
and its net interest income. Interest rate risk arises when an earning asset
matures or when its rate of interest changes in a time frame different from that
of the supporting interest-bearing liability. By seeking to minimize the
difference between the amounts of earning assets and interest-bearing
liabilities subject to interest rates changes in the same time frame, the
Company attempts to reduce the risk of significant adverse effects on net
interest income caused by interest rate changes. The Company does not attempt
to match each earning asset with a specific interest-bearing liability.
Instead, as shown in the table below, it aggregates all of its earning assets
and interest-bearing liabilities to determine the difference between these in
specific time frames. This difference is known as the rate-sensitivity gap. A
positive gap indicates that more earning assets than interest-bearing
liabilities mature in a time frame, and a negative gap indicates the opposite.
Maintaining a balanced position will reduce risk associated with interest rate
changes, but it will not guarantee a stable interest rate spread because the
various rates within a time frame may change by differing amounts and change in
different directions.
In addition to structuring the balance sheet to minimize interest rate
risk, the Company seeks to manage interest rate risk by investment portfolio
actions designed to address the interest rate sensitivity of asset cash flows in
relation to liability cash flows. Portfolio actions used to manage interest
rate risk include managing the effective duration of the portfolio securities
and utilizing interest rate contracts. Interest rate contracts are used to
hedge against large rate swings and changes in the shape of the yield curve. It
is the Company's policy to limit the annual variability in net interest income
to plus or minus 10% for a 200 basis point interest rate movement. The
Company's simulation model currently projects that a gradual 200 basis point
increase in interest rates, over a one year period, would reduce net interest
income by 9%.
Interest rate contracts involve elements of credit and market risk which
are not reflected in the Company's consolidated financial statements. Such
instruments are entered into for hedging (as opposed to investment or
speculative) purposes. See Note 13 to the Consolidated Financial Statements.
The Company periodically monitors the financial stability of its counterparties
according to prudent investment guidelines and established procedures. There
can be no assurance that such portfolio actions will adequately limit interest
rate risk.
35
<PAGE>
The following table presents the repricing schedule for the Company's
interest earning assets and interest bearing liabilities at December 31, 1996
<TABLE>
<CAPTION>
Within Over Three Over Six Over One
Three to Six to Twelve Year to Over Five
Months Months Months Five Years Years Total
----------- ---------- ---------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets (1):
Federal funds sold $ 120,000 $ 120,000
Investment securities (2) 262,024 $131,157 $143,422 $119,334 $ 75,194 731,131
Loans - fixed rate 0 13 13
Loans - variable rate 66,324 66,324
----------- ---------- ---------- ---------- --------- ---------
Total interest earning assets 448,348 131,157 143,422 119,347 75,194 917,468
Interest bearing liabilities
Demand deposit accounts 116,193 116,193
Savings accounts 276,602 276,602
Treasury, tax and loan account 4 4
Interest rate contracts (150,000) 20,000 80,000 50,000 0
Repurchase Agreements 296,421 296,421
----------- ---------- ---------- ---------- --------- ---------
Total interest bearing
liabilities 539,220 20,000 80,000 50,000 0 689,220
----------- ---------- ---------- ---------- --------- ---------
Net interest sensitivity gap
during the period ($90,872) $117,157 $ 63,422 $ 69,347 $ 75,194 $ 228,248
=========== ========== ========== ========== ========= =========
Cumulative gap ($90,872) $ 20,285 $ 83,707 $153,054 $228,248
=========== ========== ========== ========== =========
Interest sensitive assets as a
percent of interest sensitive
liabilities (cumulative) 83.15% 103.63% 113.10% 122.21% 133.12%
Interest sensitive assets as a
percent of total assets
(cumulative) 46.49% 60.09% 74.96% 87.33% 95.13%
Net interest sensitivity gap as a
percent of total asets -9.42% 11.53% 6.58% 7.19% 7.80%
Cumulative gap as a percent
of total asets -9.42% 2.10% 8.68% 15.87% 23.67%
</TABLE>
________________________
(1) ADJUSTABLE RATE ASSETS ARE INCLUDED IN THE PERIOD IN WHICH INTEREST RATES
ARE NEXT SCHEDULED TO ADJUST RATHER THAN IN THE PERIOD IN WHICH THEY ARE
DUE. FIXED RATE LOANS ARE INCLUDED IN THE PERIOD IN WHICH THEY ARE
SCHEDULED TO BE REPAID.
(2) MORTGAGE-BACKED SECURITIES ARE INCLUDED IN THE PRICING CATEGORY THAT
CORRESPONDS WITH THEIR CONTRACTUAL MATURITY.
LIQUIDITY
Liquidity represents the ability of an institution to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds through liability management. For
a financial institution such as the Company, these obligations arise from the
withdrawals of deposits and the payment of operating expenses.
The Company's primary sources of liquidity include cash and cash
equivalents, federal funds sold, demand loans to individuals, new deposits,
federal funds purchased, interest payments on securities held to maturity, fees
collected from asset administration clients, and the capital raised from the
Offering. Asset liquidity is also provided by managing the duration of the
investment portfolio. As a result of the Company's management of liquid assets
and the ability to generate liquidity through liability funds, management
believes that the Company maintains overall liquidity sufficient to meet its
depositors' needs, to satisfy its operating requirements and to fund the payment
of an anticipated annual cash dividend of approximately $.08 per share.
The Company's ability to pay dividends on the Common Stock and Class A
Common Stock depends on the receipt of dividends from Investors Bank & Trust
Company. In addition, the Company may not pay dividends on its Common Stock or
Class A Common Stock if it is in default under certain agreements entered into
in connection with the sale of the Capital Securities described under "Market
for Registrant's Common Equity and Related Stockholder Matters - Recent Sales of
Unregistered Securities." Any dividend payments by Investors Bank & Trust
Company are subject to certain restrictions imposed by the Massachusetts
Commissioner of Banks. Subject to regulatory requirements, Investors Bank &
Trust Company
36
<PAGE>
expects to pay an annual dividend to the Company, which the Company expects to
pay to its stockholders, currently estimated to be in an amount equal to $.08
per share of outstanding Common Stock and Class A Stock (approximately $515,545
based upon 6,444,312 shares outstanding as of December 31, 1996).
At December 31, 1996, cash and cash equivalents were 2% of total assets,
compared to 7% of total assets at December 31, 1995. At December 31, 1996,
approximately $723 million or 75% of total assets mature within a one year
period.
The Company has informal borrowing arrangements with various counterparties
whereby each counterparty has agreed to make funds available to the Company at
the Federal funds overnight rate. The aggregate amount of these borrowing
arrangements as of December 31, 1996 was $72 million. Each bank may terminate
its arrangement at any time and is under no contractual obligation to provide
requested funding to the Company. The Company's borrowings under these
arrangements are typically on an overnight basis. The Company believes that if
these banks were unable to provide funding as described above, a satisfactory
alternative source of funding would be available to the Company.
The Company also has Master Repurchase Agreements in place with various
counterparties whereby each broker has agreed to make funds available to the
Company at various rates in exchange for collateral consisting of marketable
securities. The aggregate amount of these borrowing arrangements at December
31, 1996 was $425 million.
The Company also has a borrowing arrangement with the Federal Home Loan
Bank (the "FHLB") whereby the Company may borrow amounts determined by
prescribed collateral levels and the amount of FHLB stock held by the Company.
The minimum amount of FHLB stock held by the Company is required to be 1% of its
outstanding residential mortgage loans or .3% of total assets, whichever is
higher. If the Company borrows under this arrangement, the Company is required
to hold FHLB stock equal to 5% of such outstanding advances. The aggregate
amount of borrowing available to the Company under this arrangement at December
31, 1996 was $313 million.
The Company's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities, and financing
activities. Cash flows provided by operating activities were $7,644,000 for the
year ended December 31, 1996. Net cash used in investing activities,
consisting primarily of purchases of investment securities and proceeds from
maturities of investment securities, was $639,707,000 for the year ended
December 31, 1996. Net cash provided by financing activities, consisting
primarily of net activity in deposits, was $629,391,000 for the year ended
December 31, 1996.
CAPITAL RESOURCES
Historically, the Company has financed its operations primarily through
internally generated cash flows. The Company incurs capital expenditures for
furniture, fixtures and miscellaneous equipment needs. The Company leases
microcomputers through operating leases. Such capital expenditures have been
incurred and such leases entered into on an as-required basis, primarily to meet
the growing operating needs of the Company. As a result, the Company's capital
expenditures for fiscal 1994 and 1995 were $1,616,000 and $1,564,000,
respectively, $118,000 for the two months ended December 31, 1995, and
$3,236,000 for the year ended December 31, 1996.
Stockholders' equity at December 31, 1996 was $61,859,000, an increase of
$8,438,000 or 16%, from $53,421,000 at December 31, 1995. The growth in
stockholders' equity is attributable to current period net income. The ratio
of stockholders' equity to assets decreased to 6.41% at December 31, 1996 from
16.57% at December 31, 1995 due to the significant growth in assets.
The Federal Reserve Board has adopted a system using internationally
consistent risk-based capital adequacy guidelines to evaluate the capital
adequacy of banks and bank holding companies. Under the risk-based capital
guidelines, different categories of assets are assigned different risk weights,
based generally upon the perceived credit risk of the asset. These risk weights
are multiplied by corresponding asset balances to determine a "risk-weighted"
asset base. Certain off-balance sheet items, which previously were not
expressly considered in capital adequacy computations, are added to the risk-
weighted asset base by converting them to a balance sheet equivalent and
assigning them the appropriate risk weight.
Federal Reserve Board and FDIC guidelines require that banking
organizations have a minimum ratio of total capital to risk-adjusted assets and
off balance sheet items of 8.0%. Total capital is defined as the sum of "Tier I"
and "Tier II" capital elements, with at least half of the total capital required
to be Tier I. Tier I capital includes, with certain restrictions, the sum of
common stockholders' equity, noncumulative perpetual preferred stock, a limited
amount of cumulative perpetual preferred
37
<PAGE>
stock, and minority interests in consolidated subsidiaries, less certain
intangible assets. Tier II capital includes, with certain limitations,
subordinated debt meeting certain requirements, intermediate-term preferred
stock, certain hybrid capital instruments, certain forms of perpetual preferred
stock, as well as maturing capital instruments and general allowances for loan
losses.
The following table summarizes the Company's Tier I and total capital
ratios at December 31, 1996:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Amount Ratio
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Tier I capital $ 60,718 24.7%
Tier I capital minimum requirement 9,846 4.0%
---------- ----------
Excess Tier I capital $ 50,872 20.7%
========== ==========
Total capital $ 60,818 24.7%
Total capital minimum requirement 19,692 8.0%
---------- ----------
Excess total capital $ 41,126 16.7%
========== ==========
Risk adjusted assets, net of intangible assets $ 246,144
==========
</TABLE>
In addition to the risk-based capital guidelines, the Federal Reserve Board
and the FDIC use a "Leverage Capital Ratio" as an additional tool to evaluate
capital adequacy. The Leverage Capital Ratio is defined to be a Company's Tier I
capital divided by its adjusted total assets. The Leverage Capital Ratio adopted
by the federal banking agencies requires a ratio of 3.0% Tier I capital to
adjusted average total assets for top rated banking institutions. All other
banking institutions will be expected to maintain a Leverage Capital Ratio of
4.0% to 5.0%. The computation of the risk-based capital ratios and the Leverage
Capital Ratio requires the capital of the Company to be reduced by most
intangible assets. The Company's Leverage Capital Ratio at December 31, 1996 was
6.30%, which is in excess of regulatory requirements. See "Business -Regulation
and Supervision."
38
<PAGE>
The following tables present average balances, interest income and expense,
and yields earned or paid on the major categories of assets and liabilities for
the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1995 1996
------------------------------------------ -----------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold $ 10,218 $ 595 5.82% $ 33,989 $ 1,859 5.47%
Interest-earning deposits 1,000 59 5.90% 126 6 4.76%
Investment securities 100,861 6,123 6.07% 497,965 32,490 6.52%
Demand Loans 13,863 1,231 8.88% 43,582 2,322 5.33%
---------- ---------- ------------ ---------- ---------- ------------
Total interest-earning assets 125,942 8,008 6.36% 575,662 36,677 6.37%
========== ============ ========== ============
Allowance for loan losses (35) (74)
Noninterest-earning assets 9,276 53,305
---------- ----------
Total assets $145,183 $628,893
========== ==========
INTEREST-BEARING LIABILITIES
Deposits:
Demand $ 11,995 610 5.09% $142,059 6,944 4.89%
Savings 10,742 245 2.28% 56,775 2,302 4.05%
Time - - - 721 38 5.27%
Short Term Borrowings 2,575 189 7.34% 186,952 9,384 5.02%
---------- ---------- ------------ ---------- ---------- ------------
Total interest-bearing liabilities 25,312 1,044 4.12% 386,507 18,668 4.83%
---------- ------------ ---------- ------------
Noninterest-bearing liabilities:
Demand deposits 46,568 132,063
Noninterest bearing time deposits 46,368 45,601
Other liabilities 7,442 8,585
---------- ----------
Total liabilities 125,690 572,756
Equity 19,493 56,137
---------- ----------
Total liabilities and equity $145,183 $628,893
========== ==========
Net interest income $ 6,964 $ 18,009
========== ==========
Net interest margin (1) 5.53% 3.13%
Average interest rate spread (2) 224% 1.54%
Ratio of interest-earning assets
to interest-bearing liabilities 497.6% 148.9%
</TABLE>
_________________________
(1) Net interest income divided by total interest-earning assets.
(2) Yield on interest-earning assets less rate paid on interest-bearing
liabilities.
39
<PAGE>
<TABLE>
<CAPTION>
Two Months Ended December 31, 1994 Two Months Ended December 31, 1995
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- ---------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold $ - $ - 0.00% $ 28,702 $ 280 5.85%
Interest-earning deposits 1,000 9 5.40% 1,000 10 6.00%
Investment securities 88,125 837 5.70% 174,122 1,844 6.35%
Demand Loans 14,043 201 8.59% 15,951 230 8.65%
--------- ---------- ------------ --------- ---------- ------------
Total interest-earning assets 103,168 1,047 6.09% 219,775 2,364 6.45%
---------- ------------ ---------- ------------
Allowance for loan losses (35) (35)
Noninterest-earning assets 27,187 29,324
--------- ---------
Total assets $130,320 $249,064
========= =========
INTEREST-BEARING LIABILITIES
Deposits:
Savings $ 23,726 127 3.21% $ 33,919 241 4.26%
Time 23,412 48 1.23% 11,658 46 2.37%
Short Term Borrowings - - 0.00% 11,321 111 5.88%
--------- ---------- ------------ --------- ---------- ------------
Total interest-bearing liabilities 47,138 175 2.23% 56,898 398 4.20%
---------- ------------ ---------- ------------
Noninterest-bearing liabilities:
Demand deposits 36,110 95,115
Noninterest bearing time deposits 30,000 45,000
Other liabilities 3,028 18,051
--------- ---------
Total liabilities 116,276 215,064
Equity 14,044 34,000
--------- ---------
Total liabilities and equity $130,320 $249,064
========= =========
Net interest income $ 872 $1,966
========== ==========
Net interest margin (1) 5.07% 5.37%
Average interest rate spread (2) 3.86% 2.26%
Ratio of interest-earning assets to
interest-bearing liabilities 218.9% 386.3%
</TABLE>
___________________
(1) Net interest income divided by total interest-earning assets.
(2) Yield on interest-earning assets less rate paid on interest-bearing
liabilities.
40
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, Year Ended October 31,
1994 1995
---------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------ ------------ -------------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold $ 393 $ 20 5.20% $ 5,376 $ 315 5.86%
Interest-earning deposits 1,000 38 3.80% 1,000 58 5.80%
Investment securities 80,462 4,731 5.88% 86,393 5,117 5.92%
Demand Loans 12,497 859 6.87% 13,361 1,202 9.00%
----------- ----------- ----------- ---------- --------- ----------
Total interest-earning assets 94,351 5,648 5.99% 106,130 6,692 6.31%
----------- ----------- --------- ----------
Allowance for loan losses (35) (35)
Noninterest-earning assets 22,494 22,079
----------- ----------
Total assets $116,810 $128,174
=========== ==========
INTEREST-BEARING LIABILITIES
Deposits:
Savings $ 12,898 256 1.98% $ 14,388 367 2.55%
Time 30,212 609 2.01% 11,568 373 3.22%
Short Term Borrowings 220 6 2.79% 2,603 82 3.15%
----------- ----------- ----------- ---------- --------- ----------
Total interest-bearing liabilities 43,330 870 2.01% 28,559 822 2.88%
----------- ----------- --------- ----------
Noninterest-bearing liabilities:
Demand deposits 37,535 34,678
Noninterest bearing time deposits 22,019 43,869
Other liabilities 2,147 4,949
----------- ----------
Total liabilities 105,031 112,055
Equity 11,779 16,119
----------- ----------
Total liabilities and equity $116,810 $128,174
=========== ==========
Net interest income $4,778 $5,870
=========== =========
Net interest margin (1) 5.06% 5.53%
Average interest rate spread (2) 3.98% 3.43%
Ratio of interest-earning assets to
interest-bearing liabilities 217.8%
</TABLE>
________________________________
(1) Net interest income divided by total interest-earning assets.
(2) Yield on interest-earning assets less rate paid on interest-bearing
liabilities.
41
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required under this item is contained in the financial
statements and schedules set forth in Item 14(a) under the captions
"Consolidated Financial Statements" and "Financial Statement Schedules" as a
part of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under this item is incorporated herein by
reference to the information in the sections entitled "Occupations of Directors
and Executive Officers," "Election of Directors" and "Compensation and Other
Information Concerning Directors and Officers" continued in the Company's
definitive proxy statement pursuant to Regulation 14A, which proxy statement
will be filed with the Securities and Exchange Commission not later than 120
days after the close of the Company's fiscal year ended December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by
reference to the information in the section entitled "Compensation and Other
Information Concerning Directors and Officers" contained in the Company's
definitive proxy statement pursuant to Regulation 14A, which proxy statement
will be filed with the Securities and Exchange Commission not later than 120
days after the close of the Company's fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by
reference to the information in the section entitled "Management and Principal
Holders of Voting Securities" contained in the Company's definitive proxy
statement pursuant to Regulation 14A, which proxy statement will be filed with
the Securities and Exchange Commission not later than 120 days after the close
of the Company's fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by
reference to the information in the section entitled "Certain Relationships and
Related Transactions" contained in the Company's definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS.
For the following consolidated financial information included herein,
see Index on Page F-1:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 1995 and December 31,
1996.
Consolidated Statements of Income for the Years Ended October 31, 1994
and 1995, for the Two-Month Period Ended December 31, 1995, and for
the year ended December 31, 1996.
42
<PAGE>
Statements of Stockholders' Equity for the Years Ended October 31,
1994 and 1995, for the Two-Month Period Ended December 31, 1995, and
for the Year Ended December 31, 1996.
Consolidated Statements of Cash Flows for the Years Ended October 31,
1994 and 1995, for the Two-Month Period Ended December 31, 1995, and
for the year ended December 31, 1996.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES.
None.
3. LIST OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1(1) Plan of Exchange of Common and Class A Stock of the Company for all
outstanding stock of the Bank
3.1(1) Certificate of Incorporation of the Company
3.2(1) By-laws of the Company
4.1(1) Specimen certificate representing the Common Stock
4.2(1) Stockholder Rights Plan
5.1(1) Opinion of Testa, Hurwitz & Thibeault, LLP
10.1(1) * 1995 Stock Plan
10.2(1) Custodian Agreement among and between the Company, Eaton Vance
Corp. and each investment company advised by Eaton Vance Corp.
which adopted the Agreement dated December 17, 1990
10.3(1) Transfer and Assumption Agreement between the Company and Bank of
New York dated January 27, 1995 regarding the assignment of Merrill
Lynch Unit Investment Trust administration service
10.4(1) Information Technology Services Contract between the Company and
Electronic Data Systems, Inc. dated September 24, 1990
10.5(1) Third Party Hub and Spoke Processing License Agreement between the
Company and Signature Financial Group, Inc. dated May 21, 1993
10.6(1) Hub and Spoke Facilities Management Agreement between the Company
and Signature Financial Group, Inc. dated May 21, 1993
10.7(1) Loan Agreements with Landon Clay dated May 10, 1993 and October 6,
1994
10.8(1) * Description of the executive bonus arrangement
10.9(1) * Employment contract between the Company and Kevin Sheehan
10.10(1) * Employment contract between the Company and Michael Rogers
10.11(1) * Employment contract between the Company and Edmund Maroney
10.12(1) * Employment contract between the Company and Robert Mancuso
10.13(1) Sublease Agreement, as amended, between the Company and the Bank of
New England, N.A. dated May 25, 1990, for premises located at 89
South Street, Boston, Massachusetts
10.14 * 1995 Non-Employee Director Stock Option Plan
10.15(2) Information Technology Services Contract between the Company and
Electronic Data Systems, Inc. dated September 20,1995,
10.16(2) Lease Agreement between the Company and John Hancock Mutual Life
Insurance Company, dated November 13, 1995, for the premises
located at 200 Clarendon Street, Boston, Massachusetts.
10.17 * Employment contract between the Company and Karen C. Keenan
10.18 * 1995 Employee Stock Purchase Plan
10.19 Amended and Restated Declaration of Trust among the Company and the
Trustees named therein, dated January 31, 1997
10.20 Purchase Agreement among the Company, Investors Capital Trust I and
Keefe, Bruyette & Woods, Inc., dated January 30, 1997 (Included in
Exhibit 10.19)
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
10.21 Indenture between the Company and The Bank of New York, dated
January 31, 1997
10.22 Registration Rights Agreement, among the Company, Investors Capital
Trust I and Keefe, Bruyette & Woods, Inc., dated January 31, 1997
10.23 Common Securities Guarantee Agreement by the Company as Guarantor,
dated January 31, 1997
10.24 Capital Securities Guarantee Agreement between the Company as
Guarantor and The Bank of New York as Capital Securities Guarantee
Trustee, dated January 31, 1997
21.1 Subsidiaries of the Company
24.1 ** Power of Attorney (See Page 56 of this Report)
</TABLE>
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-95980).
(2) Previously filed as an exhibit to Form 10-K for the fiscal year ended
October 31, 1995.
* Indicates a management contract or any compensatory plan, contract or
arrangement.
(b) REPORTS ON FORM 8-K.
On January 27, 1997, the Company filed a Current Report on Form 8-K
reporting the Company's financial results for the quarter and year ended
December 31, 1996 and reporting the sale of capital securities described in
Item 5 of this Report.
(c) EXHIBITS.
The Company hereby files as part of this Form 10-K the exhibits listed in
Item 14(a)(3) above. Exhibits which are incorporated herein by reference
can be inspected and copied at the public reference facilities maintained
by the Securities and Exchange Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C., and at the Securities and Exchange Commission's
regional offices at CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661-2511 and Seven World Trade Center, Suite 1300, New York,
NY 10048. Copies of such material can also be obtained from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 29549, at prescribed rates.
(d) FINANCIAL STATEMENT SCHEDULES
None.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts on the 18th day of February, 1997.
INVESTORS FINANCIAL SERVICES CORP.
By: /s/ Kevin J. Sheehan
----------------------------------
Kevin J. Sheehan
President, Chief Executive Officer and Chairman of
the Board
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Investors Financial Services
Corp., hereby severally constitute and appoint Kevin J. Sheehan and Michael F.
Rogers, and each of them singly, our true and lawful attorneys, with full power
to them and each of them singly, to sign for us in our names in the capacities
indicated below, all amendments to this report, and generally to do all things
in our names and on our behalf in such capacities to enable Investors Financial
Services Corp. to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated and
on the 18th day of February, 1997.
Signature Title(s)
- --------- --------
/s/ Kevin J. Sheehan President, Chief Executive Officer and
- ---------------------------
Kevin J. Sheehan Chairman of the Board (Principal Executive
Officer); Director
/s/ Michael F. Rogers Executive Vice President
- ---------------------------
Michael F. Rogers
/s/ Karen C. Keenan Chief Financial Officer (Principal Financial
- ---------------------------
Karen C. Keenan Officer and Principal Accounting Officer)
/s/ Robert B. Fraser Director
- ---------------------------
Robert B. Fraser
/s/ Donald G. Friedl Director
- ---------------------------
Donald G. Friedl
/s/ James M. Oates Director
- ---------------------------
James M. Oates
/s/ Phyllis S. Swersky Director
- ---------------------------
Phyllis S. Swersky
/s/ Thomas P. McDermott Director
- ---------------------------
Thomas P. McDermott
/s/ Frank B. Condon, Jr. Director
- ---------------------------
Frank B. Condon, Jr.
45
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants............................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1996.................... F-3
Consolidated Statements of Income for the Years Ended October 31, 1994 and 1995, for the
Two-Month Period ended December 31, 1995 and for the Year Ended December 31, 1996........ F-4
Consolidated Statements of Stockholders' Equity for the Year Ended October 31, 1995, for the
Two-Month Period ended December 31, 1995 and for the Year Ended December 31, 1996........ F-5
Consolidated Statements of Cash Flows for the Years Ended October 31, 1994 and 1995, for the
Two-Month Period Ended December 31, 1995, and for the Year Ended December 31, 1996....... F-6
Notes to Consolidated Financial Statements.................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Investors Financial Services Corp.:
We have audited the accompanying consolidated balance sheets of Investors
Financial Services Corp., including its predecessor, Investors Bank & Trust
Company and its subsidiaries (collectively, the "Company"), as of December 31,
1995 and December 31, 1996 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the two years in the period
ended October 31, 1995, for the two-month period ended December 31, 1995 and for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company'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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and December 31, 1996, and the results of their operations and their cash flows
for each of the two years in the period ended October 31, 1995, for the two-
month period ended December 31, 1995 and for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
As described in Note 1 to the consolidated financial statements, in November
1995 Investors Bank & Trust Company became a wholly owned subsidiary of
Investors Financial Services Corp. as a result of the share exchange between
Investors Financial Services Corp. and shareholders of Investors Bank & Trust
Company.
Deloitte & Touche LLP
February 14, 1997
F-2
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Cash and due from banks $ 21,898,903 $ 19,226,453
Time deposits due from banks 1,000,000 -
Federal funds sold 15,000,000 120,000,000
Securities held to maturity (approximate market values of
$155,685,959 and $460,182,579 at December 31, 1995
and December 31, 1996, respectively) 154,123,901 460,009,923
Securities available for sale 90,819,293 271,120,964
Nonmarketable equity securities - 967,400
Loans, less allowance for loan losses of $35,000 and $100,000
at December 31, 1995 and December 31, 1996, respectively 22,864,216 66,236,889
Accrued interest and fees receivable 10,440,758 16,366,171
Equipment and leasehold improvements, net 3,525,581 5,243,974
Other assets 2,763,661 5,289,873
-------------- -------------
TOTAL ASSETS $322,436,313 $964,461,647
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $122,907,489 $264,914,614
Savings 21,085,503 276,602,295
Time 45,000,000 55,000,000
-------------- -------------
Total deposits 188,992,992 596,516,909
Securities sold under repurchase agreements 74,401,454 296,421,201
Other liabilities 5,620,936 9,664,227
-------------- -------------
Total liabilities 269,015,382 902,602,337
-------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Class A common stock 5,935 3,595
Common stock 58,505 60,848
Surplus 54,312,474 54,352,812
Deferred compensation (2,117,787) (1,687,675)
Retained earnings 899,794 8,480,431
Net unrealized gain on securities available for sale 262,010 649,299
-------------- -------------
Total stockholders' equity 53,420,931 61,859,310
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $322,436,313 $964,461,647
============== =============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1994 AND 1995, THE TWO-MONTH PERIOD
ENDED DECEMBER 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Interest income:
Federal funds sold $ 20,430 $ 315,270 $ 279,741 $ 1,858,541
Other short-term investments 37,993 58,114 10,102 6,448
Securities held to maturity
and available for sale 4,730,824 5,116,155 1,844,222 32,490,280
Loans 859,005 1,202,029 229,690 2,322,158
------------------- -------------------- -------------------- ------------------
Total interest income 5,648,252 6,691,568 2,363,755 36,677,427
------------------- -------------------- -------------------- ------------------
Interest expense:
Deposits 864,148 720,395 286,945 9,271,675
Securities sold under
repurchase agreements - - 98,248 9,016,792
Federal funds purchased - 81,957 8,483 367,103
Treasury, tax and loan
account 6,143 19,241 4,423 12,464
------------------- -------------------- -------------------- ------------------
Total interest expense 870,291 821,593 398,099 18,668,034
------------------- -------------------- -------------------- ------------------
Net interest income 4,777,961 5,869,975 1,965,656 18,009,393
Provision for loan losses - - - 65,000
------------------- -------------------- -------------------- ------------------
Net interest income after
provision for loan losses 4,777,961 5,869,975 1,965,656 17,944,393
Noninterest income:
Asset administration fees 42,422,555 48,412,551 7,988,056 56,075,625
Proceeds from assignment of UIT
servicing, net - 2,572,298 - -
Computer service fees 552,407 505,534 83,424 482,275
Other operating income 74,163 72,029 13,772 76,305
Net loss on securities
available for sale - - - (2,488)
------------------- -------------------- -------------------- ------------------
Net operating revenue 47,827,086 57,432,387 10,050,908 74,576,110
OPERATING EXPENSES
Compensation of officers
and employees 23,162,729 27,213,593 4,957,575 32,148,445
Pension and other employee
benefits 4,136,066 4,685,100 839,888 5,353,770
Occupancy 3,735,820 4,215,472 624,816 4,283,008
Equipment 4,292,523 4,828,811 807,931 5,585,704
Insurance 1,069,996 1,060,468 194,016 852,638
Subcustodian fees 1,326,783 1,844,214 216,899 4,151,500
Depreciation and amortization 1,375,850 1,220,988 185,791 1,502,196
Professional fees 955,341 1,516,720 202,006 2,362,909
Travel and sales promotion 735,385 837,136 122,682 1,157,718
Other operating expenses 1,712,950 2,801,451 329,212 4,537,689
------------------- -------------------- -------------------- ------------------
Total operating expenses 42,503,443 50,223,953 8,480,816 61,935,577
------------------- -------------------- -------------------- ------------------
INCOME BEFORE INCOME TAXES 5,323,643 7,208,434 1,570,092 12,640,533
INCOME TAXES 1,863,000 2,800,000 670,298 4,866,571
------------------- -------------------- -------------------- ------------------
NET INCOME $ 3,460,643 $ 4,408,434 $ 899,794 $ 7,773,962
=================== ==================== =================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING 6,504,382
==================
EARNINGS PER SHARE $1.20
==================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED OCTOBER 31, 1995, THE TWO-MONTH PERIOD
ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31, 1996.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
COMMON COMMON DEFERRED
STOCK STOCK SURPLUS COMPENSATION
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1994 $ - $ 10,000,000 $ - $ -
Net income
Cash dividend, $0.06 share
------------ ------------- --------------- -------------
BALANCE, OCTOBER 31, 1995 $ - $ 10,000,000 $ - $ -
============ ============= =============== =============
Effect of share exchange (Note 1) $ 6,114 $ 34,186 $ 18,021,176 $ -
Common stock issuance, net of costs of $3,829,062 - 23,000 34,097,938 -
Issuance of restricted stock - 1,140 2,193,360 (2,194,500)
Conversion of Class A common stock (179) 179 - -
Amortization of deferred compensation - - - 76,713
Net income - - - -
Net unrealized gain on securities available for sale - - - -
------------ ------------- --------------- -------------
BALANCE, DECEMBER 31, 1995 5,935 58,505 54,312,474 (2,117,787)
Adjustment to costs of stock issuance - - 35,193 -
Conversion of class A to common stock (2,340) 2,340 - -
Amortization of deferred compensation - - - 430,112
Exercise of stock options - 3 5,145 -
Net income - - - -
Cash dividend, $0.03 per share - - - -
Change in net unrealized gain on - - - -
securities available for sale
------------ ------------- --------------- -------------
BALANCE, DECEMBER 31, 1996 $ 3,595 $ 60,848 $ 54,352,812 $ (1,687,675)
============ ============= =============== =============
<CAPTION>
NET
UNREALIZED
GAIN ON
INVESTMENT
SECURITIES
RETAINED AVAILABLE
EARNINGS FOR SALE TOTAL
<S> <C> <C> <C>
BALANCE, NOVEMBER 1, 1994 $ 3,713,042 $ - $ 13,713,042
Net income 4,408,434 4,408,434
Cash dividend, $0.06 share (60,000) (60,000)
------------- -------------- --------------
BALANCE, OCTOBER 31, 1995 $ 8,061,476 $ - $ 18,061,476
============= ============== ==============
Effect of share exchange (Note 1) $ - $ - $ 18,061,476
Common stock issuance, net of costs of $3,829,062 - - 34,120,938
Issuance of restricted stock - - -
Conversion of Class A common stock - - -
Amortization of deferred compensation - - 76,713
Net income 899,794 - 899,794
Net unrealized gain on securities available for sale - 262,010 262,010
------------- -------------- --------------
BALANCE, DECEMBER 31, 1995 899,794 262,010 53,420,931
Adjustment to costs of stock issuance - - 35,193
Conversion of class A to common stock - - -
Amortization of deferred compensation - - 430,112
Exercise of stock options - - 5,148
Net income 7,773,962 - 7,773,962
Cash dividend, $0.03 per share (193,325) - (193,325)
Change in net unrealized gain on
securities available for sale - 387,289 387,289
------------- -------------- --------------
BALANCE, DECEMBER 31, 1996 $ 8,480,431 $ 649,299 $ 61,859,310
============= ============== ==============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1994, AND 1995, THE TWO MONTH PERIOD ENDED DECEMBER 31,
1995 AND THE YEAR ENDED DECEMBER 31, 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31 DECEMBER 31 DECEMBER
1994 1995 1995 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,460,643 $ 4,408,434 $ 899,794 $ 7,773,962
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,375,850 1,220,988 185,791 1,502,196
Amortization of deferred compensation - - 76,713 430,112
Provision for loan losses - - - 65,000
Amortization of premiums on securities, net of
accretion of discounts 1,300,037 792,574 205,071 2,521,119
Loss on sale of securities available for sale - - - 2,488
Loss on disposal of fixed assets - - - 15,211
Deferred income taxes (127,000) (469,000) 78,377 1,156,706
Adjustment to carrying value of interest rate
floor contracts - 1,057,700 - -
Changes in assets and liabilities:
Accrued interest and fees receivable (3,714,212) (189,689) (868,478) (5,925,413)
Other assets 1,185,210 (639,592) 814,394 (3,568,354)
Other liabilities 1,589,835 1,074,563 (667,218) 3,670,535
-------------- ------------- ---------------- ---------------
Total adjustments 1,609,720 2,847,544 (175,350) (130,400)
-------------- ------------- ---------------- ---------------
Net cash provided by operating activities 5,070,363 7,255,978 724,444 7,643,562
-------------- ------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale - - - 48,406,151
Proceeds from maturities of securities held
to maturity 16,264,293 18,404,529 12,865,343 39,691,309
Proceeds from sale of securities available
for sale - - - 26,904,258
Purchases of securities available for sale - - - (243,550,740)
Purchases of securities held to maturity (25,636,094) (40,936,504) (147,559,658) (359,516,797)
Purchase of nonmarketable equity securities - - - (967,400)
Net (increase) decrease in time deposits due
from banks - (24,345) 24,345 1,000,000
Net (increase) decrease in federal funds sold - (36,000,000) 21,000,000 (105,000,000)
Net (increase) decrease in loans (3,349,620) (129,487) (9,164,520) (43,437,672)
Purchases of equipment (1,616,307) (1,563,538) (118,205) (3,235,800)
-------------- ------------- ---------------- ---------------
Net cash used for investing activities (14,337,728) (60,249,345) (122,952,695) (639,706,691)
-------------- ------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits (32,657,559) 53,411,987 (39,453,616) 142,007,125
Net increase in time and savings deposits 35,088,220 332,489 66,023,363 265,516,792
Net increase in securities sold under
repurchase agreements - - 74,401,454 222,019,746
Proceeds from common stock - - 37,950,000 -
Costs of stock issuance - - (3,829,062) 35,193
Proceeds from exercise of stock options - - - 5,148
Dividends paid (60,000) (60,000) - (193,325)
-------------- ------------- ---------------- ---------------
Net cash provided by financing activities 2,370,661 53,684,476 135,092,139 629,390,679
-------------- ------------- ---------------- ---------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (6,896,704) 691,109 12,863,888 (2,672,450)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 15,240,610 8,343,906 9,035,015 21,898,903
-------------- ------------- ---------------- ---------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 8,343,906 $ 9,035,015 $ 21,898,903 $ 19,226,453
============== ============= ================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 807,000 $ 898,000 $ 197,750 $ 17,253,000
============== ============= ================ ===============
Cash paid for income taxes $ 2,136,000 $ 2,919,000 $ 885,000 $ 4,220,000
============== ============= ================ ===============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1994 AND 1995, THE TWO MONTH PERIOD ENDED DECEMBER 31,
1995 AND THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Investors Financial Services Corp. ("IFSC") provides asset administration
services for the financial services industry through its wholly owned
subsidiary, Investors Bank & Trust Company (the "Bank"). The Bank provides
domestic and global custody, multicurrency accounting, institutional
transfer agency, performance measurement, foreign exchange, securities
lending, and mutual fund administration services to a variety of financial
asset managers, including mutual fund complexes, investment advisors, banks
and insurance companies. IFSC and the Bank are subject to regulation by the
Federal Reserve Board of Governors, the Office of the Commissioner of Banks
of the Commonwealth of Massachusetts and the Federal Deposit Insurance
Corporation.
As used herein, the defined term "the Company" shall mean IFSC together
with the Bank from the date of the share exchange discussed below and shall
mean the Bank prior to that date.
On November 8, 1995, the business operations of the Company were separated
from its former parent, Eaton Vance Corp. ("EVC"), by means of a tax-free,
pro rata distribution of EVC's ownership interest in the Company to the EVC
stockholders (the "Spin-off Transaction"). Immediately prior to the Spin-
off Transaction, all of the stockholders of the Bank exchanged their
1,000,000 shares of the Bank's common stock for a combination of 3,418,573
shares of Common Stock and 611,427 shares of Class A Common Stock ("Class A
Stock") of a newly formed bank holding company formed for the purpose of
facilitating the Spin-off Transaction. For financial reporting purposes,
the exchange has been accounted for as if it occurred on November 1, 1995.
Subsequent to the completion of the Spin-off Transaction, IFSC sold
2,300,000 additional shares of its Common Stock in an initial public
offering at an offering price of $16.50 per share. The net effect of this
transaction was an increase in the Company's consolidated capital of
approximately $34,000,000.
In December 1995, the Company changed its fiscal year end from October 31
to December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of the Company and its domestic and foreign subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
CUSTODY AND TRUST ASSETS - Asset administration fees, including securities
lending and foreign exchange services and computer services fees, are
composed primarily of fee and fee-related income and are recorded on the
accrual basis.
ACCOUNTING ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES - Effective November 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires
investments in equity securities that have readily determinable fair values
and all investments in debt securities to be classified into three
categories as follows:
. Debt securities that the Company has the positive intent and ability
to hold to maturity are classified as held to maturity and reported at
amortized cost.
. Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
. All other debt and equity securities are classified as available for
sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
stockholders' equity.
At the adoption of SFAS No. 115, the Company classified its entire
portfolio of securities as held-to-maturity based upon the Company's
positive intent and ability to hold such securities to maturity. Factors
considered in determining the Company's ability to hold such securities to
maturity include the Company's historical experience, the maturity
distribution of securities and the Company's access to additional deposits
from custody and trust clients. The effect of adopting SFAS No. 115 was not
significant.
In connection with the initial adoption of the Financial Accounting
Standards Board's ("FASB") Special Report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities, the Company reassessed the appropriateness of the
classifications of all securities held as of December 31, 1995. As a result
of this reassessment, the Company reclassified debt securities with a
carrying value of $90,382,610 from Held to Maturity to Available for Sale
on December 31, 1995. The net effect of this transfer was a $262,010
increase to stockholders' equity, net of taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments," requires the disclosure of the
estimated fair value of financial instruments, whether or not recognized in
the Company's consolidated balance sheets, estimated using available market
information or other appropriate valuation methodologies.
The carrying amounts of cash and due from banks are a reasonable estimate
of their fair value. The fair value of the Company's securities is
estimated based on quoted market prices. Both loans (including commitments
to lend) and deposits (including time deposits) bear interest at variable
rates and are subject to periodic repricing. As such, the carrying amount
of loans and deposits is a reasonable estimate of fair value. The fair
value of the Company's interest rate contracts is estimated based on quoted
market prices. The Company does not have any other significant financial
instruments.
LOANS - Interest income on loans is recorded on the accrual basis. Losses
on loans are provided for under the allowance method of accounting. The
allowance is increased by provisions charged to operating expenses based on
amounts management considers necessary to meet reasonably foreseeable
losses on loans.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold
improvements are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided on the straight-
line method over the estimated useful lives of the assets which range from
three to seven years.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - Income tax expense is based on estimated taxes payable or
refundable on a tax return basis for the current year and the changes in
deferred tax assets and liabilities during the year in accordance with SFAS
No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities
are established for temporary differences between the accounting basis and
the tax basis of the Company's assets and liabilities at enacted tax rates
expected to be in effect when the amounts related to such temporary
differences are realized or settled.
TRANSLATION OF FOREIGN CURRENCIES - The functional currency of the
Company's foreign subsidiaries is the U.S. dollar. Accordingly, gains and
losses realized from the settlement of foreign currency transactions, which
were not significant in the years ended October 31, 1994 and 1995, the two
month period ended December 31, 1995, or the year ended December 31, 1996,
are included in other operating expenses in the consolidated statements of
income.
DERIVATIVE FINANCIAL INSTRUMENTS - Prior to the assignment of the unit
investment trust servicing more fully described in Note 10, the Bank used
derivative financial instruments in the form of interest rate floor
contracts ("Floors"). These instruments were matched with fees on trust and
custody assets that were based on current interest rates. Periodic cash
payments were accrued on a settlement basis. The premiums associated with
the instruments were amortized over their term until they were adjusted to
market value in March 1995 in connection with the sale of the hedged assets
as more fully described in Note 10.
The Company also enters into interest rate swap agreements as discussed in
Note 13 and foreign exchange contracts as discussed in Note 16. The Company
implemented SFAS 119, "Disclosure About Derivative Financial Investments
and Fair Value of Financial Instruments," in fiscal 1996. This standard
requires expanded disclosure about amounts, nature and terms associated
with the derivative financial instruments held. The adoption of SFAS 119
did not have a significant impact on the Company's consolidated financial
statements.
The Company does not purchase derivative financial instruments for trading
purposes. Interest rate swap agreements are matched with specific financial
instruments reported on the balance sheet and periodic cash payments are
accrued on a settlement basis.
The Company enters into foreign exchange contracts with clients and
simultaneously enters into a matched position with another bank. These
contracts are subject to market value fluctuations in foreign currencies.
Gains and losses from such fluctuations are netted and recorded as an
adjustment of asset administration fees.
STOCK-BASED COMPENSATION - The Company accounts for stock-based
compensation using the intrinsic value-based method of Accounting
Principles Board Opinion No. 25, as allowed under SFAS No. 123, "Accounting
for Stock-Based Compensation."
EARNINGS PER SHARE - Earnings per share are based on the weighted average
number of shares outstanding during the period.
NEW ACCOUNTING PRONOUNCEMENTS - "Extinguishments of Liabilities," SFAS No.
125 establishes consistent accounting standards for transfers and servicing
of financial assets and extinguishments of liabilities. SFAS No. 125
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers of financial assets that are secured
borrowings based upon the existence of control. SFAS No. 125 is required to
be adopted by the Company in 1997 and is not expected to have a material
effect upon the Company's consolidated financial statements.
RECLASSIFICATIONS - Certain amounts in the prior periods' financial
statements have been reclassified to conform to the current year's
presentation.
F-9
<PAGE>
3. SECURITIES
Carrying amounts and approximate market values of securities are summarized
as follows as of December 31, 1995:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED APPROXIMATE
HELD TO MATURITY VALUE GAINS LOSSES MARKET VALUE
<S> <C> <C> <C> <C>
Mortgage-backed securities $144,123,901 $1,562,732 $117,924 $145,568,709
Federal Agency securities 10,000,000 117,250 - 10,117,250
------------ ---------- -------- ------------
Total $154,123,901 $1,679,982 $117,924 $155,685,959
============ ========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED CARRYING
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 50,312,501 $ 346,672 $ 6,673 $ 50,652,500
Mortgage-backed securities 40,070,111 117,667 20,985 40,166,793
------------ ---------- -------- ------------
Total $ 90,382,612 $ 464,339 $ 27,658 $ 90,819,293
============ ========== ======== ============
</TABLE>
Carrying amounts and approximate market values of securities are summarized
as follows as of December 31, 1996:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED APPROXIMATE
HELD TO MATURITY VALUE GAINS LOSSES MARKET VALUE
<S> <C> <C> <C> <C>
Mortgage-backed securities $414,664,590 $1,973,263 $1,750,168 $414,887,685
Federal Agency securities 37,517,495 49,546 224,972 37,342,069
Foreign government
securities 7,827,838 124,987 - 7,952,825
------------ ---------- ---------- ------------
Total $460,009,923 $2,147,796 $1,975,140 $460,182,579
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED CARRYING
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 40,107,999 $ 151,304 $ 3 $ 40,259,300
Mortgage-backed securities 229,930,801 1,086,092 155,229 230,861,664
--------------- ---------- ---------- ------------
Total $270,038,800 $1,237,396 $ 155,232 $271,120,964
=============== ========== ========== ============
</TABLE>
F-10
<PAGE>
3. SECURITIES (CONTINUED)
Nonmarketable equity securities at December 31, 1996 consisted of $967,400
of stock of the Federal Home Loan Bank of Boston (the "FHLBB"). As a member
of the FHLBB, the Company is required to invest in $100 par value stock of
the FHLBB in an amount equal to 1% of its outstanding residential mortgage
loans or .3% of total assets, whichever is higher. If the Company borrows
under this arrangement, the Company is required to hold FHLBB stock equal
to 5% of such outstanding advances. If and when such stock is redeemed, the
Company will receive an amount equal to the par value of the stock.
The carrying amounts and approximate market values of securities by
effective maturity are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
CARRYING APPROXIMATE CARRYING APPROXIMATE
HELD TO MATURITY VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 19,052,213 $ 18,873,837
Due from one to five years 79,803,891 80,885,330 114,459,070 113,819,081
Due five years up to ten
years 68,228,986 68,639,409 240,620,332 241,016,881
Due after ten years 6,091,024 6,161,220 85,878,308 86,472,780
-------------- -------------- ------------ ---------------
Total $154,123,901 $155,685,959 $460,009,923 $460,182,579
============== ============== ============ ===============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
AMORTIZED CARRYING AMORTIZED CARRYING
AVAILABLE FOR SALE COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due within one year $ 25,240,028 $ 25,263,000 $ 19,964,080 $ 20,046,800
Due from one to five years 58,395,211 58,791,503 213,758,992 214,525,641
Due five years up to ten
years 6,747,373 6,764,790 36,315,728 36,548,523
-------------- -------------- ------------ ---------------
Total $ 90,382,612 $ 90,819,293 $270,038,800 $271,120,964
============== ============== ============ ===============
</TABLE>
The maturity distributions of mortgage-backed securities have been allocated
over maturity groupings based upon actual pre-payments to date and anticipated
pre-payments based upon historical experience.
Five securities available for sale were sold during the year ended December 31,
1996 resulting in losses totaling $19,178 and gains totaling $16,690.
The carrying value of securities pledged amounted to approximately $206,000,000
and $362,000,000 at December 31, 1995 and December 31, 1996, respectively.
Securities are pledged primarily to secure public funds and clearings with other
depository institutions.
F-11
<PAGE>
4. LOANS
Loans consist of demand loans with individuals and not-for-profit
institutions located in the greater Boston, Massachusetts metropolitan area
and loans to mutual fund clients. The loans to mutual funds include
advances pursuant to the terms of the custody agreements between the
Company and those mutual fund clients to facilitate securities transactions
and redemptions. The loans are generally collateralized with marketable
securities. There were no impaired or nonperforming loans at December 31,
1995 or December 31, 1996. In addition, there have been no loan charge-offs
or recoveries during the years ended October 31, 1994 and 1995, the two
months ended December 31, 1995 or the year ended December 31, 1996. Loans
consisted of the following at December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Loans to individuals $12,610,018 $23,448,999
Loans to not-for-profit institutions 289,198 12,500
Loans to mutual funds 10,000,000 42,875,390
----------- -----------
22,899,216 66,336,889
Less allowance for loan losses 35,000 100,000
----------- -----------
Total $22,864,216 $66,236,889
=========== ===========
</TABLE>
The Company had commitments to lend of approximately $1,708,000 and
$37,127,518 at December 31, 1995 and December 31, 1996, respectively. The
terms of these commitments are similar to the terms of outstanding loans.
During 1996, the Company increased the allowance for loan losses by $65,000
due to the overall increase in lending activities.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The major components of equipment and leasehold improvements are as follows
at December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Furniture, fixtures and equipment $6,281,172 $8,516,450
Leasehold improvements 761,929 744,395
------------ ------------
Total 7,043,101 9,260,845
Less accumulated depreciation and
amortization 3,517,520 4,016,871
------------ ------------
Equipment and leasehold improvements, net $3,525,581 $5,243,974
============ ============
</TABLE>
F-12
<PAGE>
6. DEPOSITS
Time deposits at December 31, 1995 and December 31, 1996 include
noninterest-bearing amounts of approximately $45,000,000 and $55,000,000,
respectively.
All time deposits had a minimum balance of $100,000 and a maturity of less
than three months at December 31, 1995 and December 31, 1996.
7. REPURCHASE AGREEMENTS
The Company enters into repurchase agreements whereby securities are sold
by the Company under agreements to repurchase. The Company had liabilities
under these agreements of $74,401,454 and $ 296,421,201 at December 31,
1995 and December 31, 1996 respectively. The interest rate on the
outstanding agreements at December 31, 1995 ranged from 5.5% to 6.0% and
all agreements matured on January 2, 1996. The interest rate on the
outstanding agreements at December 31, 1996 was 5.91% and all agreements
matured by January 2, 1997. The following securities were pledged under
these agreements at December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
CARRYING APPROXIMATE CARRYING APPROXIMATE
VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $29,345,800 $29,345,800 $ 37,249,940 $ 37,249,940
Federal Agency securities - - 25,000,000 24,803,950
Mortgage-backed
securities 47,211,518 47,254,137 245,689,672 246,777,873
------------ ----------- ------------ ------------
Total $76,557,318 $76,599,937 $307,939,612 $308,831,763
============ =========== ============ ============
</TABLE>
The amount outstanding at December 31, 1996 was the highest amount
outstanding at any month end during the year ended December 31, 1996. The
average balance during the year ended December 31, 1996 was $180,181,000.
8. INCOME TAXES
The components of income tax expenses are as follows for the years ended
October 31, 1994 and 1995, the two-month period ended December 31, 1995,
and the year ended December 31, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Current:
Federal $1,829,000 $2,781,000 $445,480 $3,593,391
State 161,000 484,000 139,429 181,416
Foreign - 4,000 7,012 193,251
---------- ---------- -------- ----------
1,990,000 3,269,000 591,921 3,968,058
========== ========== ======== ==========
Deferred:
Federal (7,000) (391,000) 50,538 619,357
State (3,000) (154,000) 17,580 240,861
Foreign (117,000) 76,000 10,259 38,295
---------- ---------- -------- ----------
(127,000) (469,000) 78,377 898,513
========== ========== ======== ==========
Total income
taxes $1,863,000 $2,800,000 $670,298 $4,866,571
========== ========== ======== ==========
</TABLE>
F-13
<PAGE>
8. INCOME TAXES (CONTINUED)
Differences between the effective income tax rate and the federal statutory
rates are as follows for the years ended October 31, 1994 and 1995, the
two-month period ended December 31, 1995, and the year ended December 31,
1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0% 35.0%
State income tax rate, net of federal benefit 2.0 3.0 6.6 2.2
Foreign income taxes with different rates (1.5) 0.7 1.1 1.2
Other 0.5 1.1 1.0 0.1
-------- -------- --------- ----------
Effective tax rate 35.0% 38.8% 42.7% 38.5%
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following at
October 31, 1994, December 31, 1995, and December 31, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996
<S> <C> <C> <C>
Deferred tax assets:
Employee benefit plans $1,060,000 $1,012,922 $ 933,216
Foreign operating losses 54,000 38,295 -
Other 18,000 9,810 37,562
---------- ----------- -----------
1,132,000 1,061,027 970,778
Deferred tax liabilities:
Prepaid insurance - - (620,979)
Securities available for sale - (174,673) (432,866)
Unearned compensation - - (183,175)
Depreciation and amortization (95,000) (102,404) (106,514)
---------- ----------- -----------
Net deferred tax asset (liability) $1,037,000 $ 783,950 $(372,756)
========== =========== ===========
</TABLE>
Net deferred tax assets are reported as a component of other assets in the
1995 consolidated balance sheets. Net deferred tax liabilities are reported
as a component of other liabilities in the 1996 consolidated balance sheet.
F-14
<PAGE>
9. STOCKHOLDERS' EQUITY
COMMON STOCK - On May 27, 1994, the Bank's Board of Directors approved a
reduction in the par value of the Company's common stock from $100 per
share to $10 per share, and a 100-for-1 stock split which caused the number
of shares of common stock authorized, issued and outstanding to increase
from 10,000 shares to 1,000,000 shares. The stock split resulted in a
$9,000,000 increase in common stock, a $1,000,000 decrease in surplus and
an $8,000,000 decrease in retained earnings. There were no other changes in
authorized, issued or outstanding common stock for any period presented
prior to the Spin-off Transaction.
IFSC has authorized 1,000,000 shares of Preferred Stock, 650,000 shares of
Class A Common Stock and 20,000,000 shares of Common Stock, all with a par
value of $.01 per share. At December 31, 1995 and December 31, 1996, there
were no preferred shares issued or outstanding. There were 593,500 and
359,545 shares of Class A Common Stock and 5,850,500 and 6,084,767 Common
Stock issued and outstanding at December 31, 1995 and December 31, 1996,
respectively. The Common Stock and Class A Common Stock are identical
except that the Class A Common Stock has ten votes per share and
automatically converts into Common Stock upon transfer and under certain
other circumstances.
STOCK OPTIONS - The Company has two stock option plans, the 1995 Stock Plan
and the 1995 Non-Employee Director Stock Option Plan.
Under the terms of the 1995 Stock Plan, the Company may grant options to
purchase up to a maximum of 560,000 shares of Common Stock to certain
employees, consultants, directors and officers. The options may be awarded
as incentive stock options (employees only), nonqualified stock options,
stock awards or opportunities to make direct purchases of stock.
Under the terms of the 1995 Non-Employee Director Stock Option Plan, the
Company may grant options to non-employee directors to purchase up to a
maximum of 40,000 shares of Common Stock. Options to purchase 2,500 shares
of Common Stock were awarded at the date of initial public offering to each
director. Subsequently, any director elected or appointed after such date
will receive an automatic initial grant of options to purchase 2,500 shares
upon becoming a director. Thereafter, each director will receive an
automatic grant of options to purchase 2,500 shares effective upon each
one-year anniversary of the date of such director's original grant.
Additionally, in April 1996 the Company's stockholders approved an
amendment to the 1995 Non-Employee Director Plan that will allow non-
employee directors to elect to receive options to acquire shares of the
Company's Common Stock in lieu of such director's cash retainer. Any
election is subject to certain restrictions under the 1995 Non-Employee
Director Stock Option Plan. The number of shares of stock underlying the
option is equal to the quotient obtained by dividing the cash retainer by
the value of an option on the date of grant as determined using the Black-
Scholes model.
The exercise price of options under the 1995 Non-Employee Director Stock
Option Plan and the incentive options under the 1995 Stock Plan may not be
less than fair market value at the date of the grant. The exercise price of
the nonqualified options from the 1995 Stock Plan is determined by the
compensation committee of the Board of Directors. All options become
exercisable as specified at the date of the grant.
In November 1995, the Company granted 114,000 shares to certain officers of
the Company under the 1995 Stock Plan. Of these grants, 105,000 shares vest
in sixty equal monthly installments, and the remainder vest in five equal
annual installments. Upon termination of employment, the Company has the
right to repurchase all unvested shares at a price equal to the fair market
value at the date of the grant. The Company has recorded deferred
compensation of $2,117,787 and $1,687,675 at December 31, 1995 and December
31, 1996, respectively, pursuant to these grants.
F-15
<PAGE>
9. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of option activity under all plans is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
<S> <C> <C>
Outstanding at December 31, 1995 211,500 $ 16.50
Granted 141,150 $22.375 - $26.125
Exercised (312) $ 16.50
Expired (7,188) $ 16.50
-----------
Outstanding at December 31, 1996 345,150 $ 16.50 - $26.125
-----------
Exercisable at December 31, 1996 60,489
-----------
</TABLE>
EMPLOYEE STOCK-BASED COMPENSATION - With respect to employee stock-based
compensation, the Company has adopted the disclosure-only requirements of
SFAS No. 123. Accordingly, no compensation cost has been recognized in the
accompanying consolidated financial statements for employee stock-based
compensation awarded under employee stock option plans. If compensation
cost had been determined for awards granted commencing November 8, 1995
under the Company's employee stock option plans based on the fair value of
the awards at the date of grant in accordance with the provisions of SFAS
No. 123, the Company's net income and earnings per share for the year ended
December 31, 1996 would have decreased to the pro forma amounts indicated
below:
<TABLE>
<S> <C>
Net income - as reported $7,773,962
Net income - pro forma 7,502,714
Earnings per share - as reported 1.20
Earnings per share - pro forma 1.16
</TABLE>
The pro forma amounts do not include any adjustment for compensation
expense that would have been recorded in the current fiscal year for
nonemployee stock-based awards made on or prior to December 15, 1995.
Accordingly, the pro forma disclosures are not likely to be representative
of the effects on reported net income for future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with an assumed risk-free interest
rate of 6.25%, an expected life of five years, an expected volatility of
20%, and assumes nominal dividends will be paid.
F-16
<PAGE>
10. PROCEEDS FROM ASSIGNMENT OF UNIT INVESTMENT TRUST SERVICING, NET
On March 1, 1995, the Company recognized a net gain of $2,572,298 of
noninterest income resulting from the assignment to another company of the
rights to service approximately $5.0 billion of unit investment trust
assets. In connection with the assignment, the Company adjusted to market
value interest rate floors with a notional amount of $80,000,000, and the
resulting loss of $1,057,700 is reported net of the cash proceeds from the
assignment of unit investment trust servicing. These interest rate floors
had previously been designated as hedges of fees from the unit investment
trusts (see Note 13).
11. EMPLOYEE BENEFIT PLANS
PENSION PLAN - The Company has a trusteed, noncontributory, qualified
defined benefit pension plan covering substantially all of its employees
who were hired before January 1, 1997. The benefits are based on years of
service and the employee's compensation during employment. The Company's
funding policy is to contribute annually the maximum amount which can be
deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date but also for
benefits expected to be earned in the future.
The Company established a supplemental retirement plan in 1994 that covers
certain employees and pays benefits that supplements any benefits paid
under the qualified plan. Benefits under the supplemental plan are
generally based on compensation not includable in the calculation of
benefits to be paid under the qualified plan. The total cost of this plan
to the Company was $41,148, $86,563, $6,827 and $36,960 in the years ended
October 31, 1994 and 1995, the two-month period ended December 31, 1995,
and the year ended December 31, 1996, respectively.
The following table sets forth the funded status and accrued pension cost
for the Company's pension and supplemental retirement plans.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits
of $4,600,000 and $3,746,000 for December 31, 1995 and
1996, respectively $ 4,918,000 $ 4,109,000
=============== ==============
Projected benefit obligations for services rendered to date $ 7,995,000 $ 6,885,000
Plan assets at fair value, primarily listed stocks and U.S.
government obligations 5,625,000 6,213,000
--------------- --------------
Projected benefit obligations in excess of assets (2,370,000) (672,000)
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions (358,000) (1,075,000)
Prior service cost not yet recognized in periodic pension cost 267,000 238,000
Unrecognized net (asset) liability 562,000 (378,000)
--------------- --------------
Accrued pension cost $(1,899,000) $(1,887,000)
=============== ==============
</TABLE>
F-17
<PAGE>
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net pension cost included the following components for the years ended
October 31, 1994 and 1995, the two-month period ended December 31, 1995 and
the year ended December 31, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Service cost - benefits earned during the $ 559,000 $ 618,000 $123,000 $ 848,000
period
Interest cost on projected benefit obligations 400,000 425,000 86,000 520,000
Return on plan assets (389,000) (420,000) (73,000) (1,013,000)
Net amortization and deferral (5,000) (5,000) 1,000 508,000
------------- ------------- ------------ -----------
Net periodic pension cost $ 565,000 $ 618,000 $137,000 $ 863,000
============= ============= ============ ===========
</TABLE>
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Weighted average discount rate 7.5% 7.5%
Rate of increase in future compensation levels 5.0 5.0
Long-term rate of return on plan assets 8.5 8.5
</TABLE>
EMPLOYEE SAVINGS PLAN - The Company sponsors a qualified defined
contribution employee savings plan covering substantially all employees who
elect to participate. The Company matches employee contributions to the
plan up to specified amounts. The total cost of this plan to the Company
was $164,000, $222,000, $36,000 and $208,000 in the years ended October 31,
1994 and 1995, the two-month period ended December 31, 1995, and the year
ended December 31, 1996, respectively.
12. RELATED-PARTY TRANSACTIONS
As a result of the Spin-off Transaction described in Note 1, transactions
between the Company and EVC are no longer considered related-party
transactions. However, prior to the Spin-off Transaction, the Company
entered into various transactions with EVC and a group of mutual funds
sponsored by EVC. The following is a summary of such related-party
transactions for the years ended October 31, 1994 and 1995:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1994 1995
<S> <C> <C>
Asset administration fee income $8,565,000 $8,355,000
Computer service fee income 552,000 506,000
Occupancy expense 344,000 260,000
</TABLE>
The aggregate of the above fees exceeds 10% of interest income and non-
interest income.
F-18
<PAGE>
12. RELATED-PARTY TRANSACTIONS (CONTINUED)
In addition, EVC and its group of mutual funds had the following amounts
outstanding with the Company at October 31, 1995:
<TABLE>
<S> <C>
Fees receivable $ 308,000
Deposits 102,869,000
</TABLE>
The Company also makes loans to officers of EVC and other related parties.
Such loans are made in the ordinary course of business and on the same
terms and conditions prevailing at the time for comparable transactions.
The following is a summary of loans to related parties during the years
ended October 31, 1994 and 1995.
<TABLE>
<CAPTION>
<S> <C>
Balance at October 31, 1993 $1,261,000
Loans made/advanced 507,000
Repayments (135,000)
-----------
Balance at October 31, 1994 1,633,000
Loans made/advanced 55,000
Repayments (55,000)
-----------
Balance at October 31, 1995 $1,633,000
===========
</TABLE>
13. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
LINES OF CREDIT - At December 31, 1996, the Company had commitments to
individuals under collateralized open lines of credit totaling $74,743,700,
against which $37,616,182 in loans were drawn. The credit risk involved in
issuing lines of credit is essentially the same as that involved in
extending loan facilities. The Company does not anticipate any loss as a
result of these lines of credit.
INTEREST-RATE CONTRACTS - The following table summarizes the contractual or
notional amounts of derivative financial instruments held by the Company at
December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Interest Rate Contracts:
Swap agreements $180,000,000 -
Floor contracts 30,000,000 80,000,000
</TABLE>
Interest rate contracts involve an agreement with a counterparty to
exchange cash flows based on an underlying interest rate index. An interest
rate floor is a contract purchased from a counterparty which specifies a
minimum interest rate for the specified period of time. 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. The Company's exposure from these interest
rate contracts results from the possibility that one party may default on
its contractual obligation. Credit risk is limited to the posititve market
value of the derivative financial instrument, which is significantly less
than the notional value. During 1996, the Company entered into agreements
to assume fixed-rate interest payments in exchange for variable market-
indexed interest payments. The original terms range from 12 to 18 months.
The weighted-average fixed-payment rates were 5.74 percent at December 31,
1996. Variable-interest payments received are indexed to 1 month LIBOR. At
December 31, 1996, the weighted-average rate of variable market-indexed
interest payment obligations to the Bank was 5.61 percent. The effect of
these agreements was to lengthen short-term variable-rate liabilities into
longer-term fixed-rate liabilities. These contracts had no carrying value
and the market value was approximately ($112,000) at December 31, 1996.
F-19
<PAGE>
14. COMMITMENTS AND CONTINGENCIES
RESTRICTIONS ON CASH BALANCES - The Company is required to maintain certain
average cash reserve balances with the Federal Reserve Bank. The reserve
balance requirement as of December 31, 1996 was $22,170,000. In addition,
other cash balances in the amount of $1,391,679 were pledged to secure
clearings with a depository institution as of December 31, 1996.
LEASE COMMITMENTS - Minimum future commitments on noncancelable operating
leases at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Bank
Fiscal Year Ending Premises Equipment
<S> <C> <C>
1997 $ 4,014,746 $1,043,538
1998 4,252,481 751,090
1999 4,252,481 416,208
2000 4,252,481 -
2001 and beyond 26,963,921 -
</TABLE>
Total rent expense was $4,604,000, $5,511,000, $843,000 and $4,129,000 for
the years ended October 31, 1994 and 1995, the two months ended December
31, 1995, and the year ended December 31, 1996, respectively.
On February 1, 1996, the Company entered into a five year facility
management agreement with a third party provider of duplicating and
delivery services. Under the terms of the agreement, the Company agrees to
pay minimum annual charges of $368,970, $387,214, $406,788, $427,119, and
$35,735 in the years ended December 31, 1997, 1998, 1999, 2000, and 2001,
respectively. These minimum charges can increase due to certain usage
thresholds. Service expense under this contract was $239,597 for the year
ended December 31, 1996.
CONTINGENCIES - The Company provides domestic and global custody,
multicurrency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending and mutual fund
administration services to a variety of financial asset managers, including
mutual fund complexes, investment advisors, banks and insurance companies.
Assets under custody and management, held by the Company in a fiduciary
capacity, are not included in the consolidated balance sheets since such
items are not assets of the Company. Management conducts regular reviews of
its fiduciary responsibilities and considers the results in preparing its
consolidated financial statements. In the opinion of management, there are
no contingent liabilities at December 31, 1996 that are material to the
consolidated financial position or results of operations of the Company.
F-20
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of financial instruments are as
follows at December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
On-balance sheet amounts:
Cash and due from banks $ 21,899 $ 21,899 $ 19,226 $ 19,226
Time deposits due from banks 1,000 1,000 - -
Federal funds sold 15,000 15,000 120,000 120,000
Securities held to maturity 154,124 155,686 460,010 460,183
Securities available for sale 90,819 90,819 271,121 271,121
Loans 22,864 22,864 66,237 66,237
Deposits 188,993 188,993 596,517 596,517
Off-balance sheet amounts:
Commitments to lend ($1,708 and
$37,127 at December 31, 1995 and 1996) - 1,708 - 37,127
Interest rate floor contracts
(notional amounts of $80,000 and
$30,000 at December 31, 1995 and 1996) - - - -
Interest rate swap agreements
(notional amounts of $0 and $180,000
at December 31, 1995 and 1996) - - - (112,160)
Foreign exchange contracts
(notional amounts of $108,372 and
$114,302 at December 31, 1995 and 1996) - - - -
</TABLE>
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and 1996.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
significantly revalued for purposes of these consolidated financial
statements since those dates and therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
F-21
<PAGE>
16. FOREIGN EXCHANGE CONTRACTS
A summary of foreign exchange contracts outstanding at December 31, 1995
and December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------- -------------------------------
UNREALIZED UNREALIZED
CURRENCY PURCHASES SALES GAIN/LOSS PURCHASES SALES GAIN/LOSS
<S> <C> <C> <C> <C> <C> <C>
Japan (Yen) $46,211 $46,211 - $40,828 $40,828 -
Malaysia (Ringgit) 505 505 - 6,009 6,009 -
Germany (Mark) 955 955 - 2,118 2,118 -
United Kingdom (Pound) 111 111 - 1,873 1,873 -
Hong Kong (Dollar) 1,991 1,991 - 1,807 1,807 -
France (Franc) 859 859 - 1,093 1,093 -
Netherlands (Guilder) 1,797 1,797 - 918 918 -
Belgium (Franc) 715 715 - 450 450 -
Thailand (Baht) - - - 382 382 -
Singapore (Dollar) - - - 331 331 -
Other currencies 1,042 1,042 - 1,337 1,337 -
---------------------------------- --------------------------------
$54,186 $54,186 - $57,146 $57,146 -
================================== ================================
</TABLE>
The maturity of contracts outstanding as of December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Maturity Purchases Sales
<S> <C> <C>
January 1997 $51,246 $51,246
February 1997 5,770 5,770
March 1997 130 130
</TABLE>
17. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is
subject.
F-22
<PAGE>
As of December 21, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-
based, Tier I risk based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category. The following
table presents the capital ratios for the Bank. The capital ratios for the
Company are the same as the capital ratios for the Bank.
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------------ ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- --------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $60,818,485 24.71% $19,691,528 8.00% $24,614,410 10.00%
Tier I Capital
(to Risk Weighted Assets) $60,718,485 24.67% $ 9,845,764 4.00% $14,768,646 6.00%
Tier I Capital
(to Average Assets) $60,718,485 9.65% $25,155,710 4.00% $31,444,637 5.00%
As of December 31, 1995
Total Capital
(to Risk Weighted Assets) $53,422,219 44.58% $ 9,587,613 8.00% $11,984,516 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $53,387,219 44.55% $ 4,793,806 4.00% $ 7,190,710 6.00%
Tier I Capital
(to Average Assets) $53,387,219 36.59% $ 5,836,684 4.00% $ 7,295,855 5.00%
</TABLE>
Under Massachusetts law, trust companies such as the Bank may only pay
dividends out of "net profits" and only to the extent that such payments
will not impair the Bank's capital stock and surplus account. If, prior to
declaration of a dividend, the Bank's capital stock and surplus accounts do
not equal at least 10% of its deposit liabilities, then prior to the
payment of the dividend, the Bank must transfer from net profits to its
surplus account the amount required to make its surplus account equal to
either (i) together with capital stock, 10% of deposit liabilities, or (ii)
subject to certain adjustments, 100% of capital stock.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Interest income $ 5,964,713 $ 7,966,327 $10,360,380 $12,386,007
Interest expense 2,022,877 3,904,330 5,662,451 7,078,376
Noninterest income 12,944,198 14,097,339 14,034,278 15,555,902
Operating expenses 14,517,448 14,912,163 15,377,305 17,128,661
Income before income taxes 2,347,539 3,219,106 3,354,903 3,718,985
Income taxes 927,277 1,215,814 1,289,905 1,433,575
Net income 1,420,262 2,003,292 2,064,998 2,285,410
Earnings Per Share 0.22 0.31 0.32 0.35
</TABLE>
F-23
<PAGE>
19. FINANCIAL STATEMENTS OF INVESTORS FINANCIAL SECURITIES CORP. (PARENT ONLY)
The following represents the separate condensed financial statements of
IFSC as of December 31, 1995 and 1996, and for the two-month period ended
December 31, 1995 and the year ended December 31, 1996.
<TABLE>
<CAPTION>
STATEMENT OF INCOME TWO MONTHS ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
<S> <C> <C>
Equity in undistributed income of subsidiary $ 899,794 $ 7,601,082
Dividend income from subsidiary - 478,546
Operating expenses - (305,666)
---------------------- ---------------
Net income $ 899,794 $ 7,773,962
====================== ===============
BALANCE SHEET
DECEMBER 31, 1995 DECEMBER 31, 1996
Assets:
Investments in subsidiary $53,344,218 $61,367,783
Receivable due from subsidiary 76,713 493,089
Other assets - 3,438
---------------------- ---------------
Total Assets $53,420,931 $61,864,310
====================== ===============
Liabilities and Stockholders' Equity
Total Liabilities $ - $ 5,000
---------------------- ---------------
Stockholders' Equity
Common stock 64,440 64,443
Surplus 54,312,474 54,352,812
Deferred compensation (2,117,787) (1,687,675)
Retained earnings 899,794 8,480,431
Net unrealized gains on available for sale securities 262,010 649,299
---------------------- ---------------
Total Stockholders' Equity 53,420,931 61,859,310
---------------------- ---------------
Total Liabilities and Stockholders' Equity $53,420,931 $61,864,310
====================== ===============
</TABLE>
F-24
<PAGE>
19. FINANCIAL STATEMENTS OF INVESTORS FINANCIAL SECURITIES CORP. (PARENT ONLY)
(CONTINUED)
<TABLE>
<CAPTION>
TWO MONTHS ENDED YEAR ENDED
STATEMENT OF CASH FLOWS DECEMBER 31, 1995 DECEMBER 31, 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 899,794 $ 7,773,962
--------------------- -----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred compensation 76,713 430,112
Change in assets and liabilities:
Receivable due from subsidiary (416,376)
Other Assets (3,438)
Other Liabilities 5,000
Equity in undistributed earnings of subsidiary (976,507) (7,601,082)
-------------------- ----------------
Total adjustments (899,794) (7,585,784)
-------------------- ----------------
Net cash provided by operating activities - 188,178
---------------------- ----------------
Cash flows from investing activities:
Payments for investments in and advances to subsidiary (34,120,938) (35,193)
---------------------- ----------------
Net cash used by investing activities (34,120,938) (35,193)
---------------------- ----------------
Cash flows from financing activities:
Proceeds from common stock 37,950,000 -
Costs of stock issuance (3,829,062) 35,193
Proceeds from exercise of stock options - 5,148
Dividends paid (193,326)
---------------------- ----------------
Net cash provided by financing activities 34,120,938 (152,985)
---------------------- ----------------
Net increase in cash and due from banks $ - $ -
Cash and Due from Banks, beginning of period $ - $ -
---------------------- ---------------
Cash and Due from Banks, end of period $ - $ -
====================== ===============
</TABLE>
F-25
<PAGE>
EXHIBIT 10.14
INVESTORS FINANCIAL SERVICES CORP.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDED AND RESTATED AS OF FEBRUARY 13, 1996
(as further amended January 14, 1997)
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
-------
1995 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is
intended to promote the interests of Investors Financial Services Corp.
(hereinafter, the "Company") by providing an inducement to obtain and retain the
services of qualified persons who are not employees or officers of the Company
to serve as members of its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par
----------------
value $.01 per share, of the Company (the "Common Stock") for which options may
be granted under this Plan shall not exceed 100,000 shares, subject to
adjustment in accordance with paragraph 10 of this Plan. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
--------------
committee appointed by the Board (the "Committee"). In the event the Board
fails to appoint or refrains from appointing a Committee, the Board shall have
all power and authority to administer this Plan. In such event, the word
"Committee" wherever used herein shall be deemed to mean the Board. The
Committee shall, subject to the provisions of the Plan, have the power to
construe this Plan, to determine all questions hereunder, and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to this Plan or any
option granted under it.
4. Automatic Grant of Options. Subject to the availability of shares
--------------------------
under this Plan, (a) each person who is or becomes a member of the Board and who
is not an employee or officer of the Company (a "Non-Employee Director") shall
be automatically granted on the later of (i) the date such person is first
elected to the Board or (ii) the date of pricing of the Company's initial public
offering of shares of Common Stock (the "Approval Date") (such later date being
referred to herein as the "Grant Date"), without further action by the Board, an
option to purchase 2,500 shares of the Common Stock, and (b) each person
receiving an option pursuant to clause (a) above who is a Non-Employee Director
shall be, on each successive one-year anniversary of such person's Grant Date
during the term of this Plan, automatically granted on each such date an option
to purchase 2,500 shares of the Common Stock
5. Election to Receive Stock Options. In addition to the automatic
---------------------------------
grant of options under Section 4, subject to the availability of shares under
this Plan, each Non-Employee Director may make an election (the "Election") to
receive, in lieu of his or her cash retainer, options to acquire shares of
Common Stock. The Election must be in writing and must be delivered to the
Secretary of the Company at least six months prior to the scheduled payment date
of the cash retainer which it is intended to replace.
(a) Any Election shall be irrevocable for six months and may only be
revoked after such six-month period by a written revocation which shall take
effect six months after receipt of such revocation by the Company.
(b) Each Non-Employee Director who elects to receive options in lieu of
his or her cash retainer shall be granted an option to purchase shares on the
first day of each calendar quarter provided that at
<PAGE>
-2-
least six months has lapsed since the Election. The total number of shares of
stock to be covered by the option shall be equal to the quotient obtained by
dividing the cash retainer by the value of an option on the date of grant as
determined using the Black-Scholes model.
6. Option Price. The purchase price of the stock covered by an option
------------
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 10 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the date of grant or, if prices or quotes are unavailable for
such date, the last business day for which such prices or quotes are available
prior to the date of grant and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then traded
on a national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market List. Notwithstanding, the purchase
price of the stock underlying the options granted upon the pricing of the
Company's initial public offering pursuant to Section 4(a)(ii) above shall be
the initial public offering price of the Company's Common Stock. However, if
the Common Stock is not publicly traded at the time an option is granted under
the Plan, "fair market value" shall be deemed to be the fair value of the Common
Stock as determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arm's length.
7. Period of Option. Unless sooner terminated in accordance with the
----------------
provisions of paragraph 9 of this Plan, an option granted hereunder shall expire
on the date which is five (5) years after the date of grant of the option.
8. (a) Vesting of Shares and Non-Transferability of Options. Options
----------------------------------------------------
granted under this Plan shall not be exercisable until they become vested.
Options granted under Section 4 of this Plan shall vest in the optionee and thus
become exercisable in 48 equal monthly installments beginning one month from the
date of grant, provided that the optionee has continuously served as a member of
the Board through such vesting date. Options granted under Section 5 of this
Plan shall vest in the optionee and thus become exercisable on the date of
grant.
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan.
(b) Non-transferability. Any option granted pursuant to this Plan
-------------------
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
9. Termination of Option Rights.
----------------------------
(a) In the event an optionee ceases to be a member of the Board for
any reason other than death or permanent disability, any then unexercised
portion of options granted to such optionee shall, to the extent not then
vested, immediately terminate and become void; any portion of an option which is
then vested but has not been exercised at the time the optionee so ceases to be
a member of the Board may be exercised, to the extent it is then vested, by the
optionee within 90 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 90 days have expired.
(b) In the event that an optionee ceases to be a member of the Board
by reason of his or her death or permanent disability, any option granted to
such optionee shall be immediately and
<PAGE>
-3-
automatically accelerated and become fully vested and all unexercised options
shall be exercisable by the optionee (or by the optionee's personal
representative, heir or legatee, in the event of death) until the scheduled
expiration date of the option.
10. Exercise of Option. Subject to the terms and conditions of this
------------------
Plan and the option agreements, an option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company by mail or in person addressed to the Company, at its principal
executive offices, stating the number of shares with respect to which the option
is being exercised, accompanied by payment in full for such shares. Payment may
be (a) in United States dollars in cash or by check or (b) consistent with
applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon exercise of the option and an authorization to the broker or selling agent
to pay that amount to the Company, which sale shall be at the participant's
direction at the time of exercise. There shall be no such exercise at any one
time as to fewer than one hundred (100) shares or all of the remaining shares
then purchasable by the person or persons exercising the option, if fewer than
one hundred (100) shares. The Company's transfer agent shall, on behalf of the
Company, prepare a certificate or certificates representing such shares acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares on the books of the Company and shall cause the fully executed
certificate(s) representing such shares to be delivered to the optionee as soon
as practicable after payment of the option price in full. The holder of an
option shall not have any rights of a stockholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise of the
option.
11. Adjustments Upon Changes in Capitalization and Other Events. Upon the
-----------------------------------------------------------
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
(b) Recapitalization Adjustments. If the Company is to be
----------------------------
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise, each option granted
under this Plan which is outstanding but unvested as of the effective date
of such event shall become exercisable in full 15 days prior to the
effective date of such event. In the event of a reorganization,
recapitalization, merger, consolidation, or any other change in the
corporate structure or shares of the Company, to the extent permitted by
Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the
number and kind of shares authorized by this Plan and in the number and
kind of shares covered by, and in the option price of outstanding options
under this Plan necessary to maintain the proportionate interest of the
optionee and preserve, without exceeding, the value of such option, shall
be made. Notwithstanding the foregoing, no such adjustment shall be made
which would, within the meaning of any applicable provisions of the
Internal Revenue Code of 1986, as amended, constitute a modification,
extension or renewal of any Option or a grant of additional benefits to the
holder of an Option.
(c) Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
<PAGE>
-4-
(d) Adjustments. Upon the happening of any of the foregoing events,
-----------
the class and aggregate number of shares set forth in paragraphs 2,4 and 5
of this Plan that are subject to options which previously have been or
subsequently may be granted under this Plan shall also be appropriately
adjusted to reflect such events. The Board shall determine the specific
adjustments to be made under this paragraph 11 and its determination shall
be conclusive.
12. Restrictions on Issuance of Shares. Notwithstanding the provisions of
----------------------------------
paragraphs 4, 5 and 10 of this Plan, the Company shall have no obligation to
deliver any certificate or certificates upon exercise of an option until one of
the following conditions shall be satisfied:
(i) The issuance of shares with respect to which the option has
been exercised is at the time of the issue of such shares effectively
registered under applicable Federal and state securities laws as now in
force or hereafter amended; or
(ii) Counsel for the Company shall have given an opinion that the
issuance of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company has
complied with all applicable laws and regulations with respect thereto,
including without limitation all regulations required by any stock exchange
upon which the Company's outstanding Common Stock is then listed.
12. Legend on Certificates. The certificates representing shares issued
----------------------
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
13. Representation of Optionee. If requested by the Company, the optionee
--------------------------
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
14. Option Agreement. Each option granted under the provisions of this
----------------
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions
and conditions not inconsistent with this Plan as may be determined by the
officer executing it.
15. Termination and Amendment of Plan. Options may no longer be granted
---------------------------------
under this Plan after October 1, 2005, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
-------- -------
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and voting on such matter
at a meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the
Securities Exchange Act (or any successor or amended provision thereof) to
become inapplicable to this Plan; and provided further that the provisions of
-------- -------
this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended
provision thereof) under the Securities Exchange Act of 1934 (including without
limitation, provisions as to eligibility, amount, price and timing of awards)
may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules thereunder. Termination or any modification or amendment of
this Plan shall not, without consent of a participant, affect his or her rights
under an option previously granted to him or her.
<PAGE>
-5-
16. Withholding of Income Taxes. Upon the exercise of an option, the
---------------------------
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.
17. Compliance with Regulations. It is the Company's intent that the Plan
---------------------------
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended provision thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of this Plan
is deemed not to be in compliance with Rule 16b-3, the provision shall be null
and void.
18. Governing Law. The validity and construction of this Plan and the
-------------
instruments evidencing options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 12th day of October 1995 among and between Karen C.
Keenan ("Employee"), Investors Financial Services Corp., a Delaware Corporation
("IFSC"), and Investors Bank & Trust Company, a Massachusetts chartered trust
company having its principal place of business at 89 South Street, Boston,
Massachusetts (the "Company").
WHEREAS, the Company believes it to be to its advantage to ensure that the
Employee renders services to the Company as hereinafter provided;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. Position and Responsibilities; Chief Financial Officer. During the term of
------------------------------------------------------
this Agreement, the Employee shall serve as Chief Financial Officer of the
Company. The Employee will have such responsibilities, duties and authority as
she has as of the date hereof in her position as Chief Financial Officer of the
Company. Employee will also have such other responsibilities, duties and
authority as may from time to time be assigned to her that are consistent with
her status as Chief Financial Officer of the Company. In the event that at any
time during the term of this Agreement the Company shall become a wholly-owned
subsidiary of IFSC, a Delaware corporation (such event referred to herein as the
"Holding Company Event"), the Employee agrees in addition to serve as Chief
Financial Officer of IFSC, and any references to the Company in Sections 1,
2(D), 4, 6, 9, 10 and 11 of this Agreement shall also include IFSC in the event
that the Holding Company Event has occurred. The Employee shall at all times
report to, and only to, and her activities shall at all times be subject to the
direction and control of, the President of the Company, and the Employee shall
exercise such powers and comply with and perform, faithfully and to the best of
her ability, such directions and duties in relation to the business and affairs
of the Company as may from time to time be vested in or requested of her by the
President and the Board. The Employee agrees to devote substantially all of her
business time, attention and services to the diligent, faithful and competent
discharge of such duties for the successful operation of the Company's business.
During the term hereof, the Employee will not have any managerial or operations
responsibility, other than service on a Board of Directors, in any enterprise,
firm, corporation, trust or other business entity other than the Company;
provided, however, that nothing herein shall prevent the ownership by the
Employee of an equity interest in any business entity, provided that such
ownership does not involve any managerial or operational responsibility other
than serving on the Board of Directors of a corporation. Any directorships of
corporations other than the Company must be approved in writing by the Board of
Directors of the Company in advance. At all times during the term of this
Agreement, the Employee's primary place of employment shall be within fifteen
(15) miles of Boston, Massachusetts.
2. Compensation: Salary, Bonuses, Equity Participation and Other Benefits
----------------------------------------------------------------------
During the term of this Agreement, the Company shall pay the Employee the
following compensation, including the following salary, bonus and other fringe
benefits:
<PAGE>
-2-
(A) Salary. In consideration of the services to be rendered by the
------
Employee to the Company, and IFSC upon and after the occurrence of the Holding
Company Event, the Company initially will pay to the Employee an annual salary
of $91,900 (Employee's "Base Rate"). Such salary shall be payable in conformity
with the Company's customary practices for executive compensation as such
practices shall be established or modified from time to time. Salary payments
shall be subject to all applicable federal and state withholding, payroll and
other taxes. After December 31, 1995, the Employee shall be paid at a Base Rate
to be determined by the Board of Directors of the Company or the Compensation
Committee thereof in conformity with the Company's customary practices for
executive compensation as such practices shall be established from time to time,
provided, however, that Employee's Base Rate during the term of this Agreement
shall be no lower than $91,900. The Employee's Base Rate shall be reevaluated
by the Board of Directors or the Compensation Committee thereof, and may be
increased as appropriate, within thirty (30) days of December 31, 1996 and each
December 31 thereafter, but in no circumstances shall be made lower than the
Base Rate that was established on or around the prior December 31 for the most
--
recently concluded calendar year.
(B) Fringe Benefits. The Employee will be entitled to be reimbursed for
---------------
all of her business-related expenses, including but not limited to telephone
usage and business related travel expenses. The Employee also will be entitled
to participate on the same basis with all other senior management employees of
the Company in the Company's benefits package generally available for other
officers and senior management employees of the Company, with respect to group
health, disability and life insurance programs, but in any event providing
Employee with benefits which are at least substantially equivalent to those
which she now receives, as set forth on Schedule A. In addition, the Employee
will be entitled to four (4) weeks vacation during each calendar year, which
shall accrue if and to the extent unused.
(C) Performance Based Bonus. For the year ending December 31, 1995, the
-----------------------
Employee shall receive a cash bonus calculated as set forth on Schedule B,
provided that such amount shall be adjusted based upon the actual pre-tax net
operating income, determined in accordance with generally accepted accounting
principles, consistently applied. Such bonus shall be payable no later than
January 15, 1996. For each successive twelve month period thereafter ending
December 31 ("Year End"), in addition to the amounts payable under Section 2(A)
above, the Employee shall receive a cash bonus, the amount of such bonus to be
determined pursuant to such bonus plan as may from time to time hereafter be
adopted by the Board of Directors of the Company or the Compensation Committee
thereof, and payable at such times as the Board of Directors shall establish,
provided that the Employee continues to be employed by the Company on each such
Year End. Such bonus payments shall be subject to all applicable federal, state
and local withholding, payroll and other taxes, as required by law.
(D) Equity Participation.
--------------------
(i) The Employee shall be entitled to participate annually in the
1995 Stock Plan and any future equity compensation plan that is generally
made available to any other senior executive of the Company, in such
amounts and on such terms as are
<PAGE>
-3-
determined appropriate thereunder commensurate with her position and
performance, and in accordance with all of the terms and conditions of such
plan.
(ii) The Company shall, as of the date of this Agreement, grant to
Employee a stock option to purchase 10,000 shares of IFSC common stock,
which option shall (a) be issued pursuant to the 1995 Stock Plan, (b) have
an exercise price per share of the price to public in the Company's
currently Proposed public offering, (c) become exercisable in 48 equal
monthly installments commencing on the date of the aforesaid initial public
offering (the "IPO Date") (except in the event of a Change of Control (as
defined below), in which case such option shall become fully exercisable
immediately prior, but subject, to such Change of Control (unless such
Change of Control is as a result of a tender offer, in which case the
option shall become fully exercisable in a timely manner such that Employee
may participate in such tender offer at any stage), or in the event
Employee's employment should end as a result of death, disability or by the
Company without cause (as defined below) or by the Employee with Good
Reason (as defined below), in which case such option shall be exercisable
as of such termination and thereafter during the exercise-period for that
number of shares as to which such option would have been exercisable as of
one year after such date of termination if Employee had remained so
employed), (d) be exercisable for six (6) months following any termination
of Employee's employment (except insofar as such option is an incentive
stock option, in which case such exercise period shall be ninety (90) days,
and in any event except in the case Employee's employment should end as a
result of death or disability, in which case, such option shall be
exercisable for one year after the date of termination), (e) be an
incentive stock option to the extent permitted by the Internal Revenue Code
of 1986, as amended, and otherwise a nonqualified stock option and (f)
otherwise have such terms and conditions as are set forth in the stock
option agreement attached hereto as Exhibit A (the "Stock Option
---------
Agreement").
(iii) The Company shall, as of the date of this Agreement, issue to
Employee 7,500 shares of IFSC common stock, which (a) issuance shall be
subject to the 1995 Stock Plan, (b) be subject to repurchase by the
Company, which right of repurchase shall lapse in 60 equal monthly
installments commencing on the IPO Date (except in the event of a Change of
Control (as defined below), in which case such right of repurchase shall
lapse fully immediately prior, but subject, to such Change of Control
(unless such Change of Control is as a result of a tender offer, in which
case such right of repurchase shall lapse fully in a timely manner such
that Employee may participate in such tender offer at any stage), or in the
event Employee's employment should end as a result of death, disability or
by the Company without cause or by the Employee with Good Reason, in which
case such right of repurchase shall lapse as of such termination for that
additional number of shares as which such right of repurchase would have
lapsed as of one year after such date of termination if Employee had
remained so employed) and (c) otherwise be subject to such terms and
conditions as are set forth in the restricted stock agreement attached
hereto as Exhibit B (the "Restricted Stock Agreement").
---------
<PAGE>
-4-
(iv) The Company agrees that with respect to all options and
restricted shares to be granted by the Company, upon grant and during the
term of such options and the vesting period of such restricted shares, the
Company shall use its reasonable efforts to comply with the requirements of
Rule 16b-3, promulgated pursuant to the Securities Exchange Act of 1934, as
amended, as such rule shall be in effect from time to time, or with any
successor provision ("Rule 16b-311) such that such options and restricted
shares shall be afforded the benefits of Rule 16b-3.
(v) The Company agrees that it shall use its best efforts to file
and cause to become and remain effective a registration statement on Form
S-8 (or a successor form) such that either the resale by Employee of
restricted shares granted to Employee by the Company or the grant of such
shares and the purchase of shares by Employee upon the exercise of the
options to be granted to Employee shall be registered under the; Securities
Act of 1933, as amended, or any successor provision.
3. Term. The term of this Agreement shall commence on the date first
----
above written and shall terminate on the earlier to occur of (i) three (3) years
from such date, or, if later, three (3) years from the date upon which the Board
of Directors last renewed the term as provided below; (ii) the death, or upon
written notice from the Company to Employee, if Employee is permanently
disabled, or (iii) the occurrence of any of the circumstances described in
Section 4 hereof (the "Expiration Date"). For the purposes of this Agreement,
the Employee shall be deemed to be permanently disabled if a physician, chosen
by the Company, and reasonably acceptable to Employee or her legal
representative, determines in good faith that as a result of a physical or
mental condition caused by injury, illness, disease or mental disorder the
Employee is unable to perform her duties hereunder for any one hundred twenty
(120) work days out of any 365-day period or for ninety (90) consecutive days in
any 365-day period. Within thirty (30) days of December 31, 1996, and then
within thirty (30) days of each December 31 thereafter, the Board of Directors
shall consider the extension of the term of this Agreement to three years from
December 31. Each such extension shall be effective only when agreed to by the
Employee. In the event that the Board of Directors fails to extend the term of
this Agreement, the Employee may terminate this Agreement, at her option, in
accordance with Section 4(A) hereof, notwithstanding any other term hereof.
4. Termination. The Employee's employment under this Agreement, and this
-----------
Agreement, subject to Section 16 hereof, may be terminated as follows:
(A) At the Employee's Option: The Employee may terminate her
-------------------------
employment, with or without Good Reason, at any time upon at least sixty
(60) days' advance written notice to the Company. In the event of a family
emergency, including but not limited to the death or incapacity of an
immediate family member, or upon other circumstances deemed sufficient by a
majority of the Board of Directors, Employee may terminate her employment
upon fifteen (15) days' advance written notice to the Company. In the
event of termination at the Employee's option without Good Reason, the
Employee shall be entitled to no severance or other termination benefits
after the expiration of the sixty-day period referred to above, except as
otherwise required by law. In the event the Employee
<PAGE>
-5-
should terminate her employment for Good Reason (as defined below), the
Company agrees to pay the Employee a severance payment of (i) the greater
of (x) the remaining number of months in the term of this Agreement divided
by twelve then multiplied by the Employee's Base Rate immediately prior to
such termination or (y) one year of Employee's salary at the Base Rate
immediately prior to such termination to be paid in full, less any
applicable taxes and withholdings, within fifteen (15) days of the
Employee's last day of employment with the Company, and (ii) the Employee's
cost of continuing medical and other health insurance coverage for Employee
and her family substantially as provided immediately prior to such
termination during such one year period. The Company's responsibility for
such cost shall not exceed twice the cost it paid for such coverage
immediately prior to Employee's termination. As used in this Agreement,
"Average Annual Bonus" shall mean the sum of Employee's Annual Bonus
immediately prior to such termination and Employee's Annual Bonus for the
immediately preceding fiscal year, divided by two. As used in this
Agreement, a "Good Reason" shall mean any of the following:
(i) a material change by the Company in Employee's authority,
functions, duties or responsibilities as Chief Financial Officer of the
Company (including, without limitation, material changes in the control or
structure of the Company) which would cause Employee's position with the
Company to become of less responsibility, importance or scope than
Employee's position as of the date of this Agreement, provided that such
material change is not solely as a result of a Holding Company Event or in
connection with a termination of Employee's employment hereunder for cause
in accordance with Section 4B; or
(ii) a failure by the Company to comply in a material respect with
any material provision of this Agreement, the Stock Option Agreement, the
Restricted Stock Agreement or any other agreement between the parties,
which has not been cured within fifteen (15) days after notice of such
noncompliance has been given by Employee to the Company.
(B) At the election of the Company for Cause. The Company may,
----------------------------------------
immediately and unilaterally, terminate the Employee's employment hereunder
"for cause" at any time during the term of this Agreement. Termination of
the Employee's employment by the Company shall constitute a termination
"for cause" under this Agreement if such termination is for one or more of
the following causes, as found by the Board of Directors of the Company by
a resolution duly adopted in good faith by a majority of its members after
notice to the Employee and an opportunity to be heard before the Board of
Directors with counsel. As used herein, "cause" shall mean:
(i) the continued failure or continued refusal of the Employee to
render services to the Company in accordance with her obligations under
this Agreement or a reasonable determination by a majority of the Board of
Directors that the Employee has performed inadequately the duties of her
employment, in each case continuing for fifteen
<PAGE>
-6-
(15) days after Employee's receipt of written notice to the Employee
specifying the alleged failure, refusal or performance inadequacy;
(ii) gross negligence, dishonesty, breach of fiduciary duty or
material breach of the material terms of this Agreement or the other
agreements executed in connection herewith;
(iii) the commission by the Employee of an act of fraud,
embezzlement or deliberate disregard of the rules or policies of the
Company or the commission by the Employee of any other action with the
intent to injure materially the Company;
(iv) the conviction by the Employee of a felony, either in
connection with the performance of her obligations hereunder or which
shall materially adversely affect the Employee's ability to perform her
obligations hereunder; or
(v) the commission of an act which constitutes unfair competition
with the Company or which induces any customer of the Company to breach a
contract with the Company.
In the event of a termination "for cause" pursuant to the provisions of
clauses (ii) through (v) above, inclusive, the Employee shall not be entitled to
severance or other termination benefits, except as required by law. In the event
of a termination "for cause" pursuant to the provisions of clause (i), the
Company, notwithstanding the remaining term of this Agreement, agrees to (x) pay
the Employee a severance payment of nine (9) months' salary at the Employee's
then current Base Rate, to be paid in full, less any applicable taxes and
withholdings, within fifteen (15) days of the Employee's last day of employment
by the Company; and (y) provide continuing medical and other health insurance
coverage during the nine (9) month severance period for Employee and her family
as provided immediately prior to such termination.
(C) At the Election of the Company for Reasons Other than for Cause. The
---------------------------------------------------------------
Company may, immediately and unilaterally, terminate the Employee's employment
hereunder and this Agreement at any time during the term of this Agreement
without cause by giving sixty (60) days' advance written notice to the Employee
of the Company's election to terminate. During such sixty-day period, the
Employee will be available on a full-time basis for the benefit of the Company
to assist the Company in making the transition to a new, successor officer of
the Company. In the event the company exercises its right to terminate the
Employee under this Section 4(C), the Company agrees to pay the Employee a
severance payment of (i) the greater of (x) the remaining number of months in
the term of this Agreement divided by twelve then multiplied by the Employee's
Base Rate immediately prior to such termination or (y) one year of Employee's
salary at the Base Rate immediately prior to such termination, to be paid in
full, plus a bonus payment equal to the average of the Employee's two most
recent annual performance bonus payments, less any applicable taxes and
withholdings, within fifteen (15) days of the Employee's last day of employment
with the Company, and (ii) the Employee's cost of continuing medical and other
health insurance coverage for Employee and her family
<PAGE>
-7-
substantially as provided immediately prior to such termination during such one
year period. The Company's responsibility for such cost shall not exceed twice
the cost it paid for such coverage immediately prior to Employee's termination.
(D) Termination at time of Acquisition of the Company. If the Employee's
-------------------------------------------------
employment with the Company terminates at any time within a period commencing
three months before and ending twelve months after a consolidation, merger,
reorganization, or sale or transfer of all, or substantially all, of the assets
or capital stock of the Company or other business combination in which the
Company is either not the surviving entity or is the surviving entity but the
holders of the voting securities of the Company immediately prior to such
transaction hold at least a majority of the equity interest of the resulting
entity, or the acquisition by any individual, firm, corporation, partnership or
other entity of twenty percent (20%) or more of the voting securities then
outstanding, or a change in the majority of the Board of Directors of the
Company (excluding any persons approved by a vote of at least a majority of the
current Board of Directors) other than the Holding Company Event (a "Change of
Control"), and the Employee is not offered employment that is agreeable to her,
for whatever reason, then the Company or the acquiring entity, as the case may
be, shall be obligated, notwithstanding the remaining term of this Agreement, to
pay the Employee a severance payment equal to at least two times the sum of
Employee's salary at the Base Rate immediately prior to such termination plus
the Average Annual Bonus most recently payable to her, to be paid in full, less
any applicable taxes and withholdings, within fifteen (15) days of the
Employee's last day of employment with the Company, together with the Employee's
cost of continuing medical and health insurance coverage for Employee and her
family substantially as provided immediately prior to such Change of Control as
during the two year severance period. Anything contained in this Section 4(D) to
the contrary notwithstanding, the Employee shall not be entitled to any
severance or other termination benefit (except as otherwise required by law) if
the Employee's employment has either (i) been terminated by the Employee
voluntarily other than for Good Reason or (ii) been terminated by the Company or
any acquiring entity "for cause" pursuant to Section 4(B)(ii), (iii), (iv) or
(v).
(E) Benefits if Agreement Terminated Due to Death or Disability. In the
-----------------------------------------------------------
event this Agreement shall terminate pursuant to clause (ii) of the first
sentence of Section 3 the Company shall pay the Employee or her legal
representatives an amount equal to the amount payable under Section 4(C). The
provisions of this Section 4(E) shall survive the termination of this Agreement
by reason of the death or permanent disability of the Employee.
(F) Upon Expiration of the Term. If Employee's employment ends at or
---------------------------
after such time as the term of this Agreement shall have expired, then the
Company agrees to pay the Employee a sum equal to one year of Employee's salary
at her Base Rate immediately prior to the termination of her employment plus the
Average Annual Bonus and, in addition, the Employee's cost of continuing medical
and other health insurance coverage for Employee and her family substantially as
provided immediately prior to such termination for a one year period following
the end of Employee's employment. The Company's responsibility for such cost
shall not exceed twice the cost it paid for such coverage immediately prior to
Employee's termination.
<PAGE>
-8-
5. Noncompetition and Confidentiality. In connection with her employment
----------------------------------
by the Company, the Employee has previously executed the Noncompetition and
Confidentiality Agreement attached hereto as Exhibit C, the terms and
---------
conditions of which are incorporated herein by reference. The Noncompetition and
Confidentiality Agreement shall survive the termination of this Agreement and
shall remain in full force and effect for so long as is provided by its own
terms and as is permitted by law.
6. Consent and Waiver by Third Parties. The Employee hereby represents
-----------------------------------
and warrants that she has obtained all waivers and/or consents from third
parties which are necessary to enable her to enjoy employment with the Company
on the terms and conditions set forth herein and to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party. The Employee represents that she is not
bound by any agreement or any other existing or previous business relationship
which conflicts with, or may conflict with, the performance of her obligations
hereunder or prevent the full performance of her duties and obligations
hereunder.
7. Governing Law. This Agreement, the employment relationship
-------------
contemplated herein and any claim arising from such relationship, whether or not
arising under this Agreement, shall be governed by and construed in accordance
with the internal law of the Commonwealth of Massachusetts and this Agreement
shall be deemed to be performable in Massachusetts.
8. Severability. In case any one or more of the provisions contained in
------------
the Agreement or the other agreements executed in connection with the
transactions contemplated hereby for any reason shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or such
other agreements, but this Agreement or such other agreements, as the case may
be, shall be construed and reformed to the maximum extent permitted by law.
9. Waivers and Modifications. This Agreement may be modified, and the
-------------------------
rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 9. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought. No
modification or waiver by the Company shall be effective without the consent of
at least a majority of the members of the Board of Directors (excluding the
Employee) then in office at the time of such modification or waiver.
10. Assignment. The Employee acknowledges that the services to be
----------
rendered by her hereunder are unique and personal in nature. Accordingly, the
Employee may not assign any of her rights or delegate any of her duties or
obligations under this Agreement, provided, however,
<PAGE>
-9-
that this Agreement shall inure to the benefit of Employee's heirs, executors,
administrators, personal and legal representatives, distributees, devisees,
legatees and successors. The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of the Company. The Company agrees that a successor in
interest by merger, operation of law, consolidation, assignment, purchase or
otherwise of a controlling interest in the business of the Company will be
informed prior to such event of the existence of this Agreement. The Company
will require any successor (whether direct or indirect, by purchase, merger,
operation of law, consolidation, assignment or otherwise of a controlling
interest in the business, stock or other assets of the Company) to assume
expressly and agree to perform this Agreement. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor as
aforesaid.
11. Acknowledgments. The Employee hereby acknowledges and recognizes
---------------
that the enforcement of any of the provisions in this Agreement and the
Noncompetition and Confidentiality Agreement incorporated herein may potentially
interfere with the Employee's ability to pursue a proper livelihood. The
Employee represents that she is knowledgeable about the business of the Company.
The Employee recognizes and agrees that the enforcement of the Noncompetition
and Confidentiality Agreement is intended to ensure the preservation, protection
and continuity of the business trade secrets and goodwill of the Company. The
Employee agrees that, due to the proprietary nature of the Company's business,
the restrictions set forth in the Noncompetition and Confidentiality Agreement
are reasonable as to time and scope. The foregoing shall not prohibit the
Employee from employment with any company by which the Employee has been
employed in the past so long as her activities with any such company do not
otherwise constitute a breach of the Noncompetition and Confidentiality
Agreement.
12. Entire Agreement. This Agreement, and the Noncompetition and
----------------
Confidentiality Agreement, the Stock Plan, the Stock Option Agreement and the
Restricted Stock Agreement referenced herein, constitute the entire
understanding of the parties relating to the subject matter hereof and supersede
and cancel all agreements, written or oral, made prior to the date hereof
between the Employee and the Company relating to employment, salary, bonus, or
other compensation of any description, equity participation, pension, post-
retirement benefits, severance or other remuneration.
13. Notices. All notices hereunder shall be in writing and shall be
-------
delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by overnight courier, addressed as follows:
If to the Company, to: Investors Bank & Trust Company
89 South Street
Boston, MA 02205-1537
Attention: Karen Creegan
With a copy to:
Mark D. Smith, Esq.
Testa, Hurwitz & Thibeault
<PAGE>
-10-
125 High Street
Boston, MA 02110; and
If to the Employee, at the Employee's address set forth on the signature
page hereto, with a copy to:
Robert M. Gault, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
All notices hereunder shall be deemed to have been given either (i) if
personally, upon receipt, (ii) if sent by overnight courier on the next business
day following the day such notice is delivered to the courier service, or (iii)
if sent by registered or certified mail, on the 5th business day following the
day such mailing is made.
14. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
15. Section Headings. The descriptive section headings herein have been
----------------
inserted for convenience only and shall not be deemed to define, limit, or
otherwise affect the construction of any provision hereof.
16. Survival. Notwithstanding any other provision hereof, the provisions
--------
of Sections 2D, 4, 5, 17, 18, 19 and 20 shall survive any termination of
Employees employment and the other 'provisions of this Agreement.
17. Excise Tax. In the event Employee is subject to any excise tax
----------
("Excise Tax") on her compensation by the Company or any of its affiliates
(including but not limited to IFSC) (including but not limited to excise taxes
imposed under Section 4999 of the Internal Revenue Code), the Company agrees
that it will then "gross-up" Employee's compensation by making an additional
payment to her in an amount which, after reduction for any income or excise
taxes payable as a result of receiving such additional payment, is equal to the
Excise Tax.
18. Mitigation. Employee shall not be required to mitigate the amount of
----------
any payment provided for in this Agreement by seeking other employment or
otherwise, nor, other than as provided in Paragraph 4E hereof, shall the amount
of any payment provided for herein be reduced by any compensation earned by
Employee as the result of employment by another employer or by retirement
benefits or insurance payments after the date of termination or otherwise.
19. Legal Expenses. The Company will pay Employee's reasonable fees for
--------------
legal and tax advice and other related expenses associated with the negotiation
and completion of this Agreement, as well as any future amendments hereto and
any disputes arising hereunder,
<PAGE>
-11-
provided, however, in the event of any dispute arising hereunder, if a court of
competent jurisdiction shall render a final judgment in favor of the Company on
the issues in such dispute hereunder, from which there is no further right of
appeal, Employee shall reimburse the Company all amounts paid to Employee under
this Paragraph 19 with respect to such dispute.
20. Indemnification. The Company agrees that the Employee shall be
---------------
entitled to indemnification, and advancement of expenses in connection
therewith, as a director, officer and employee of the Company, of IFSC and of
any affiliate of the Company or IFSC to the full extent permitted by applicable
law.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written as an instrument under seal.
Investors Bank & Trust Company EMPLOYEE:
By: ____________________________ _________________________
Signature
Title:__________________________
_________________________
Investors Financial Services Corp. Street Address
By: ____________________________ _________________________
City State Zip Code
Title: _________________________
<PAGE>
EXHIBIT 10.18
INVESTORS FINANCIAL SERVICES CORP.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
-------
This 1997 Employee Stock Purchase Plan (the "Plan") is intended to
encourage stock ownership by all eligible employees of Investors Financial
Services Corp., a Delaware corporation (the "Company"), and its participating
subsidiaries (as defined in Article 17) so that they may share in the growth of
the Company by acquiring or increasing their proprietary interest in the
Company. The Plan is designed to encourage eligible employees to remain in the
employ of the Company and its participating subsidiaries. It is intended that
options issued pursuant to this Plan will constitute options issued pursuant to
an "employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Administration of the Plan.
--------------------------
The Plan may be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board of Directors. The Committee may select one of its members as Chairman, and
shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.
3. Eligible Employees.
------------------
All employees who have completed six months of employment with the Company
or any of its participating subsidiaries and whose customary employment is more
than twenty (20) hours per week and for more than five (5) months in any
calendar year shall be eligible to receive options under this Plan to purchase
the Company's Common Stock, and all eligible employees shall have the same
rights and privileges hereunder. Persons who are eligible employees employed on
the first business day of any Payment Period (as defined in Article 5) shall
receive their options as of such day. Persons who become eligible employees are
employed after any date on which options are granted under this Plan shall be
granted options on the first day of the next succeeding Payment Period on which
options are granted to eligible employees. In no event may an employee be
granted an option if such employee, immediately after the option is granted,
owns stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of its parent
corporation or subsidiary corporations, as the terms "parent corporation" and
"subsidiary corporation" are defined in Section 424(e) and (f) of the Code. For
purposes of determining stock ownership under this paragraph, the rules of
Section 424(d) of the Code shall apply, and stock which the employee may
purchase under outstanding options shall be treated as stock owned by the
employee.
4. Stock Subject to the Plan.
-------------------------
<PAGE>
-2-
The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued Common Stock, par value $.01 per share, or
shares of such Common Stock reacquired by the Company, including shares
purchased in the open market. The aggregate number of shares which may be issued
pursuant to the Plan is 140,000, subject to adjustment as provided in Article
12. In the event any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full or shall cease for any reason
to be exercisable in whole or in part, the unpurchased shares subject thereto
shall again be available under the Plan.
5. Payment Period and Stock Options.
--------------------------------
The six-month periods, January 1 through June 30, and July 1 through
December 31, are Payment Periods during which payroll deductions will be
accumulated under the Plan. The first Payment Period under the Plan will
commence on July 1, 1997, and expire on December 31, 1997.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, a maximum of 1,000 shares, on condition that
such employee remains eligible to participate in the Plan throughout such
Payment Period. The participant shall be entitled to exercise such option so
granted only to the extent of the participant's accumulated payroll deductions
on the last day of such Payment Period. In the event that the participant's
accumulated payroll deductions on the last day of the Payment Period would
enable the participant to purchase more than 1,000 shares except for the 1,000-
share limitation, the excess of the amount of the accumulated payroll deductions
over the aggregate purchase price of the 1,000 shares shall be promptly refunded
to the participant by the Company, without interest. The Option Price for each
Payment Period shall be the lesser of (i) 90 of the average market price of the
Company's Common Stock on the first business day of the Payment Period or (ii)
90% of the average market price of the Company's Common Stock on the last
business day of the Payment Period, in either event rounded up to avoid
fractions of a dollar other than 1/4, 1/2 and 3/4. The foregoing limitation on
the number of shares which may be granted in any Payment Period and the Option
Price per share shall be subject to adjustment as provided in Article 12.
For purposes of this Plan, the term "average market price" on any date
means (i) the average (on that date) of the high and low prices of the Company's
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market List, if the Common Stock is not then traded
on a national securities exchange; or (iii) the average of the closing bid and
asked prices last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market List. If the Company's Common Stock is not publicly traded at
the time an option is granted under this Plan, "average market price" shall mean
the fair market value of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
For purposes of this Plan, the term "business day" means a day on which
there is trading on the Nasdaq National Market System or on the aforementioned
national securities exchange, whichever is applicable pursuant to the preceding
paragraph.
No employee shall be granted an option which permits the employee's right
to purchase Common Stock under this Plan, and under all other Section 423(b)
employee stock purchase plans of the Company or any parent or subsidiary
corporations, to accrue at a rate which exceeds $25,000 of fair market value of
such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time. The purpose of the
limitation in the preceding sentence is to comply with Section 423(b)(8) of the
Code. If an eligible employee's accumulated payroll deductions on the last day
of the Payment Period would otherwise enable such employee to purchase Common
Stock in excess of the Section 423(b)(8) limitation described in this paragraph,
the excess of the amount of the accumulated payroll deductions over the
aggregate purchase price of the shares actually purchased shall be promptly
refunded to the employee by the Company, without interest.
<PAGE>
-3-
6. Exercise of Option.
------------------
Each eligible employee who continues to be a participant in the Plan on the
last day of a Payment Period shall be deemed to have exercised his/her option on
such date and shall be deemed to have purchased from the Company such number of
full shares of Common Stock reserved for the purpose of the Plan as his/her
accumulated payroll deductions on such date will pay for at the Option Price,
subject to the 1,000-share limit of the option and the Section 423(b)(8)
limitation described in Article 5. If a person is not an eligible employee on
the last day of a Payment Period, he/she shall not be entitled to exercise
his/her option. Only full shares of Common Stock may be purchased under the
Plan. Unused payroll deductions remaining in an employee's account at the end of
a Payment Period by reason of the inability to purchase a fractional share will
be carried forward to the succeeding Payment Period.
7. Authorization for Entering the Plan.
-----------------------------------
An employee may enter the Plan by filling out, signing and delivering to
the Company an authorization:
A. Stating the percentage to be deducted regularly from the
employee's pay;
B. Authorizing the purchase of stock for the employee in each
Payment Period in accordance with the terms of the Plan; and
C. Specifying the exact name in which stock purchased for the
employee is to be issued as provided under Article 11 hereof.
Such authorization must be received by the Company at least ten (10)
days before the beginning date of the next succeeding Payment Period.
Unless an employee files a new authorization or withdraws from the
Plan, the deductions and purchases under the authorization the employee has on
file under the Plan will continue from one Payment Period to succeeding Payment
Periods as long as the Plan remains in effect.
The Company will accumulate and hold for the employee's account the amounts
deducted from his/her pay. No interest will be paid on these amounts.
8. Maximum Amount of Payroll Deductions.
------------------------------------
An employee may authorize payroll deductions in an amount (expressed as a
percentage) not less than one percent (1%) but not more than fifteen percent
(15) of the employee's base salary compensation actually paid to the employee in
the Payment Period, excluding without limitation any benefits, bonuses or
commissions.
9. Change in Payroll Deductions.
----------------------------
Deductions may not be increased or decreased during a Payment Period.
However, an employee may withdraw in full from the Plan.
10. Withdrawal from the Plan.
------------------------
An employee may withdraw from the Plan in whole but not in part, at any
time prior to the last business day of each Payment Period by delivering a
withdrawal notice to the Company, in which event the Company will promptly
refund the entire balance of the employee's deductions not previously used to
purchase stock under the Plan.
<PAGE>
-4-
To re-enter the Plan, an employee who has previously withdrawn must file a
new authorization at least ten (10) days before the beginning date of the next
Payment Period in which he or she wishes to participate. The employee's re-entry
into the Plan becomes effective at the beginning of such Payment Period,
provided that he or she is an eligible employee on the first business day of the
Payment Period.
11. Issuance of Stock.
-----------------
Certificates for stock issued to participants will be delivered as soon as
practicable after each Payment Period by the Company's transfer agent.
Stock purchased under the Plan will be issued only in the name of the
employee, or if his/her authorization so specifies, in the name of the employee
and another person of legal age as joint tenants with rights of survivorship.
12. Adjustments.
-----------
Upon the happening of any of the following described events, an optionee's
rights under options granted under the Plan shall be adjusted as hereinafter
provided:
A. In the event shares of Common Stock of the Company shall be
subdivided or combined into a greater or smaller number of shares or if,
upon a reorganization, split-up, liquidation, recapitalization or the like
of the Company, the shares of the Company's Common Stock shall be exchanged
for other securities of the Company, each optionee shall be entitled,
subject to the conditions herein stated, to purchase such number of shares
of Common Stock or amount of other securities of the Company as were
exchangeable for the number of shares of Common Stock of the Company which
such optionee would have been entitled to purchase except for such action,
and appropriate adjustments shall be made in the purchase price per share
to reflect such subdivision, combination or exchange; and
B. In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which
shall at the time be subject to option hereunder, each optionee upon
exercising such an option shall be entitled to receive (for the purchase
price paid upon such exercise) the shares as to which he/she is exercising
his/her option and, in addition thereto (at no additional cost), such
number of shares of the class or classes in which such stock dividend or
dividends were declared or paid, and such amount of cash in lieu of
fractional shares, as is equal to the number of shares thereof and the
amount of cash in lieu of fractional shares, respectively, which he/she
would have received if he/she had been the holder of the shares as to which
he/she is exercising his/her option at all times between the date of the
granting of such option and the date of its exercise.
Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Article 4 hereof which are subject to options
which have been or may be granted under the Plan and the limitations set forth
in the second paragraph of Article 5 shall also be appropriately adjusted to
reflect the events specified in paragraphs A and B above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A or B shall be made only
to the extent that the Committee, based on advice of counsel for the Company,
determines whether such adjustments would constitute a "modification" (as that
terms is defined in Section 424 of the Code) or would constitute a change
requiring stockholder approval (pursuant to Section 423(b)(2) of the Code). If
the Committee determines that such adjustments would constitute a modification
or would require stockholder approval, it may refrain from making such
adjustments.
If the Company is to be consolidated with or acquired by another entity in
a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to options then outstanding under this Plan, either (i) make
appropriate provision for the continuation of such options by arranging for the
substitution on an equitable basis for the shares then subject to such options
either (a) the consideration payable with respect to the outstanding shares of
the Company's Common Stock in connection with the Acquisition, (b) shares of
stock of the successor corporation, or a parent or subsidiary of such
corporation, or
<PAGE>
-5-
(c) such other securities as the Successor Board deems appropriate, the fair
market value of which shall not materially exceed the fair market value of the
shares of Common Stock subject to such options immediately preceding the
Acquisition; or (ii) terminate all outstanding options in exchange for a cash
payment equal to the excess of (a) the fair market value on the date of the
Acquisition, of the number of shares of Common Stock that the participant's
accumulated payroll deductions as of the date of the Acquisition could purchase,
at an option price determined with reference only to the first business day of
the applicable Payment Period and subject to the 1,000-share, Code Section
423(b)(8) and fractional-share limitations on the amount of stock a participant
would be entitled to purchase, over (b) the result of multiplying such number of
shares by such option price.
The Committee or Successor Board of Directors shall determine the
adjustments to be made under this Article 12, and its determination shall be
conclusive.
13. No Transfer or Assignment of Employee's Rights.
----------------------------------------------
An employee's rights under the Plan are the employee's alone and may not be
transferred or assigned to, or availed of by, any other person other than by
will or the laws of descent and distribution. Any option granted under the Plan
to an employee may be exercised, during the employee's lifetime, only by the
employee.
14. Termination of Employee's Rights.
--------------------------------
An employee's rights under the Plan will terminate when he/she ceases to be
an employee because of retirement, voluntary or involuntary termination,
resignation, lay-off, discharge, death, change of status or for any other reason
and the Company shall promptly refund, without interest, the entire balance of
his or her payroll deduction account under the Plan. Notwithstanding the
foregoing, eligible employment shall be treated as continuing intact while a
participant is on military leave, sick leave or other bona fide leave of
absence, for up to 90 days, or for so long as the employee's right to
re-employment is guaranteed either by statute or by contract, if longer than 90
days. A withdrawal notice will be considered as having been received from the
employee on the day his/her employment ceases, and all payroll deductions not
used to purchase stock will be refunded.
If an employee's payroll deductions are interrupted by any legal process, a
withdrawal notice will be considered as having been received from the employee
on the day the interruption occurs.
15. Termination and Amendments to Plan.
----------------------------------
Unless terminated sooner as provided below, the Plan shall terminate on
January 1, 2007. The Plan may be terminated at any time by the Company's Board
of Directors but such termination shall not affect options then outstanding
under the Plan. It will terminate in any case when all or substantially all of
the unissued shares of stock reserved for the purposes of the Plan have been
purchased. If at any time shares of stock reserved for the purpose of the Plan
remain available for purchase but not in sufficient number to satisfy all then
unfilled purchase requirements, the available shares shall be apportioned among
participants in proportion to their options and the Plan shall terminate. Upon
such termination or any other termination of the Plan, all payroll deductions
not used to purchase stock will be refunded, without interest.
The Committee or the Board of Directors may from time to time adopt
amendments to the Plan provided that, without the approval of the stockholders
of the Company, no amendment may (i) increase the number of shares that may be
issued under the Plan; (ii) change the class of employees eligible to receive
options under the Plan, if such action would be treated as the adoption of a new
plan for purposes of Section 423(b) of the Code; or (iii) cause Rule or (iii)
cause Rule 16b-3 under the Securities Exchange Act of 1934 to become
inapplicable to the Plan.
<PAGE>
-6-
16. Limits on Sale of Stock Purchased Under the Plan.
------------------------------------------------
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any employee in the conduct of his/her own affairs. An employee may, therefore,
sell stock purchased under the Plan at any time the employee chooses, subject to
compliance with any applicable federal or state securities laws and subject to
any restrictions imposed under Article 21 to ensure that tax withholding
obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET
FLUCTUATIONS IN THE PRICE OF THE STOCK.
17. Participating Subsidiaries.
--------------------------
The term "participating subsidiary" shall mean any subsidiary of the
Company, as that term is defined in Section 424(f) of the Code, which is
designated from time to time by the Board of Directors to participate in the
Plan. The Board of Directors shall have the power to make such designation
before or after the Plan is approved by the stockholders.
18. Optionees Not Stockholders.
--------------------------
Neither the granting of an option to an employee nor the deductions from
his/her pay shall constitute such employee a stockholder of the shares covered
by an option until such shares have been actually purchased by the employee.
19. Application of Funds.
--------------------
The proceeds received by the Company from the sale of Common Stock pursuant
to options granted under the Plan will be used for general corporate purposes.
20. Notice to Company of Disqualifying Disposition.
----------------------------------------------
By electing to participate in the Plan, each employee agrees to notify the
Company in writing immediately after the employee transfers Common Stock
acquired under the Plan, if such transfer occurs within two years after the
first business day of the Payment Period in which such Common Stock was
acquired. Each employee further agrees to provide any information about such a
transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to participants and to the Company and
its participating subsidiaries.
21. Withholding of Additional Income Taxes.
--------------------------------------
By electing to participate in the Plan, each employee acknowledges that the
Company and its participating subsidiaries are required to withhold taxes with
respect to the amounts deducted from the employee's compensation and accumulated
for the benefit of the employee under the Plan, and each employee agrees that
the Company and its participating subsidiaries may deduct additional amounts
from the employee's compensation, when amounts are added to the employee's
account, used to purchase Common Stock or refunded, in order to satisfy such
withholding obligations. Each employee further acknowledges that when Common
Stock is purchased under the Plan the Company and its participating subsidiaries
may be required to withhold taxes with respect to all or a portion of the
difference between the fair market value of the Common Stock purchased and its
purchase price, and each employee agrees that such taxes may be withheld from
compensation otherwise payable to such employee. It is intended that tax
withholding will be accomplished in such a manner that the full amount of
payroll deductions elected by the participant under Article 7 will be used to
purchase Common Stock. However, if amounts sufficient to satisfy applicable tax
withholding obligations have not been withheld from compensation otherwise
payable to any employee, then, notwithstanding any other provision of the Plan,
the Company may withhold such taxes from the employee's accumulated payroll
deductions and apply the net amount to the purchase of Common Stock, unless
<PAGE>
-7-
the employee pays to the Company, prior to the exercise date, an amount
sufficient to satisfy such withholding obligations. Each employee further
acknowledges that the Company and its participating subsidiaries may be required
to withhold taxes in connection with the disposition of stock acquired under the
Plan and agrees that the Company or any participating subsidiary may take
whatever action it considers appropriate to satisfy such withholding
requirements, including deducting from compensation otherwise payable to such
employee an amount sufficient to satisfy such withholding requirements or
conditioning any disposition of Common Stock by the employee upon the payment to
the Company or such subsidiary of an amount sufficient to satisfy such
withholding requirements.
22. Governmental Regulations.
------------------------
The Company's obligation to sell and deliver shares of the Company's Common
Stock under this Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such shares,
including the Securities and Exchange Commission, the Board of Governors of the
Federal Reserve System, and the Internal Revenue Service. Government regulations
may impose reporting or other obligations on the Company with respect to the
Plan. For example, the Company may be required to identify shares of Common
Stock issued under the Plan on its stock ownership records and send tax
information statements to employees and former employees who transfer title to
such shares.
23. Governing Law.
-------------
The validity and construction of the Plan shall be governed by the laws of
the Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of law thereof
24. Approval of Board of Directors and Stockholders of the Company.
--------------------------------------------------------------
The Plan was adopted by the Board of Directors on January 14, 1997.
<PAGE>
================================================================================
AMENDED AND RESTATED DECLARATION
OF TRUST
Investors Capital Trust I
Dated as of January 31, 1997
================================================================================
<PAGE>
AMENDED AND RESTATED DECLARATION
OF TRUST
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - INTERPRETATION AND DEFINITIONS.............................................. 1
SECTION 1.1 Definitions................................................................ 1
ARTICLE II - TRUST INDENTURE ACT........................................................ 9
SECTION 2.1 Trust Indenture Act; Application........................................... 9
SECTION 2.2 Lists of Holders of Securities............................................. 10
SECTION 2.3 Reports by the Property Trustee............................................ 10
SECTION 2.4 Periodic Reports to Property Trustee....................................... 10
SECTION 2.5 Evidence of Compliance with Conditions Precedent........................... 10
SECTION 2.6 Events of Default; Waiver.................................................. 11
SECTION 2.7 Event of Default; Notice................................................... 12
ARTICLE III - ORGANIZATION.............................................................. 13
SECTION 3.1 Name....................................................................... 13
SECTION 3.2 Office..................................................................... 13
SECTION 3.3 Purpose.................................................................... 13
SECTION 3.4 Authority.................................................................. 13
SECTION 3.5 Title to Property of the Trust............................................. 14
SECTION 3.6 Powers and Duties of the Administrative Trustees........................... 14
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees....................... 17
SECTION 3.8 Powers and Duties of the Property Trustee.................................. 18
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee................ 20
SECTION 3.10 Certain Rights of the Property Trustee.................................... 21
SECTION 3.11 Delaware Trustee.......................................................... 23
SECTION 3.12 Execution of Documents.................................................... 23
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.................... 24
SECTION 3.14 Duration of Trust......................................................... 24
SECTION 3.15 Mergers................................................................... 24
ARTICLE IV - SPONSOR.................................................................... 26
SECTION 4.1 Sponsor's Purchase of Common Securities.................................... 26
SECTION 4.2 Responsibilities of the Sponsor............................................ 26
SECTION 4.3 Right to Proceed........................................................... 27
ARTICLE V - TRUSTEES.................................................................... 27
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee.............................. 27
SECTION 5.2 Delaware Trustee........................................................... 28
SECTION 5.3 Property Trustee; Eligibility.............................................. 28
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware Trustee
Generally............................................................................. 29
SECTION 5.5 Administrative Trustees.................................................... 29
SECTION 5.6 Delaware Trustee........................................................... 30
SECTION 5.7 Appointment, Removal and Resignation of Trustees........................... 30
SECTION 5.8 Vacancies among Trustees................................................... 31
SECTION 5.9 Effect of Vacancies........................................................ 32
SECTION 5.10 Meetings.................................................................. 32
SECTION 5.11 Delegation of Power....................................................... 32
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business............... 33
ARTICLE VI - DISTRIBUTIONS.............................................................. 33
SECTION 6.1 Distributions.............................................................. 33
ARTICLE VII - ISSUANCE OF SECURITIES.................................................... 33
SECTION 7.1 General Provisions Regarding Securities.................................... 33
SECTION 7.2 Execution and Authentication............................................... 34
SECTION 7.3 Form and Dating............................................................ 35
SECTION 7.4 Registrar, Paying Agent and Exchange Agent................................. 36
SECTION 7.5 Paying Agent to Hold Money in Trust........................................ 37
SECTION 7.6 Replacement Securities..................................................... 37
SECTION 7.7 Outstanding Capital Securities............................................. 37
SECTION 7.8 Capital Securities in Treasury............................................. 38
SECTION 7.9 Temporary Securities....................................................... 38
SECTION 7.10 Cancellation.............................................................. 39
SECTION 7.11 CUSIP Numbers............................................................. 39
ARTICLE VIII - TERMINATION OF TRUST..................................................... 39
SECTION 8.1 Termination of Trust....................................................... 39
ARTICLE IX - TRANSFER OF INTERESTS...................................................... 41
SECTION 9.1 Transfer of Securities..................................................... 41
SECTION 9.2 Transfer Procedures and Restrictions....................................... 41
SECTION 9.3 Deemed Security Holders.................................................... 48
SECTION 9.4 Book Entry Interests....................................................... 49
SECTION 9.5 Notices to Clearing Agency................................................. 49
SECTION 9.6 Appointment of Successor Clearing Agency................................... 49
ARTICLE X - LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS........ 50
SECTION 10.1 Liability................................................................. 50
SECTION 10.2 Exculpation............................................................... 50
SECTION 10.3 Fiduciary Duty............................................................ 51
SECTION 10.4 Indemnification........................................................... 52
SECTION 10.5 Outside Businesses........................................................ 54
ARTICLE XI - ACCOUNTING................................................................. 55
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 11.1 Fiscal Year............................................................... 55
SECTION 11.2 Certain Accounting Matters................................................ 55
SECTION 11.3 Banking................................................................... 55
SECTION 11.4 Withholding............................................................... 56
ARTICLE XII - AMENDMENTS AND MEETINGS................................................... 56
SECTION 12.1 Amendments................................................................ 56
SECTION 12.2 Meetings of the Holders; Action by Written Consent........................ 58
ARTICLE XIII - REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE................. 59
SECTION 13.1 Representations and Warranties of Property Trustee........................ 59
SECTION 13.2 Representations and Warranties of Delaware Trustee........................ 60
ARTICLE XIV - REGISTRATION RIGHTS....................................................... 61
SECTION 14.1 Registration Rights Agreement; Liquidated Damages......................... 61
ARTICLE XV - MISCELLANEOUS.............................................................. 63
SECTION 15.1 Notices................................................................... 63
SECTION 15.2 Governing Law............................................................. 64
SECTION 15.3 Intention of the Parties.................................................. 64
SECTION 15.4 Headings.................................................................. 64
SECTION 15.5 Successors and Assigns.................................................... 64
SECTION 15.6 Partial Enforceability.................................................... 64
SECTION 15.7 Counterparts.............................................................. 65
ANNEX I TERMS OF SECURITIES....................................................... I-1
EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE...................................... A1-1
EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE....................................... A2-1
EXHIBIT B PURCHASE AGREEMENT........................................................ B-1
</TABLE>
(iii)
<PAGE>
AMENDED AND RESTATED DECLARATION
OF TRUST
OF
INVESTORS CAPITAL TRUST I
January 31, 1997
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of January 31, 1997, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the holders, from time to time, of undivided
beneficial interests in the assets of the Trust to be issued pursuant to this
Declaration;
WHEREAS, the Trustees and the Sponsor established Investors Capital Trust I
(the "Trust"), a trust created under the Business Trust Act (as defined herein)
pursuant to a Declaration of Trust dated as of January 17, 1997 (the "Original
Declaration") executed by the Sponsor, the Delaware Trustee (as defined herein)
and the Administrative Trustees (as defined herein), and a Certificate of Trust
executed by the Delaware Trustee and the Administrative Trustees and filed with
the Secretary of State of the State of Delaware on January 17, 1997, for the
sole purpose of issuing and selling certain securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in certain Debentures of the Debenture Issuer (each as hereinafter
defined);
WHEREAS, as of the date hereof, no interests in the Trust have been issued;
WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend
and restate each and every term and provision of the Original Declaration; and
NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
-----------
Unless the context otherwise requires:
<PAGE>
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration or
unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Administrative Trustee" has the meaning set forth in Section
----------------------
5.1.
"Affiliate" has the same meaning as given to that term in Rule
---------
405 under the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent, Registrar or Exchange Agent.
-----
"Authorized Officer" of a Person means any other Person that is
------------------
authorized to legally bind such former Person.
"Book Entry Interest" means a beneficial interest in a Global
-------------------
Capital Security registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a Saturday or a Sunday or
------------
a day on which banking institutions in the City of New York or Boston,
Massachusetts are authorized or required by law or executive order to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
------------------
Code, 12 Del. C. (S)3801 et seq., as it may be amended from time to time, or any
------ -- ---
successor legislation.
"Capital Securities" means, collectively, the Series A Capital
------------------
Securities and the Series B Capital Securities.
- 2 -
<PAGE>
"Capital Securities Guarantee" means, collectively, the Series A
----------------------------
Capital Securities Guarantee and the Series B Capital Securities Guarantee.
"Capital Security Beneficial Owner" means, with respect to a Book
---------------------------------
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Clearing Agency" means an organization registered as a "Clearing
---------------
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Capital Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Capital Security and which shall
undertake to effect book entry transfers and pledges of the Capital Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
---------------------------
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Time" means the "Closing Time" under the Purchase
------------
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
----
time to time, or any successor legislation.
"Commission" means the United States Securities and Exchange
----------
Commission as from time to time constituted, or if any time after the execution
of this Declaration such Commission is not existing and performing the duties
now assigned to it under applicable federal securities laws, then the body
performing such duties at such time.
"Common Securities" has the meaning specified in Section 7.1(a).
-----------------
"Common Securities Guarantee" means the guarantee agreement dated
---------------------------
as of January 31, 1997 of the Sponsor in respect of the Common Securities.
"Common Securities Subscription Agreement" means the Common
----------------------------------------
Securities Subscription Agreement, dated January 31, 1997, by and between the
Debenture Issuer and the Trust.
"Company Indemnified Person" means (a) any Administrative
--------------------------
Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers,
directors, shareholders, members, partners, employees, representatives or agents
of any Administrative Trustee; or (d) any officer, employee or agent of the
Trust or its Affiliates.
"Corporate Trust Office" means the office of the Property Trustee
----------------------
at which the corporate trust business of the Property Trustee shall, at any
particular time, be principally
- 3 -
<PAGE>
administered, which office at the date of execution of this Agreement is located
at The Bank of New York, 101 Barclay Street, 21st Floor West, New York, New York
10286.
"Covered Person" means: (a) any officer, director, shareholder,
--------------
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means Investors Financial Services Corp., a
----------------
Delaware corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.
"Debenture Subscription Agreement" means the Debenture
--------------------------------
Subscription Agreement, dated January 31, 1997, by and between the Debenture
Issuer and the Trust.
"Debenture Trustee" means The Bank of New York, a New York
-----------------
banking corporation, as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
"Debentures" means, collectively, the Series A Debentures and the
----------
Series B Debentures.
"Default" means an event, act or condition that with notice or
-------
lapse of time, or both, would constitute an Event of Default.
"Definitive Capital Securities" shall have the meaning set forth
-----------------------------
in Section 7.3(c).
"Delaware Trustee" has the meaning set forth in Section 5.2.
----------------
"Direct Action" shall have the meaning set forth in Section
-------------
3.8(e).
"Distribution" means a distribution payable to Holders in
------------
accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing
---
Agency.
"Event of Default" in respect of the Securities means an Event of
----------------
Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time, or any successor legislation.
"Exchange Agent" has the meaning set forth in Section 7.4.
--------------
- 4 -
<PAGE>
"Exchange Offer" means the offer that may be made pursuant to the
--------------
Registration Rights Agreement (i) by the Trust to exchange Series B Capital
Securities for Series A Capital Securities and (ii) by the Debenture Issuer to
exchange Series B Debentures for Series A Debentures and the Series B Capital
Securities Guarantee for the Series A Capital Securities Guarantee.
"Federal Reserve Board" means the Board of Governors of the
---------------------
Federal Reserve System.
"Fiduciary Indemnified Person" has the meaning set forth in
----------------------------
Section 10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
-----------
"Global Capital Security" has the meaning set forth in Section
-----------------------
7.3(a).
"Holder" means a Person in whose name a Security is registered,
------
such Person being a beneficial owner within the meaning of the Business Trust
Act.
"Indemnified Person" means a Company Indemnified Person or a
------------------
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of January 31, 1997,
among the Debenture Issuer and The Bank of New York, as amended from time to
time.
"Investment Company" means an investment company as defined in
------------------
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
----------------------
1940, as amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
------------
"Like Amount" has the meaning set forth in Section 3 of Annex I
-----------
hereto.
"Majority in liquidation amount" means, with respect to the Trust
------------------------------
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of more than 50% of the aggregate liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all outstanding Securities of
the relevant class.
"Offering Memorandum" has the meaning set forth in Section
-------------------
3.6(b).
- 5 -
<PAGE>
"Officers' Certificate" means, with respect to any Person, a
---------------------
certificate signed by the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President, the Comptroller, or the Secretary or
an Assistant Secretary of such Person. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this
Declaration shall include:
(i) a statement that each officer signing the Certificate has read
the covenant or condition and the definitions relating thereto;
(ii) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;
(iii) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Opinion of Counsel" shall mean a written opinion of counsel, who
------------------
may be an employee of the Sponsor, and who shall be acceptable to the Property
Trustee.
"Participants" shall have the meaning set forth in Section
------------
7.3(b).
"Paying Agent" has the meaning specified in Section 7.4.
------------
"Payment Amount" has the meaning set forth in Section 6.1.
--------------
"Person" means a legal person, including any individual,
------
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Property Trustee" has the meaning set forth in Section 5.3(a).
----------------
"Property Trustee Account" has the meaning set forth in Section
------------------------
3.8(c).
"Purchase Agreement" means the Purchase Agreement for the initial
------------------
offering and sale of Capital Securities in the form of Exhibit B.
"QIBs" shall mean qualified institutional buyers as defined in
----
Rule 144A.
"Quorum" means a majority of the Administrative Trustees or, if
------
there are only two Administrative Trustees, both of them.
- 6 -
<PAGE>
"Registrar" has the meaning set forth in Section 7.4.
---------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of January 31, 1997, by and among the Trust, the Debenture
Issuer and the Initial Purchaser named therein, as amended from time to time.
"Registration Statement" has the meaning set forth in the
----------------------
Registration Rights Agreement.
"Related Party" means, with respect to the Sponsor, any direct or
-------------
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means, with respect to the Property
-------------------
Trustee, any officer within the Corporate Trust Office of the Property Trustee,
including any vice president, any assistant vice president, any assistant
secretary, any assistant treasurer or other officer of the Corporate Trust
Office of the Property Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.
"Restricted Definitive Capital Securities" has the meaning set
----------------------------------------
forth in Section 7.3(c).
"Restricted Capital Security" means a Capital Security required
---------------------------
by Section 9.2 to contain a Restricted Securities Legend.
"Restricted Securities Legend" has the meaning set forth in
----------------------------
Section 9.2.
"Rule 144" means Rule 144 under the Securities Act, as such rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Rule 144A" means Rule 144A under the Securities Act, as such
---------
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act, or
---------
any successor rule or regulation.
"Securities" or "Trust Securities" means the Common Securities
---------- ----------------
and the Capital Securities.
- 7 -
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended
--------------
from time to time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee and
---------------------
the Capital Securities Guarantee.
"Series A Capital Securities" has the meaning specified in
---------------------------
Section 7.1(a).
"Series A Capital Securities Guarantee" means the guarantee
-------------------------------------
agreement of the Sponsor dated as of January 31, 1997 in respect of the Series A
Capital Securities.
"Series A Debentures" means the 9.77% Series A Junior
-------------------
Subordinated Deferrable Interest Debentures due February 1, 2027 of the
Debenture Issuer issued pursuant to the Indenture.
"Series B Capital Securities" has the meaning specified in
---------------------------
Section 7.1(a).
"Series B Capital Securities Guarantee" means the guarantee
-------------------------------------
agreement to be entered in connection with the Exchange Offer by the Sponsor in
respect of the Series B Capital Securities.
"Series B Debentures" means the 9.77% Series B Junior
-------------------
Subordinated Deferrable Interest Debentures due February 1, 2027 of the
Debenture Issuer to be issued in connection with the Exchange Offer pursuant to
the Indenture.
"Special Event" has the meaning set forth in Section 4 of Annex I
-------------
hereto.
"Sponsor" means Investors Financial Services Corp., a Delaware
-------
corporation, or any successor entity resulting from any merger, consolidation,
amalgamation or other business combination, in its capacity as sponsor of the
Trust.
"Subscription Agreements" means the Common Securities
-----------------------
Subscription Agreement and the Debenture Subscription Agreement.
"Successor Delaware Trustee" has the meaning set forth in Section
--------------------------
5.7(b)(ii).
"Successor Entity" has the meaning set forth in Section
----------------
3.15(b)(i).
"Successor Securities" has the meaning set forth in Section
--------------------
3.15(i)(B).
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
--------------
"10% in liquidation amount" means, with respect to the Trust
-------------------------
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s)
- 8 -
<PAGE>
of outstanding Trust Securities voting together as a single class or, as the
context may require, Holders of outstanding Capital Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of 10% or more of the aggregate liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) of all outstanding Securities of the relevant class.
"Treasury Regulations" means the income tax regulations,
--------------------
including temporary and proposed regulations, promulgated under the Code by the
United States Treasury, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
-------------------
amended from time to time, or any successor legislation.
"Trustee" or "Trustees" means each Person who has signed this
------- --------
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Unrestricted Global Capital Security" has the meaning set forth
------------------------------------
in Section 9.2(b).
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
--------------------------------
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a Trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
- 9 -
<PAGE>
SECTION 2.2 Lists of Holders of Securities.
------------------------------
(a) Each of the Sponsor and the Administrative Trustees on behalf of
the Trust shall provide the Property Trustee, unless the Property Trustee is
Registrar for the Securities (i) within 14 days after each record date for
payment of Distributions, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Holders ("List of
Holders") as of such record date, provided that neither the Sponsor nor the
-------- ----
Administrative Trustees on behalf of the Trust shall be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Property Trustee by the Sponsor and the
Administrative Trustees on behalf of the Trust, and (ii) at any other time,
within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Property Trustee. The Property Trustee shall preserve, in as current a
form as is reasonably practicable, all information contained in Lists of Holders
given to it or which it receives in the capacity as Paying Agent (if acting in
such capacity), provided that the Property Trustee may destroy any List of
-------- ----
Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
(S)(S) 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
-------------------------------
Within 60 days after May 15 of each year, commencing May 15, 1997, the
Property Trustee shall provide to the Holders of the Capital Securities such
reports as are required by (S) 313 of the Trust Indenture Act, if any, in the
form and in the manner provided by (S) 313 of the Trust Indenture Act. The
Property Trustee shall also comply with the requirements of (S) 313(d) of the
Trust Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
------------------------------------
Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such documents, reports and
information as are required by (S) 314 of the Trust Indenture Act (if any) and
the compliance certificate required by (S) 314 of the Trust Indenture Act in the
form, in the manner and at the times required by (S) 314 of the Trust Indenture
Act. Delivery of such reports, information and documents to the Property
Trustee is for informational purposes only and the Property Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein, including the Sponsor's and the Administrative Trustees' compliance
with any of their respective covenants hereunder (as to which the Property
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
------------------------------------------------
Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent provided for in this Declaration that relate to any of the
matters set forth in (S) 314(c) of the Trust
- 10 -
<PAGE>
Indenture Act. Any certificate or opinion required to be given by an officer
pursuant to (S) 314(c) (1) of the Trust Indenture Act may be given in the form
of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver.
-------------------------
(a) The Holders of a Majority in liquidation amount of Capital
Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default in respect of the Capital Securities
and its consequences, provided that, if the underlying Event of Default under
-------- ----
the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
aggregate principal amount of the holders of the Debentures (a "Super Majority")
to be waived under the Indenture, the Event of Default under the Declaration may
only be waived by the vote of the Holders of at least the proportion in
aggregate liquidation amount of the Capital Securities that the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of (S)
316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Event of Default with respect to the
Capital Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Capital
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Capital Securities of an Event of Default with respect to the Capital
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
-------- ----
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of Default
under the Declaration as provided below in this Section 2.6(b), the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to have
waived such Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under
- 11 -
<PAGE>
the Declaration may only be waived by the vote of the Holders of at least the
proportion in aggregate liquidation amount of the Common Securities that the
relevant Super Majority represents of the aggregate principal amount of the
Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
- -------- -------
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences if all Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated, and until
such Events of Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the Holders of
the Capital Securities and only the Holders of the Capital Securities will have
the right to direct the Property Trustee in accordance with the terms of the
Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of
(S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such (S)(S)
316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon
such waiver, any such default shall cease to exist and any Event of Default with
respect to the Common Securities arising therefrom shall be deemed to have been
cured for every purpose of this Declaration, but no such waiver shall extend to
any subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee, at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of
(S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
------------------------
(a) The Property Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders notice of all defaults with respect to the Securities actually known to
a Responsible Officer of the Property Trustee, unless such defaults have been
cured before the giving of such notice (the term "defaults" for the purposes of
this Section 2.7(a) being hereby defined to be an Event of Default as defined in
the Indenture, not including any periods of grace provided for therein and
irrespective of the giving of any notice provided therein); provided that,
-------- ----
except for a default in the payment of principal of (or premium, if any) or
interest on any of the Debentures, the Property Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Property
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders.
(b) The Property Trustee shall not be deemed to have knowledge of any
default except:
(i) a default under Sections 5.01(a) and 5.01(b) of the
Indenture; or
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(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of the Property
Trustee charged with the administration of the Declaration shall have actual
knowledge.
(c) Within ten Business Days after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit notice of such Event of Default to the holders of the Capital
Securities, the Administrative Trustees and the Sponsor, unless such Event of
Default shall have been cured or waived. The Sponsor and the Administrative
Trustees shall file annually with the Property Trustee a certification as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under this Declaration.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
----
The Trust is named "Investors Capital Trust I" as such name may be
modified from time to time by the Administrative Trustees following written
notice to the Holders of Securities. The Trust's activities may be conducted
under the name of the Trust or any other name deemed advisable by the
Administrative Trustees.
SECTION 3.2 Office.
------
The address of the principal office of the Trust is c/o Investors
Financial Services Corp., 89 South Street, P.O. Box 1537, Boston, Massachusetts
02205-1537. On ten Business Days written notice to the Property Trustee, the
Delaware Trustee and the Holders of Securities, the Administrative Trustees may
designate another principal office.
SECTION 3.3 Purpose.
-------
The exclusive purposes and functions of the Trust are (a) to issue and
sell the Securities, (b) use the proceeds from the sale of the Securities to
acquire the Debentures, and (c) except as otherwise limited herein, to engage in
only those other activities necessary, advisable or incidental thereto. The
Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, mortgage or pledge any of its assets, or otherwise undertake (or
permit to be undertaken) any activity that would cause the Trust not to be
classified for United States federal income tax purposes as a grantor trust.
SECTION 3.4 Authority.
---------
Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Administrative Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Administrative Trustees in
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accordance with their powers shall constitute the act of and serve to bind the
Trust and an action taken by the Property Trustee on behalf of the Trust in
accordance with its powers shall constitute the act of and serve to bind the
Trust. In dealing with the Trustees acting on behalf of the Trust, no Person
shall be required to inquire into the authority of the Trustees to bind the
Trust. Persons dealing with the Trust are entitled to rely conclusively on the
power and authority of the Trustees as set forth in this Declaration.
SECTION 3.5 Title to Property of the Trust.
------------------------------
Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders
shall not have legal title to any part of the assets of the Trust, but shall
have an undivided beneficial interest in the assets of the Trust.
SECTION 3.6 Powers and Duties of the Administrative Trustees.
------------------------------------------------
The Administrative Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:
(a) to issue the Securities in accordance with this Declaration;
provided, however, that except, in the case of (i) and (ii), as contemplated in
- -------- -------
Section 7.1(a), (i) the Trust may issue no more than one series of Capital
Securities and no more than one series of Common Securities, (ii) there shall be
no interests in the Trust other than the Securities, and (iii) the issuance of
Securities shall be limited to a simultaneous issuance of both Capital
Securities and Common Securities at any Closing Time;
(b) in connection with the issue and sale of the Capital Securities
and the consummation of the Exchange Offer, to:
(i) prepare and execute, if necessary, an offering memorandum
(the "Offering Memorandum") in preliminary and final form, and any supplements
thereto, prepared by the Sponsor, in relation to the offering and sale of Series
A Capital Securities to qualified institutional buyers in reliance on Rule 144A
under the Securities Act and to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), and to execute and
file with the Commission, at such time as determined by the Sponsor, any
Registration Statement, including any amendments thereto, as contemplated by the
Registration Rights Agreement;
(ii) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary in order to qualify
or register all or part of the Capital Securities in any State in which the
Sponsor has determined to qualify or register such Capital Securities for sale;
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(iii) execute and file an application, prepared by the Sponsor,
to the New York Stock Exchange or any other national stock exchange or the
Nasdaq National Market or the NASD PORTAL system for listing or quotation of the
Capital Securities;
(iv) to execute and deliver letters, documents, or instruments
with DTC and other Clearing Agencies relating to the Capital Securities; and
(v) if required, execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto, prepared
by the Sponsor, relating to the registration of the Capital Securities under
Section 12(b) of the Exchange Act.
(c) to acquire the Series A Debentures with the proceeds of the sale
of the Series A Capital Securities and the Common Securities pursuant to a
Debenture Subscription Agreement and to exchange the Series A Debentures for a
like principal amount of Series B Debentures, pursuant to the Exchange Offer;
provided, however, that the Administrative Trustees shall cause legal title to
- -------- -------
the Debentures to be held of record in the name of the Property Trustee for the
benefit of the Holders;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of (S)316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required of
the Administrative Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(j) to give the certificate required by (S) 314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be executed by any
Administrative Trustee;
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(k) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, Registrar and
Exchange Agent for the Securities or to appoint a Paying Agent for the
Securities as provided in Section 7.4 except for such time as such power to
appoint a Paying Agent is vested in the Property Trustee;
(m) to give prompt written notice to the Property Trustee and to
Holders of any notice received from the Debenture Issuer of its election to
defer payments of interest on the Debentures by extending the interest payment
period under the Indenture;
(n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(p) to take any action, not inconsistent with this Declaration or
with applicable law, that the Administrative Trustees determine in their
discretion to be necessary or desirable in carrying out the activities of the
Trust as set out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for United
States federal income tax purposes.
(q) to take all action necessary to consummate the Exchange Offer or
otherwise cause the Capital Securities to be registered pursuant to an effective
registration statement in accordance with the provisions of the Registration
Rights Agreement.
(r) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Administrative Trustees, on behalf of
the Trust.
The Administrative Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3,
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and the Administrative Trustees shall not take any action that is inconsistent
with the purposes and functions of the Trust set forth in Section 3.3.
Subject to this Section 3.6, the Administrative Trustees shall have
none of the powers or the authority of the Property Trustee set forth in Section
3.8.
Any expenses incurred by the Administrative Trustees pursuant to this
Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
----------------------------------------------------
(a) The Trust shall not, and the Trustees (including the Property
Trustee) shall not, engage in any activity other than as required or authorized
by this Declaration. The Trust shall not and the Trustees (including the
Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders pursuant to the
terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the Securities; or
(vii) other than as provided in this Declaration or Annex I, (A)
direct the time, method and place of conducting any proceeding with respect to
any remedy available to the Debenture Trustee, or exercising any trust or power
conferred upon the Debenture Trustee with respect to the Debentures, (B) waive
any past default that is waivable under the Indenture, (C) exercise any right to
rescind or annul any declaration that the principal of all the Debentures shall
be due and payable, or (D) consent to any amendment, modification or termination
of the Indenture or the Debentures where such consent shall be required, unless
the Trust shall have received an opinion of a nationally recognized independent
tax counsel experienced in such matters to the effect that such action will not
cause more than an insubstantial risk that for United States federal income tax
purposes the Trust will not be classified as a grantor trust.
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SECTION 3.8 Powers and Duties of the Property Trustee.
-----------------------------------------
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the
Holders. The right, title and interest of the Property Trustee to the
Debentures shall vest automatically in each Person who may hereafter be
appointed as Property Trustee in accordance with Section 5.7. Such vesting and
cessation of title shall be effective whether or not conveyancing documents with
regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under the
exclusive control of the Property Trustee on behalf of the Holders and, upon the
receipt of payments of funds made in respect of the Debentures held by the
Property Trustee, deposit such funds into the Property Trustee Account and make
payments to the Holders of the Capital Securities and Holders of the Common
Securities from the Property Trustee Account in accordance with Section 6.1.
Funds in the Property Trustee Account shall be held uninvested until disbursed
in accordance with this Declaration. The Property Trustee Account shall be
maintained by the Property Trustee with The Bank of New York (in its separate
corporate capacity and not in its capacity as Property Trustee) in its trust
department;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Common Securities to
the extent the Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the Securities, engage
in such ministerial activities as shall be necessary or appropriate to effect
the distribution of the Debentures to Holders of Securities upon the occurrence
of certain events.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities.
(e) Subject to Section 3.9(a), the Property Trustee shall take any
Legal Action which arises out of or in connection with an Event of Default of
which a Responsible Officer of the Property Trustee has actual knowledge or the
Property Trustee's duties and obligations under this Declaration or the Trust
Indenture Act and if such Property Trustee shall have failed to take such Legal
Action, the Holders of the Capital Securities, to the fullest extent permitted
by applicable law, may take such Legal Action, to the same extent as if such
Holders of Capital Securities held an aggregate principal amount of Debentures
equal to the aggregate liquidation
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amount of such Capital Securities, without first proceeding against the Property
Trustee or the Trust; provided however, that if an Event of Default has occurred
and is continuing and such event is attributable to the failure of the Debenture
Issuer to pay the principal of or premium, if any, or interest on the Debentures
on the date such principal, premium, if any, or interest is otherwise payable
(or in the case of redemption, on the redemption date), then a Holder of Capital
Securities may directly institute a proceeding against the Debenture Issuer for
enforcement of payment to such Holder of the principal of or premium, if any, or
interest on the Debentures having a principal amount equal to the aggregate
liquidation amount of the Capital Securities of such Holder (a "Direct Action")
on or after the respective due date specified in the Debentures. In connection
with such Direct Action, the rights of the Holders of the Common Securities will
be subrogated to the rights of such Holder of Capital Securities to the extent
of any payment made by the Debenture Issuer to such Holder of Capital Securities
in such Direct Action. Except as provided in the preceding sentences, the
Holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Debentures.
(f) The Property Trustee shall not resign as a Trustee unless either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders pursuant to the terms of the
Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.7.
(g) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Property Trustee occurs and is continuing, the Property Trustee shall, for
the benefit of Holders, enforce its rights as holder of the Debentures subject
to the rights of the Holders pursuant to the terms of such Securities.
(h) The Property Trustee shall be authorized to undertake any actions
set forth in (S) 317(a) of the Trust Indenture Act.
(i) For such time as the Property Trustee is the Paying Agent, the
Property Trustee may authorize one or more Persons to act as additional Paying
Agents and to pay Distributions, redemption payments or liquidation payments on
behalf of the Trust with respect to all securities and any such Paying Agent
shall comply with (S) 317(b) of the Trust Indenture Act. Any such additional
Paying Agent may be removed by the Property Trustee at any time the Property
Trustee remains as Paying Agent and a successor Paying Agent or additional
Paying Agents may be (but are not required to be) appointed at any time by the
Property Trustee.
(j) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and
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the Property Trustee shall not take any action that is inconsistent with the
purposes and functions of the Trust set out in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
-----------------------------------------------------------
(a) The Property Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Declaration and in the Securities and no implied covenants shall be read
into this Declaration against the Property Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6) of
which a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such of the rights and powers vested in it by
this Declaration, and use the same degree of care and skill in their exercise,
as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions of this Declaration and in
the Securities and the Property Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in this
Declaration and in the Securities, and no implied covenants or obligations shall
be read into this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Property Trustee and conforming to the
requirements of this Declaration; provided, however, that in the case of any
-------- -------
such certificates or opinions that by any provision hereof are specifically
required to be furnished to the Property Trustee, the Property Trustee shall be
under a duty to examine the same to determine whether or not they conform to the
requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property Trustee,
unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation amount
of the Securities relating to the time, method and
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place of conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the Property Trustee
under this Declaration;
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Declaration or indemnity reasonably
satisfactory to the Property Trustee against such risk or liability is not
reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Property Trustee Account shall be to deal with such property in a similar manner
as the Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property Trustee
under this Declaration and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree in writing with the
Sponsor. Money held by the Property Trustee need not be segregated from other
funds held by it except in relation to the Property Trustee Account maintained
by the Property Trustee pursuant to Section 3.8(c)(i) and except to the extent
otherwise required by law; and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the Property Trustee
be liable for any default or misconduct of the Administrative Trustees or the
Sponsor.
SECTION 3.10 Certain Rights of the Property Trustee.
--------------------------------------
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Administrative
Trustees contemplated by this Declaration may be sufficiently evidenced by an
Officers' Certificate;
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(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be promptly delivered by
the Sponsor or the Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or other
experts of its selection and the advice or opinion of such counsel and experts
with respect to legal matters or advice within the scope of such experts' area
of expertise shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion, such counsel may be counsel to the
Sponsor or any of its Affiliates, and may include any of its employees. The
Property Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of competent
jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at the
request or direction of any Holder, unless such Holder shall have provided to
the Property Trustee security and indemnity, reasonably satisfactory to the
Property Trustee, against the costs, expenses (including reasonable attorneys'
fees and expenses and the expenses of the Property Trustee's agents, nominees or
custodians) and liabilities that might be incurred by it in complying with such
request or direction, including such reasonable advances as may be requested by
the Property Trustee provided, that, nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the rights and powers
vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Property Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, custodians, nominees or attorneys and the Property Trustee shall
not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Property Trustee or its agents alone shall be sufficient and
effective to perform any such action and no third party shall
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be required to inquire as to the authority of the Property Trustee to so act or
as to its compliance with any of the terms and provisions of this Declaration,
both of which shall be conclusively evidenced by the Property Trustee's or its
agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request instructions from the Holders which instructions may
only be given by the Holders of the same proportion in liquidation amount of the
Securities as would be entitled to direct the Property Trustee under the terms
of the Securities in respect of such remedy, right or action, (ii) may refrain
from enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in conclusively relying
on or acting in or accordance with such instructions;
(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Declaration; and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith, without negligence,
and reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
----------------
Notwithstanding any other provision of this Declaration other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Administrative Trustees or the Property Trustee described in this
Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be
a Trustee for the sole and limited purpose of fulfilling the requirements of
(S)3807 of the Business Trust Act.
SECTION 3.12 Execution of Documents.
----------------------
Except as otherwise required by the Business Trust Act, any
Administrative Trustee is authorized to execute on behalf of the Trust any
documents that the Administrative Trustees have the power and authority to
execute pursuant to Section 3.6; provided that, the Registration Statement
-------- ----
referred to in Section 3.6(b)(i), including any amendments thereto, shall be
signed by all of the Administrative Trustees.
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SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as
to the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.14 Duration of Trust.
-----------------
The Trust, unless terminated pursuant to the provisions of Article
VIII hereof, shall have existence up to February 1, 2028.
SECTION 3.15 Mergers.
-------
(a) The Trust may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any Person, except as described in
Section 3.15(b) and (c).
(b) The Trust may, at the request of the Sponsor, with the consent of
the Administrative Trustees or, if there are more than two, a majority of the
Administrative Trustees and without the consent of the Holders, the Delaware
Trustee or the Property Trustee, merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, a trust organized as such under the
laws of any State; provided that:
-------- ----
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust
with respect to the Securities; or
(B) substitutes for the Securities other securities
having substantially the same terms as the Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Securities
rank with respect to Distributions and payments upon liquidation, redemption and
otherwise;
(ii) the Sponsor expressly appoints a trustee of the Successor
Entity that possesses the same powers and duties as the Property Trustee as the
Holder of the Debentures;
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(iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or with another organization on which the Capital Securities
are then listed or quoted, if any;
(iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Capital Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, if then so rated;
(v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the Holders of Securities (including any Successor Securities)
in any material respect (other than with respect to any dilution of such
Holders' interests in the new entity);
(vi) such Successor Entity has a purpose identical to that of
the Trust;
(vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Sponsor has received an opinion
of an independent counsel to the Trust experienced in such matters to the effect
that:
(A) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the Holders of Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the Holders' interest in the new entity); and
(B) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor the Successor
Entity will be required to register as an Investment Company; and
(viii) the Sponsor or any permitted successor or assignee owns
all of the common securities of such Successor Entity and guarantees the
obligations of such Successor Entity under the Successor Securities at least to
the extent provided by the Capital Securities Guarantee and the Common
Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the Securities,
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust or the Successor Entity not to be classified as a grantor trust for United
States federal income tax purposes.
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ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
---------------------------------------
At the Closing Time, the Sponsor will purchase all of the Common
Securities then issued by the Trust, in an amount at least equal to 3% of the
total capital of the Trust, at the same time as the Series A Capital Securities
are issued and sold.
SECTION 4.2 Responsibilities of the Sponsor.
-------------------------------
In connection with the issue and sale of the Capital Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare the Offering Memorandum and to prepare for filing by
the Trust with the Commission any Registration Statement, including any
amendments thereto as contemplated by the Registration Rights Agreement;
(b) to determine the States in which to take appropriate action to
qualify or register for sale all or part of the Capital Securities and to do any
and all such acts, other than actions which must be taken by the Trust, and
advise the Trust of actions it must take, and prepare for execution and filing
any documents to be executed and filed by the Trust, as the Sponsor deems
necessary or advisable in order to comply with the applicable laws of any such
States;
(c) if deemed necessary or advisable by the Sponsor, to prepare for
filing by the Trust an application to the New York Stock Exchange or any other
national stock exchange or the Nasdaq National Market or the NASD PORTAL system
for listing or quotation of the Capital Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the Capital
Securities under Section 12(b) of the Exchange Act, including any amendments
thereto; and
(e) to negotiate the terms of the Purchase Agreement, the
Registration Rights Agreement and the Subscription Agreements, and to enter into
and execute and deliver the same on behalf of the Trust.
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SECTION 4.3 Right to Proceed.
----------------
The Sponsor acknowledges the rights of the Holders of Capital
Securities, in the event that a failure of the Trust to pay Distributions on the
Capital Securities is attributable to the failure of the Debenture Issuer to pay
interest or principal on the Debentures, to institute a proceeding directly
against the Debenture Issuer for enforcement of its payment obligations on the
Debentures.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee.
---------------------------------------------
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities;
provided, however, that, the number of Trustees shall in no event be less than
- -------- -------
two (2); provided further that (1) one Trustee, in the case of a natural person,
-------- -------
shall be a person who is a resident of the State of Delaware or that, if not a
natural person, is an entity which has its principal place of business in the
State of Delaware and otherwise meets the requirements of applicable law (the
"Delaware Trustee"); (2) there shall be at least one Trustee who is an employee
or officer of, or is affiliated with the Sponsor (an "Administrative Trustee");
and (3) one Trustee shall be the Property Trustee for so long as this
Declaration is required to qualify as an indenture under the Trust Indenture
Act, and such Trustee may also serve as Delaware Trustee if it meets the
applicable requirements. Notwithstanding the above, unless an Event of Default
shall have occurred and be continuing, at any time or times, for the purpose of
meeting the legal requirements of the Trust Indenture Act or of any jurisdiction
in which any part of the Trust's property may at the time be located, the
Holders of a Majority in liquidation amount of the Common Securities acting as a
class at a meeting of the Holders of the Common Securities, and the
Administrative Trustees shall have power to appoint one or more persons either
to act as a co-trustee, jointly with the Property Trustee, of all or any part of
the Trust's property, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of this Declaration. In case an Event of Default has occurred and is
continuing, the Property Trustee alone shall have power to make any such
appointment of a co-trustee.
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SECTION 5.2 Delaware Trustee.
----------------
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place
of business in the State of Delaware, and otherwise meets the requirements of
applicable law,
provided that, if the Property Trustee has its principal place of business in
- -------- ----
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
SECTION 5.3 Property Trustee; Eligibility.
-----------------------------
(a) There shall at all times be one Trustee (the "Property
Trustee") which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Commission to
act as an institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or examining
authority referred to above, then for the purposes of this Section 5.3(a)(ii),
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.7(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of (S) 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in (S) 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of (S) 310(b) of the Trust Indenture Act.
(d) The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
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(e) The initial Property Trustee shall be:
The Bank of New York
101 Barclay Street
21st Floor West
New York, NY 10286
Attention: Corporate Trust Trustee Administration
SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware
--------------------------------------------------------------
Trustee Generally.
-----------------
Each Administrative Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural person
who is at least 21 years of age or a legal entity that shall act through one or
more Authorized Officers.
SECTION 5.5 Administrative Trustees.
-----------------------
The initial Administrative Trustees shall be:
Kevin J. Sheehan
c/o Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Karen C. Keenan
c/o Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Earl W. Zimmerman, Jr.
c/o Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
(a) Except as expressly set forth in this Declaration and
except if a meeting of the Administrative Trustees is called with respect to any
matter over which the Administrative Trustees have power to act, any power of
the Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee; and
(b) An Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the
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purposes of signing any documents which the Administrative Trustees have power
and authority to cause the Trust to execute pursuant to Section 3.6.
SECTION 5.6 Delaware Trustee.
----------------
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, DE 19711
Attention: Corporate Trust Department
SECTION 5.7 Appointment, Removal and Resignation of Trustees.
------------------------------------------------
(a) Subject to Section 5.7(b), Trustees may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) unless an Event of Default shall have occurred and be
continuing after the issuance of any Securities, by vote of the Holders of a
Majority in liquidation amount of the Common Securities voting as a class at a
meeting of the Holders of the Common Securities; and
(iii) if an Event of Default shall have occurred and be
continuing after the issuance of the Securities, with respect to the Property
Trustee or the Delaware Trustee only, by vote of Holders of a Majority in
liquidation amount of the Capital Securities voting as a class at a meeting of
Holders of the Capital Securities.
(b)(i) The Trustee that acts as Property Trustee shall not be removed
in accordance with Section 5.7(a) until a Successor Property Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Property Trustee and delivered to the Administrative Trustees and
the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not be
removed in accordance with this Section 5.7(b) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections 5.2 and
5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Administrative Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the
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<PAGE>
Trustee and delivered to the Sponsor and the Trust, which resignation shall take
effect upon such delivery or upon such later date as is specified therein;
provided, however, that:
- -------- -------
(i) No such resignation of the Trustee that acts as the
Property Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed
and has accepted such appointment by instrument executed by such Successor
Property Trustee and delivered to the Trust, the Sponsor and the resigning
Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the holders of the
Securities; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Delaware Trustee or Successor Property Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 5.7.
(e) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.7 within 60 days after delivery of an instrument of resignation or removal,
the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 5.8 Vacancies among Trustees.
------------------------
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Administrative Trustees or, if
there are more than two, a majority of the Administrative Trustees shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.7.
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SECTION 5.9 Effect of Vacancies.
-------------------
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul the Trust. Whenever a vacancy in the number of
Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 5.7, the
Administrative Trustees in office, regardless of their number, shall have all
the powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Declaration.
SECTION 5.10 Meetings.
--------
If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee. Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 24 hours before such meeting. Notice
of any telephonic meetings of the Administrative Trustees or any committee
thereof shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the unanimous written consent of the Administrative Trustees. In the event
there is only one Administrative Trustee, any and all action of such
Administrative Trustee shall be evidenced by a written consent of such
Administrative Trustee.
SECTION 5.11 Delegation of Power.
-------------------
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) the Administrative Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or
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otherwise as the Administrative Trustees may deem expedient, to the extent such
delegation is not prohibited by applicable law or contrary to the provisions of
the Trust, as set forth herein.
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Property Trustee or the Delaware
Trustee or any Administrative Trustee that is not a natural person, as the case
may be, may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Property Trustee, the Delaware Trustee or such an Administrative Trustee, as the
case may be, shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Property Trustee, the
Delaware Trustee or such an Administrative Trustee, as the case may be, shall be
the successor of the Property Trustee, the Delaware Trustee or such an
Administrative Trustee, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
-------------
Holders shall receive Distributions in accordance with the applicable
terms of the relevant Holder's Securities. If and to the extent that the
Debenture Issuer makes a payment of interest (including Compounded Interest (as
defined in the Indenture) and Additional Interest (as defined in the
Indenture)), premium and/or principal on the Debentures held by the Property
Trustee or Liquidated Damages (as defined in the Registration Rights Agreement)
or any other payments pursuant to the Registration Rights Agreement with respect
to the Debentures held by the Property Trustee (the amount of any such payment
being a "Payment Amount"), the Property Trustee shall and is directed, to the
extent funds are available for that purpose, to make a distribution (a
"Distribution") of the Payment Amount to Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
---------------------------------------
(a) The Administrative Trustees shall on behalf of the Trust issue
one class of capital securities representing undivided beneficial interests in
the assets of the Trust having such terms as are set forth in Annex I (the
"Series A Capital Securities") and one class of common securities representing
undivided beneficial interests in the assets of the Trust having such terms as
are set forth in Annex I (the "Common Securities"). The Administrative Trustees
shall on behalf of the Trust issue one class of capital securities representing
undivided beneficial interests in the assets of the Trust having such terms as
set forth in Annex I (the "Series B Capital
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<PAGE>
Securities") in exchange for Series A Capital Securities accepted for exchange
in the Exchange Offer if an Exchange Offer is commenced, which Series B Capital
Securities shall not bear the legends required by Section 9.2(i) unless the
Holder of such Series A Capital Securities is either (A) a broker-dealer who
purchased such Series A Capital Securities directly from the Trust for resale
pursuant to Rule 144A or any other available exemption under the Securities Act,
(B) a Person participating in the distribution of the Series A Capital
Securities or (C) a Person who is an affiliate (as defined in Rule 144A) of the
Trust. The Trust shall issue no securities or other interests in the assets of
the Trust other than the Securities.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(c) Upon issuance of the Capital Securities as provided in this
Declaration, the Capital Securities so issued shall be deemed to be validly
issued, fully paid and non-assessable.
(d) Every Person, by virtue of having become a Holder or a Capital
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
SECTION 7.2 Execution and Authentication.
----------------------------
(a) The Securities shall be signed on behalf of the Trust by an
Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Administrative Trustee.
(b) One Administrative Trustee shall sign the Capital Securities for
the Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Securities, be a manual
signature.
A Capital Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Capital Security has been
authenticated under this Declaration.
Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Capital Securities for
original issue. The aggregate number of Capital Securities outstanding at any
time shall not exceed the number set forth in the Terms in Annex I hereto except
as provided in Section 7.6.
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The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Capital Securities. An authenticating agent may
authenticate Capital Securities whenever the Property Trustee may do so. Each
reference in this Declaration to authentication by the Property Trustee includes
authentication by such agent. An authenticating agent has the same rights as
the Property Trustee to deal with the Sponsor or an Affiliate.
SECTION 7.3 Form and Dating.
---------------
The Capital Securities and the Property Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 and the Common
Securities shall be substantially in the form of Exhibit A-2, each of which is
hereby incorporated in and expressly made a part of this Declaration.
Certificates representing the Securities may be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrative Trustees, as evidenced by their execution thereof. The
Securities may have letters, CUSIP or other numbers, notations or other marks of
identification or designation and such legends or endorsements required by law,
stock exchange rule, agreements to which the Trust is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Trust). The Trust at the direction of the Sponsor shall furnish any such
legend not contained in Exhibit A-1 to the Property Trustee in writing. Each
Capital Security shall be dated the date of its authentication. The terms and
provisions of the Securities set forth in Annex I and the forms of Securities
set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and
to the extent applicable, the Property Trustee and the Sponsor, by their
execution and delivery of this Declaration, expressly agree to such terms and
provisions and to be bound thereby.
(a) Global Securities. Securities offered and sold to QIBs in
-----------------
reliance on Rule 144A, as provided in the Purchase Agreement, shall be issued in
the form of one or more, permanent global Securities in definitive, fully
registered form without distribution coupons with the global legend and
Restricted Securities Legend set forth in Exhibit A-1 hereto (a "Global Capital
Security"), which shall be deposited on behalf of the purchasers of the Capital
Securities represented thereby with the Property Trustee, at its New York
office, as custodian for the Clearing Agency, and registered in the name of the
Clearing Agency or a nominee of the Clearing Agency, duly executed by the Trust
and authenticated by the Property Trustee as hereinafter provided. The number
of Capital Securities represented by the Global Capital Security may from time
to time be increased or decreased by adjustments made on the records of the
Property Trustee and the Clearing Agency or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 7.3(b) shall apply only to
---------------------
the Global Capital Security and such other Capital Securities in global form as
may be authorized by the Trust to be deposited with or on behalf of the Clearing
Agency.
The Trust shall execute and the Property Trustee shall, in accordance
with this Section 7.3, authenticate and make available for delivery initially
one or more Global Capital Securities that (i) shall be registered in the name
of Cede & Co. or other nominee of such Clearing Agency and (ii) shall be
delivered by the Trustee to such Clearing Agency or pursuant to such
<PAGE>
Clearing Agency's written instructions or held by the Property Trustee as
custodian for the Clearing Agency.
Members of, or participants in, the Clearing Agency ("Participants")
shall have no rights under this Declaration with respect to any Global Capital
Security held on their behalf by the Clearing Agency or by the Property Trustee
as the custodian of the Clearing Agency or under such Global Capital Security,
and the Clearing Agency may be treated by the Trust, the Property Trustee and
any agent of the Trust or the Property Trustee as the absolute owner of such
Global Capital Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Trust, the Property Trustee or any
agent of the Trust or the Property Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Clearing Agency or
impair, as between the Clearing Agency and its Participants, the operation of
customary practices of such Clearing Agency governing the exercise of the rights
of a holder of a beneficial interest in any Global Capital Security.
(c) Definitive Capital Securities. Except as provided in Section
-----------------------------
7.9, owners of beneficial interests in a Global Capital Security will not be
entitled to receive physical delivery of certificated Capital Securities
("Definitive Capital Securities"). Purchasers of Securities who are "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) will receive Capital Securities in the form of individual certificates in
definitive, fully registered form without distribution coupons and with the
Restricted Securities Legend set forth in Exhibit A-1 hereto ("Restricted
Definitive Capital Securities"); provided, however, that upon transfer of such
-------- -------
Restricted Definitive Capital Securities to a QIB, such Restricted Definitive
Capital Securities will, unless the Global Capital Security has previously been
exchanged, be exchanged for an interest in a Global Capital Security pursuant to
the provisions of Section 9.2. Restricted Definitive Capital Securities will
bear the Restricted Securities Legend set forth on Exhibit A-1 unless removed in
accordance with this Section 7.3 or Section 9.2.
SECTION 7.4 Registrar, Paying Agent and Exchange Agent.
------------------------------------------
The Trust shall maintain in the Borough of Manhattan, The City of New
York, (i) an office or agency where Capital Securities may be presented for
registration of transfer ("Registrar"), (ii) an office or agency where Capital
Securities may be presented for payment ("Paying Agent") and (iii) an office or
agency where Securities may be presented for exchange ("Exchange Agent"). The
Registrar shall keep a register of the Capital Securities and of their transfer.
The Trust may appoint the Registrar, the Paying Agent and the Exchange Agent and
may appoint one or more co-registrars, one or more additional paying agents and
one or more additional exchange agents in such other locations as it shall
determine. The term "Registrar" includes any additional registrar, "Paying
Agent" includes any additional paying agent and the term "Exchange Agent"
includes any additional exchange agent. The Trust may change any Paying Agent,
Registrar, co-registrar or Exchange Agent without prior notice to any Holder.
The Paying Agent shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Administrative Trustees. The Trust shall notify the
Property Trustee of the name and address of any Agent not a party to this
Declaration. If the Trust fails to appoint or maintain another entity as
Registrar, Paying Agent or Exchange Agent, the Property Trustee shall act as
such. The Trust
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or any of its Affiliates may act as Paying Agent, Registrar, or Exchange Agent.
The Trust shall act as Paying Agent, Registrar, co-registrar, and Exchange Agent
for the Common Securities.
The Trust initially appoints the Property Trustee as Registrar, Paying
Agent, and Exchange Agent for the Capital Securities.
SECTION 7.5 Paying Agent to Hold Money in Trust.
-----------------------------------
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of liquidation amounts or Distributions on the Securities, and
will notify the Property Trustee if there are insufficient funds for such
purpose. While any such insufficiency continues, the Property Trustee may
require a Paying Agent to pay all money held by it to the Property Trustee. The
Trust at any time may require a Paying Agent to pay all money held by it to the
Property Trustee and to account for any money disbursed by it. Upon payment
over to the Property Trustee, the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money. If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent.
SECTION 7.6 Replacement Securities.
----------------------
If a Holder claims that a Security owned by it has been lost,
destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Capital Securities to the
Property Trustee, the Trust shall issue and the Property Trustee shall
authenticate a replacement Security if the Property Trustee's and the Trust's
requirements, as the case may be, are met. An indemnity bond must be provided
by the Holder which, in the judgment of the Property Trustee, is sufficient to
protect the Trustees, the Sponsor or any authenticating agent from any loss
which any of them may suffer if a Security is replaced. The Trust may charge
such Holder for its expenses in replacing a Security.
Every replacement Security is an additional beneficial interest in the
assets of the Trust.
SECTION 7.7 Outstanding Capital Securities.
------------------------------
The Capital Securities outstanding at any time are all the Capital
Securities authenticated by the Property Trustee except for those cancelled by
it, those delivered to it for cancellation, and those described in this Section
as not outstanding.
If a Capital Security is replaced, paid or purchased pursuant to
Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Capital
Security is held by a bona fide purchaser.
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<PAGE>
If Capital Securities are considered paid in accordance with the terms
of this Declaration, they cease to be outstanding and Distributions on them
shall cease to accumulate.
A Capital Security does not cease to be outstanding because one of the
Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.
SECTION 7.8 Capital Securities in Treasury.
------------------------------
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Capital
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be fully
protected in relying on any such direction, waiver or consent, only Securities
which the Property Trustee actually knows are so owned shall be so disregarded.
SECTION 7.9 Temporary Securities.
--------------------
(a) Until Definitive Securities are ready for delivery, the Trust may
prepare and, in the case of the Capital Securities, the Property Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of Definitive Securities but may have variations that the Trust
considers appropriate for temporary Securities. Without unreasonable delay, the
Trust shall prepare and, in the case of the Capital Securities, the Property
Trustee shall authenticate Definitive Securities in exchange for temporary
Securities.
(b) A Global Capital Security deposited with the Clearing Agency or
with the Property Trustee as custodian for the Clearing Agency pursuant to
Section 7.3 shall be transferred to the beneficial owners thereof in the form of
certificated Capital Securities only if such transfer complies with Section 9.2
and (i) the Clearing Agency notifies the Sponsor that it is unwilling or unable
to continue as Clearing Agency for such Global Capital Security or if at any
time such Clearing Agency ceases to be a "clearing agency" registered under the
Exchange Act and a clearing agency is not appointed by the Sponsor within 90
days of such notice, (ii) a Default or an Event of Default has occurred and is
continuing, or (iii) the Trust at its sole discretion elects to cause the
issuance of certificated Capital Securities.
(c) Any Global Capital Security that is transferable to the
beneficial owners thereof in the form of certificated Capital Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Property Trustee to be so transferred, in whole or from time to time in part,
without charge, and the Property Trustee shall authenticate and make available
for delivery, upon such transfer of each portion of such Global Capital
Security, an equal aggregate liquidation amount of Securities of authorized
denominations in the form of certificated Capital Securities. Any portion of a
Global Capital Security transferred pursuant to this Section shall be registered
in such names as the Clearing Agency shall direct. Any Capital Security in the
form of certificated Capital Securities delivered in exchange for an interest in
the Restricted Global Capital Security shall, except as otherwise provided by
Sections 7.3 and 9.1, bear the Restricted Securities Legend set forth in Exhibit
A-1 hereto.
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<PAGE>
(d) Subject to the provisions of Section 7.9(c), the Holder of a
Global Capital Security may grant proxies and otherwise authorize any Person,
including Participants and Persons that may hold interests through Participants,
to take any action which such Holder is entitled to take under this Declaration
or the Securities.
(e) In the event of the occurrence of any of the events specified in
Section 7.9(b), the Trust will promptly make available to the Property Trustee a
reasonable supply of certificated Capital Securities in fully registered form
without distribution coupons.
SECTION 7.10 Cancellation.
------------
The Trust at any time may deliver Capital Securities to the Property
Trustee for cancellation. The Registrar, Paying Agent and Exchange Agent shall
forward to the Property Trustee any Capital Securities surrendered to them for
registration of transfer, redemption, exchange or payment. The Property Trustee
shall promptly cancel all Capital Securities surrendered for registration of
transfer, redemption, exchange, payment, replacement or cancellation and shall
dispose of cancelled Capital Securities as the Trust directs, provided that the
Property Trustee shall not be obligated to destroy Capital Securities. The
Trust may not issue new Capital Securities to replace Capital Securities that it
has paid or that have been delivered to the Property Trustee for cancellation or
that any holder has exchanged.
SECTION 7.11 CUSIP Numbers.
-------------
The Trust in issuing the Capital Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Property Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders of Capital
Securities; provided that any such notice may state that no representation is
--------
made as to the correctness of such numbers either as printed on the Capital
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Capital
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Sponsor will promptly notify the Property Trustee
of any change in the CUSIP numbers.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
--------------------
(a) The Trust shall automatically terminate:
(i) upon the bankruptcy of the Sponsor;
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<PAGE>
(ii) upon the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor; or the revocation of
the Sponsor's charter and the expiration of 90 days after the date of revocation
without a reinstatement thereof;
(iii) after satisfaction of liabilities to creditors of the
Trust as required by applicable law, following the distribution of a Like Amount
of the Debentures to the Holders, provided that the Property Trustee has
-------- ----
received written notice from the Sponsor directing the Property Trustee to
terminate the Trust (which direction is optional, and except as otherwise
expressly provided below, within the discretion of the Sponsor) and provided,
--------
further, that such direction and such distribution is conditioned on (i) the
- -------
receipt by the Sponsor or the Trust, as the case requires, of any required
regulatory approval, including prior approval of the Federal Reserve if then
required under the applicable Capital guidelines or policies of the Federal
Reserve, (ii) the Administrative Trustees' receipt of an opinion of an
independent tax counsel experienced in such matters (a "No Recognition
Opinion"), which opinion may rely on published rulings of the Internal Revenue
Service, to the effect that the Holders will not recognize any gain or loss for
United States federal income tax purposes as a result of the dissolution of the
Trust and the distribution of Debentures;
(iv) upon the entry of a decree of judicial dissolution of the
Trust by a court of competent jurisdiction;
(v) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have been paid
to the Holders in accordance with the terms of the Securities;
(vi) upon the repayment of the Debentures or at such time as no
Debentures are outstanding; or
(vii) the expiration of the term of the Trust provided in
Section 3.14.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), and after the completion of the winding up of the
Trust's affairs, the Administrative Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
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<PAGE>
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
----------------------
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Capital Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. Any transfer or purported transfer of any
security not made in accordance with this Declaration shall be null and void.
(c) Subject to applicable law, the Sponsor may not transfer the
Common Securities.
(d) The Administrative Trustees shall provide for the registration of
Securities and of the transfer of Securities, which will be effected without
charge but only upon payment (with such indemnity as the Administrative Trustees
may require) in respect of any tax or other governmental charges that may be
imposed in relation to it. Upon surrender for registration of transfer of any
Securities, the Administrative Trustees shall cause one or more new Securities
to be issued in the name of the designated transferee or transferees. Every
Security surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Administrative
Trustees duly executed by the Holder or such Holder's attorney duly authorized
in writing. Each Security surrendered for registration of transfer shall be
canceled by the Property Trustee. A transferee of a Security shall be entitled
to the rights and subject to the obligations of a Holder hereunder upon the
receipt by such transferee of a Security. By acceptance of a Security, each
transferee shall be deemed to have agreed to be bound by this Declaration.
SECTION 9.2 Transfer Procedures and Restrictions.
------------------------------------
(a) General. Except as otherwise provided in Section 9.2(b), if
-------
Capital Securities are issued upon the transfer, exchange or replacement of
Capital Securities bearing the Restricted Securities Legend set forth in Exhibit
A-1 hereto, or if a request is made to remove such Restricted Securities Legend
on Capital Securities, the Capital Securities so issued shall bear the
Restricted Securities Legend, or the Restricted Securities Legend shall not be
removed, as the case may be, unless there is delivered to the Trust and the
Property Trustee such satisfactory evidence, which shall include an Opinion of
Counsel, as may be reasonably required by the Sponsor and the Property Trustee,
that neither the legend nor the restrictions on transfer set forth therein are
required to ensure that transfers thereof are made pursuant to an exception from
the registration requirements of the Securities Act or, with respect to
Restricted Securities, that such Securities are not "restricted" within the
meaning of Rule 144. Upon provision of such
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<PAGE>
satisfactory evidence, the Property Trustee, at the written direction of the
Trust, shall authenticate and deliver Capital Securities that do not bear the
legend.
(b) Transfers After Effectiveness of a Registration Statement. After
---------------------------------------------------------
the effectiveness of a Registration Statement with respect to any Capital
Securities, all requirements pertaining to legends on such Capital Securities
will cease to apply, and beneficial interests in a Capital Security in global
form without legends will be available to transferees of such Capital
Securities, upon exchange of the transferring holder's Restricted Definitive
Capital Security or directions to transfer such Holder's beneficial interest in
the Global Capital Security. No such transfer or exchange of a Restricted
Definitive Capital Security or of an interest in the Global Capital Security
shall be effective unless the transferor delivers to the Trust a certificate in
a form substantially similar to that attached hereto as the "Form of Assignment"
in Exhibit A-1. Except as otherwise provided in Section 9.2(m), after the
effectiveness of a Registration Statement, the Trust shall issue and the
Property Trustee, upon a written order of the Trust signed by one Administrative
Trustee, shall authenticate a Capital Security in global form without the
Restricted Securities Legend (the "Unrestricted Global Capital Security") to
deposit with the Clearing Agency to evidence transfers of beneficial interests
from the (i) Global Capital Security and (ii) Restricted Definitive Capital
Securities.
(c) Transfer and Exchange of Definitive Capital Securities. When
------------------------------------------------------
Definitive Capital Securities are presented to the Registrar or co-Registrar:
(x) to register the transfer of such Definitive Capital
Securities; or
(y) to exchange such Definitive Capital Securities which
became mutilated, destroyed, defaced, stolen or lost, for an equal number of
Definitive Capital Securities,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Capital Securities surrendered for
- -------- -------
transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Trust and the
Registrar or co-registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing; and
(ii) in the case of Definitive Capital Securities that are
Restricted Definitive Capital Securities:
(A) if such Restricted Capital Securities are being
delivered to the Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that effect; or
(B) if such Restricted Capital Securities are being
transferred: (i) a certification from the transferor in a form substantially
similar to that attached hereto as the "Form of Assignment" in Exhibit A-1, and
(ii) if the Trust or Registrar so requests, evidence
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<PAGE>
reasonably satisfactory to them as to the compliance with the restrictions set
forth in the Restricted Securities Legend.
(d) Restrictions on Transfer of a Definitive Capital Security for a
---------------------------------------------------------------
Beneficial Interest in a Global Capital Security. A Definitive Capital Security
- ------------------------------------------------
may not be exchanged for a beneficial interest in a Global Capital Security
except upon satisfaction of the requirements set forth below. Upon receipt by
the Property Trustee of a Definitive Capital Security, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Property Trustee, together with:
(i) if such Definitive Capital Security is a Restricted
Capital Security, certification (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1); and
(ii) whether or not such Definitive Capital Security is a
Restricted Capital Security, written instructions directing the Property Trustee
to make, or to direct the Clearing Agency to make, an adjustment on its books
and records with respect to the appropriate Global Capital Security to reflect
an increase in the number of the Capital Securities represented by such Global
Capital Security,
then the Property Trustee shall cancel such Definitive Capital Security and
cause, or direct the Clearing Agency to cause, the aggregate number of Capital
Securities represented by the appropriate Global Capital Security to be
increased accordingly. If no Global Capital Securities are then outstanding,
the Trust shall issue and the Property Trustee shall authenticate, upon written
order of any Administrative Trustee, an appropriate number of Capital Securities
in global form.
(e) Transfer and Exchange of Global Capital Securities. Subject to
--------------------------------------------------
Section 9.2(f), the transfer and exchange of Global Capital Securities or
beneficial interests therein shall be effected through the Clearing Agency, in
accordance with this Declaration (including applicable restrictions on transfer
set forth herein, if any) and the procedures of the Clearing Agency therefor.
(f) Transfer of a Beneficial Interest in a Global Capital Security
--------------------------------------------------------------
for a Definitive Capital Security.
- ---------------------------------
(i) Any person having a beneficial interest in a Global
Capital Security may upon request, but only upon 20 days prior notice to the
Property Trustee, and if accompanied by the information specified below,
exchange such beneficial interest for a Definitive Capital Security representing
the same number of Capital Securities. Upon receipt by the Property Trustee from
the Clearing Agency or its nominee on behalf of any Person having a beneficial
interest in a Global Capital Security of written instructions or such other form
of instructions as is customary for the Clearing Agency or the person designated
by the Clearing Agency as having such a beneficial interest in a Restricted
Capital Security and a certification from the transferor (in a form
substantially similar to that attached hereto as the "Form of Assignment" in
Exhibit A-1),
<PAGE>
which may be submitted by facsimile, then the Property Trustee will cause the
aggregate number of Capital Securities represented by Global Capital Securities
to be reduced on its books and records and, following such reduction, the Trust
will execute and the Property Trustee will authenticate and make available for
delivery to the transferee a Definitive Capital Security.
(ii) Definitive Capital Securities issued in exchange for a
beneficial interest in a Global Capital Security pursuant to this Section 9.2(f)
shall be registered in such names and in such authorized denominations as the
Clearing Agency, pursuant to instructions from its Participants or indirect
participants or otherwise, shall instruct the Property Trustee in writing. The
Property Trustee shall deliver such Capital Securities to the persons in whose
names such Capital Securities are so registered in accordance with such
instructions of the Clearing Agency.
(g) Restrictions on Transfer and Exchange of Global Capital
-------------------------------------------------------
Securities. Notwithstanding any other provisions of this Declaration (other
than the provisions set forth in subsection (h) of this Section 9.2), a Global
Capital Security may not be transferred as a whole except by the Clearing Agency
to a nominee of the Clearing Agency or another nominee of the Clearing Agency or
by the Clearing Agency or any such nominee to a successor Clearing Agency or a
nominee of such successor Clearing Agency.
(h) Authentication of Definitive Capital Securities. If at any time:
-----------------------------------------------
(i) there occurs a Default or an Event of Default which is
continuing, or
(ii) the Trust, in its sole discretion, notifies the Property
Trustee in writing that it elects to cause the issuance of Definitive Capital
Securities under this Declaration, then the Trust will execute, and the Property
Trustee, upon receipt of a written order of the Trust signed by one
Administrative Trustee requesting the authentication and delivery of Definitive
Capital Securities to the Persons designated by the Trust, will authenticate and
make available for delivery Definitive Capital Securities, equal in number to
the number of Capital Securities represented by the Global Capital Securities,
in exchange for such Global Capital Securities.
(i) Legend.
------
(i) Except as permitted by the following paragraph (ii), each
Capital Security certificate evidencing the Global Capital Securities and the
Definitive Capital Securities (and all Capital Securities issued in exchange
therefor or substitution thereof) shall bear a legend (the "Restricted
Securities Legend") in substantially the following form:
THE CAPITAL SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED,
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<PAGE>
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR ANY
"AFFILIATE" OF THE CORPORATION WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY
PREDECESSOR OF THIS CAPITAL SECURITY) ONLY (A) TO THE CORPORATION, (B) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF THE TRUST AND THE CORPORATION PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER
TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A
TO THE OFFERING MEMORANDUM DATED JANUARY 30, 1997. SUCH HOLDER FURTHER AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE HOLDER OF THIS CAPITAL
SECURITY BY ITS ACCEPTANCE HEREOF IS DEEMED TO HAVE AGREED TO BE BOUND BY THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT AMONG THE CORPORATION, THE TRUST
AND THE INITIAL PURCHASER (A COPY OF WHICH IS AVAILABLE FROM THE CORPORATION
UPON REQUEST);
and in the case of the Regulation S Global Capital Security the following
additional legend:
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<PAGE>
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.
(ii) Upon any sale or transfer of a Restricted Capital Security
(including any Restricted Capital Security represented by a Global Capital
Security) pursuant to an effective registration statement under the Securities
Act or pursuant to Rule 144 under the Securities Act after such registration
statement ceases to be effective:
(A) in the case of any Restricted Capital Security that
is a Definitive Capital Security, the Registrar shall permit the Holder thereof
to exchange such Restricted Capital Security for a Definitive Capital Security
that does not bear the Restricted Securities Legend and rescind any restriction
on the transfer of such Restricted Capital Security; and
(B) in the case of any Restricted Capital Security that
is represented by a Global Capital Security, the Registrar shall permit the
Holder of such Global Capital Security to exchange such Global Capital Security
for another Global Capital Security that does not bear the Restricted Securities
Legend.
(j) Cancellation or Adjustment of Global Capital Security. At such
-----------------------------------------------------
time as all beneficial interests in a Global Capital Security have either been
exchanged for Definitive Capital Securities to the extent permitted by this
Declaration or redeemed, repurchased or canceled in accordance with the terms of
this Declaration, such Global Capital Security shall be returned to the Clearing
Agency for cancellation or retained and canceled by the Property Trustee. At
any time prior to such cancellation, if any beneficial interest in a Global
Capital Security is exchanged for Definitive Capital Securities, Capital
Securities represented by such Global Capital Security shall be reduced and an
adjustment shall be made on the books and records of the Property Trustee (if it
is then the custodian for such Global Capital Security) with respect to such
Global Capital Security, by the Property Trustee or the Securities Custodian, to
reflect such reduction.
(k) Obligations with Respect to Transfers and Exchanges of Capital
--------------------------------------------------------------
Securities.
- ----------
(i) To permit registrations of transfers and exchanges, the
Trust shall execute and the Property Trustee shall authenticate Definitive
Capital Securities and Global Capital Securities at the Registrar's or co-
Registrar's request in accordance with the terms of this Declaration.
(ii) Registrations of transfers or exchanges will be effected
without charge, but only upon payment (with such indemnity as the Trust or the
Sponsor may require) in respect of any tax or other governmental charge that may
be imposed in relation to it.
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<PAGE>
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) Capital Securities during a period
beginning at the opening of business 15 days before the day of mailing of a
notice of redemption or any notice of selection of Capital Securities for
redemption and ending at the close of business on the day of such mailing; or
(b) any Capital Security so selected for redemption in whole or in part, except
the unredeemed portion of any Capital Security being redeemed in part.
(iv) Prior to the due presentation for registrations of
transfer of any Capital Security, the Trust, the Property Trustee, the Paying
Agent, the Registrar or any co-registrar may deem and treat the person in whose
name a Capital Security is registered as the absolute owner of such Capital
Security for the purpose of receiving Distributions on such Capital Security and
for all other purposes whatsoever, and none of the Trust, the Property Trustee,
the Paying Agent, the Registrar or any co-registrar shall be affected by notice
to the contrary.
(v) All Capital Securities issued upon any transfer or
exchange pursuant to the terms of this Declaration shall evidence the same
security and shall be entitled to the same benefits under this Declaration as
the Capital Securities surrendered upon such transfer or exchange.
(l) No Obligation of the Property Trustee.
-------------------------------------
(i) The Property Trustee shall have no responsibility or
obligation to any beneficial owner of a Global Capital Security, a Participant
in the Clearing Agency or other Person with respect to the accuracy of the
records of the Clearing Agency or its nominee or of any Participant thereof,
with respect to any ownership interest in the Capital Securities or with respect
to the delivery to any Participant, beneficial owner or other Person (other than
the Clearing Agency) of any notice (including any notice of redemption) or the
payment of any amount, under or with respect to such Capital Securities. All
notices and communications to be given to the Holders and all payments to be
made to Holders under the Capital Securities shall be given or made only to or
upon the order of the registered Holders (which shall be the Clearing Agency or
its nominee in the case of a Global Capital Security). The rights of beneficial
owners in any Global Capital Security shall be exercised only through the
Clearing Agency subject to the applicable rules and procedures of the Clearing
Agency. The Property Trustee may conclusively rely and shall be fully protected
in relying upon information furnished by the Clearing Agency or any agent
thereof with respect to its Participants and any beneficial owners.
(ii) The Property Trustee and Registrar shall have no
obligation or duty to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Declaration or under applicable law
with respect to any transfer of any interest in any Capital Security (including
any transfers between or among Clearing Agency Participants or beneficial owners
in any Global Capital Security) other than to require delivery of such
certificates and other documentation or evidence as are expressly required by,
and to do so if and when expressly required by, the terms of this Declaration,
and to examine the same to determine substantial compliance as to form with the
express requirements hereof.
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<PAGE>
(m) Exchange of Series A Capital Securities for Series B Capital
------------------------------------------------------------
Securities. The Series A Capital Securities may be exchanged for Series B
- ----------
Securities pursuant to the terms of the Exchange Offer, if commenced. The
Trustee shall make the exchange as follows:
The Sponsor shall present the Property Trustee with an Officers'
Certificate certifying the following:
(A) upon issuance of the Series B Capital Securities, the
transactions contemplated by the Exchange Offer have been consummated; and
(B) the number of Series A Capital Securities properly
tendered in the Exchange Offer that are represented by a Global Capital Security
and the number of Series A Capital Securities properly tendered in the Exchange
Offer that are represented by Definitive Capital Securities, the name of each
Holder of such Definitive Capital Securities, the liquidation amount of Capital
Securities properly tendered in the Exchange Offer by each such Holder and the
name and address to which Definitive Capital Securities for Series B Capital
Securities shall be registered and sent for each such Holder.
The Property Trustee, upon receipt of (i) such Officers' Certificate,
(ii) an Opinion of Counsel (x) to the effect that the Series B Capital
Securities have been registered under Section 5 of the Securities Act and the
Indenture has been qualified under the Trust Indenture Act and (y) with respect
to the matters set forth in Section 3(p) of the Registration Rights Agreement
and (iii) a Company Order, shall authenticate (A) a Global Capital Security for
Series B Capital Securities in aggregate liquidation amount equal to the
aggregate liquidation amount of Series A Capital Securities represented by a
Global Capital Security indicated in such Officers' Certificate as having been
properly tendered and (B) Definitive Capital Securities representing Series B
Capital Securities registered in the names of, and in the liquidation amounts
indicated in such Officers' Certificate.
If, upon consummation of the Exchange Offer, less than all the
outstanding Series A Capital Securities shall have been properly tendered and
not withdrawn, the Property Trustee shall make an endorsement on the Global
Capital Security for Series A Capital Securities indicating the reduction in the
number and aggregate liquidation amount represented thereby as a result of the
Exchange Offer.
The Trust shall deliver such Definitive Capital Securities for Series
B Capital Securities to the Holders thereof as indicated in such Officers'
Certificate.
(n) Minimum Transfers. Series A Capital Securities and Series B
-----------------
Capital Securities may only be transferred in minimum blocks of $100,000
aggregate liquidation amount.
SECTION 9.3 Deemed Security Holders.
-----------------------
The Trustees may treat the Person in whose name any Security shall be
registered on the books and records of the Trust as the sole owner of such
Security for purposes of
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receiving Distributions and for all other purposes whatsoever and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Security on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
SECTION 9.4 Book Entry Interests.
--------------------
Global Capital Securities shall initially be registered on the books
and records of the Trust in the name of Cede & Co., the nominee of the Clearing
Agency, and no Capital Security Beneficial Owner will receive a definitive
Capital Security Certificate representing such Capital Security Beneficial
Owner's interests in such Global Capital Securities, except as provided in
Section 9.2. Unless and until definitive, fully registered Capital Securities
certificates have been issued to the Capital Security Beneficial Owners pursuant
to Section 9.2:
(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Capital Securities and receiving approvals, votes or
consents hereunder) as the Holder of the Capital Securities and the sole holder
of the Global Certificates and shall have no obligation to the Capital Security
Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this Section
9.4 shall control; and
(d) the rights of the Capital Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Capital Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants. DTC will make book entry transfers among the
Clearing Agency Participants.
SECTION 9.5 Notices to Clearing Agency.
--------------------------
Whenever a notice or other communication to the Capital Security
Holders is required under this Declaration, the Trustees shall give all such
notices and communications specified herein to be given to the Holders of Global
Capital Securities to the Clearing Agency, and shall have no notice obligations
to the Capital Security Beneficial Owners.
SECTION 9.6 Appointment of Successor Clearing Agency.
----------------------------------------
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Capital Securities, the Administrative
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such Capital Securities.
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ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
---------
(a) Except as expressly set forth in this Declaration, the Securities
Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the Securities
which shall be made solely from assets of the Trust; and
(ii) required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and obligations
of the Trust (other than with respect to the Securities) to the extent not
satisfied out of the Trust's assets.
(c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders of
the Capital Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.2 Exculpation.
-----------
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Trust or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
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SECTION 10.3 Fiduciary Duty.
--------------
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
any Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person shall act in
a manner that is, or provide terms that are, fair and reasonable to the Trust or
any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and factors
as it desires, including its own interests, and shall have no duty or obligation
to give any consideration to any interest of or factors affecting the Trust or
any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or by
applicable law.
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SECTION 10.4 Indemnification.
---------------
(a)(i) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Company Indemnified Person against expenses (including
attorneys' fees and expenses), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the Company
Indemnified Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees and expenses) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter as to
which such Company Indemnified Person shall have been adjudged to be liable to
the Trust unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such Court of Chancery or such other court
shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action without
prejudice or the settlement of an action without admission of liability) in
defense of any action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 10.4(a), or in defense of any claim, issue or matter therein, he
shall be indemnified, to the full extent permitted by law, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the circumstances
because he has met the applicable standard of conduct set forth in paragraphs
(i) and (ii). Such determination shall be made (1) by the Administrative
Trustees by a
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majority vote of a quorum consisting of such Administrative Trustees who were
not parties to such action, suit or proceeding, (2) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested Administrative
Trustees so directs, by independent legal counsel in a written opinion, or (3)
by the Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees and expenses) incurred
by a Company Indemnified Person in defending a civil, criminal, administrative
or investigative action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 10.4(a) shall be paid by the Debenture Issuer in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Company Indemnified Person to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Debenture Issuer as authorized in this Section 10.4(a).
Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer
if a determination is reasonably and promptly made (i) by the Administrative
Trustees by a majority vote of a quorum of disinterested Administrative
Trustees, (ii) if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested Administrative Trustees so directs, by independent legal
counsel in a written opinion or (iii) the Common Security Holder of the Trust,
that, based upon the facts known to the Administrative Trustees, counsel or the
Common Security Holder at the time such determination is made, such Company
Indemnified Person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the Trust, or, with
respect to any criminal proceeding, that such Company Indemnified Person
believed or had reasonable cause to believe his conduct was unlawful. In no
event shall any advance be made in instances where the Administrative Trustees,
independent legal counsel or Common Security Holder reasonably determine that
such person deliberately breached his duty to the Trust or its Common or Capital
Security Holders.
(vi) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Section 10.4(a) shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any agreement,
vote of stockholders or disinterested directors of the Debenture Issuer or
Capital Security Holders of the Trust or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office. All rights to indemnification under this Section 10.4(a) shall be deemed
to be provided by a contract between the Debenture Issuer and each Company
Indemnified Person who serves in such capacity at any time while this Section
10.4(a) is in effect. Any repeal or modification of this Section 10.4(a) shall
not affect any rights or obligations then existing.
(vii) The Debenture Issuer or the Trust may purchase and
maintain insurance on behalf of any person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Debenture Issuer would have the power to indemnify him against such liability
under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity, any
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constituent entity (including any constituent of a constituent) absorbed in a
consolidation or merger, so that any person who is or was a director, trustee,
officer or employee of such constituent entity, or is or was serving at the
request of such constituent entity as a director, trustee, officer, employee or
agent of another entity, shall stand in the same position under the provisions
of this Section 10.4(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its separate existence had
continued.
(ix) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a Company Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(b) The Debenture Issuer agrees to indemnify the (i) Property
Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee
and the Delaware Trustee, and (iv) any officers, directors, shareholders,
members, partners, employees, representatives, custodians, nominees or agents of
the Property Trustee and the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense including taxes (other than taxes based on
the income of such Fiduciary Indemnified Person) incurred without negligence or
bad faith on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses (including reasonable legal fees and expenses) of defending itself
against or investigating any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 10.4(b) shall survive the satisfaction
and discharge of this Declaration.
SECTION 10.5 Outside Businesses.
------------------
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Trust, and the Trust and the Holders shall have no rights by
virtue of this Declaration in and to such independent ventures or the income or
profits derived therefrom, and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Property
Trustee shall be obligated to present any particular investment or other
opportunity to the Trust even if such opportunity is of a character that, if
presented to the Trust, could be taken by the Trust, and any Covered Person, the
Sponsor, the Delaware Trustee and the Property Trustee shall have the right to
take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment or other opportunity. Any
Covered Person, the Delaware Trustee and the Property Trustee may engage or be
interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or
act on any committee or body of holders of, securities or other obligations of
the Sponsor or its Affiliates.
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ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
-----------
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
--------------------------
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year of the Trust by a firm of independent certified public
accountants selected by the Administrative Trustees.
(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders, within 90 days after the end of each Fiscal
Year of the Trust, annual financial statements of the Trust, including a balance
sheet of the Trust as of the end of such Fiscal Year, and the related statements
of income or loss;
(c) The Administrative Trustees shall cause to be duly prepared and
delivered to each of the Holders, any annual United States federal income tax
information statement, required by the Code, containing such information with
regard to the Securities held by each Holder as is required by the Code and the
Treasury Regulations. Notwithstanding any right under the Code to deliver any
such statement at a later date, the Administrative Trustees shall endeavor to
deliver all such information statements within 30 days after the end of each
Fiscal Year of the Trust.
(d) The Administrative Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.
SECTION 11.3 Banking.
-------
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided, however, that all payments of funds in
-------- -------
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account. The sole signatories for
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such accounts shall be designated by the Administrative Trustees; provided,
--------
however, that the Property Trustee shall designate the signatories for the
- -------
Property Trustee Account.
SECTION 11.4 Withholding.
-----------
The Trust and the Administrative Trustees shall comply with all
withholding requirements under United States federal, state and local law. The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Administrative Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to Distributions or allocations to any Holder, the amount withheld shall
be deemed to be a Distribution in the amount of the withholding to the Holder.
In the event of any claimed over withholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
----------
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Administrative Trustees (or if there are more than two
Administrative Trustees a majority of the Administrative Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee; and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received an Officers' Certificate from each of
the Trust and the Sponsor
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that such amendment is permitted by, and conforms to, the terms of this
Declaration (including the terms of the Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the Property
Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and
the Sponsor that such amendment is permitted by, and conforms to, the terms of
this Declaration (including the terms of the Securities); and
(B) an opinion of counsel (who may be counsel to the
Sponsor or the Trust) that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities),
provided, however, that the Property Trustee shall not be required to sign any
- -------- -------
such amendment; and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified
for purposes of United States federal income taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers of
the Property Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(c) At such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be amended without
the consent of all of the Holders of the Securities;
(e) Article Four shall not be amended without the consent of the
Holders of a Majority in liquidation amount of the Common Securities;
(f) The rights of the holders of the Common Securities under Article
Five to increase or decrease the number of, and appoint and remove Trustees
shall not be amended without the consent of the Holders of a Majority in
liquidation amount of the Common Securities; and
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(g) Notwithstanding Section 12.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity, correct or supplement any provision in
this Declaration that may be inconsistent with any other provision of this
Declaration or to make any other provisions with respect to matters or questions
arising under this Declaration which shall not be inconsistent with the other
provisions of the Declaration; and
(ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Securities are outstanding or to ensure that the Trust
will not be required to register as an Investment Company under the Investment
Company Act;
provided, however, that in the case of clause (i), such action shall not
- -------- -------
adversely affect in any material respect the interests of the Holders, and any
amendments of this Declaration shall become effective when notice thereof is
given to the Holders.
SECTION 12.2 Meetings of the Holders; Action by Written Consent.
--------------------------------------------------
(a) Meetings of the Holders of any class of Securities may be called
at any time by the Administrative Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms of
the Securities or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading. The Administrative Trustees
shall call a meeting of the Holders of such class if directed to do so by the
Holders of at least 10% in liquidation amount of such class of Securities. Such
direction shall be given by delivering to the Administrative Trustees one or
more notice in a writing stating that the signing Holders of Securities wish to
call a meeting and indicating the general or specific purpose for which the
meeting is to be called. Any Holders calling a meeting shall specify in writing
the Security Certificates held by the Holders exercising the right to call a
meeting and only those Securities specified shall be counted for purposes of
determining whether the required percentage set forth in the second sentence of
this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given by the Property
Trustee to all the Holders of Securities having a right to vote thereat at least
seven days and not more than 60 days before the date of such meeting. Whenever a
vote, consent or approval of the Holders is permitted or required under this
Declaration or the rules of any stock exchange on which the Capital Securities
are listed or admitted for trading, such vote, consent or approval may be given
at a meeting of the Holders. Any action that may be taken at a meeting of the
Holders of Securities may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by the Holders of Securities owning
not less than the minimum amount of Securities in
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liquidation amount that would be necessary to authorize or take such action at a
meeting at which all Holders having a right to vote thereon were present and
voting. Prompt notice of the taking of action without a meeting shall be given
to the Holders entitled to vote who have not consented in writing. The
Administrative Trustees may specify that any written ballot submitted to the
Security Holder for the purpose of taking any action without a meeting shall be
returned to the Trust within the time specified by the Administrative Trustees;
(ii) each Holder may authorize any Person to act for it by
proxy on all matters in which a Holder is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. No proxy
shall be valid after the expiration of 11 months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Holder of Securities executing it. Except as otherwise provided herein,
all matters relating to the giving, voting or validity of proxies shall be
governed by the General Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder, as if the Trust were a
Delaware corporation and the Holders were stockholders of a Delaware
corporation;
(iii) each meeting of the Holders shall be conducted by the
Administrative Trustees or by such other Person that the Administrative Trustees
may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms
of the Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Capital Securities are then listed or trading, otherwise
provides, the Administrative Trustees, in their sole discretion, shall establish
all other provisions relating to meetings of Holders, including notice of the
time, place or purpose of any meeting at which any matter is to be voted on by
any Holders of Securities, waiver of any such notice, action by consent without
a meeting, the establishment of a record date, quorum requirements, voting in
person or by proxy or any other matter with respect to the exercise of any such
right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee.
--------------------------------------------------
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a New York banking corporation with trust
powers and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration;
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(b) The execution, delivery and performance by the Property Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee. The Declaration has been duly executed and
delivered by the Property Trustee and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) The execution, delivery and performance of this Declaration by
the Property Trustee does not conflict with or constitute a breach of the
charter or by-laws of the Property Trustee; and
(d) No consent, approval or authorization of, or registration with or
notice to, any New York State or federal banking authority is required for the
execution, delivery or performance by the Property Trustee of this Declaration.
SECTION 13.2 Representations and Warranties of Delaware Trustee.
--------------------------------------------------
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee is duly organized, validly existing and in
good standing under the laws of the State of Delaware, with trust power and
authority to execute and deliver, and to carry out and perform its obligations
under the terms of, this Declaration;
(b) The execution, delivery and performance by the Delaware Trustee
of this Declaration has been duly authorized by all necessary corporate action
on the part of the Delaware Trustee. This Declaration has been duly executed and
delivered by the Delaware Trustee and constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) No consent, approval or authorization of, or registration with or
notice to, any federal banking authority is required for the execution, delivery
or performance by the Delaware Trustee of this Declaration; and
(d) The Delaware Trustee is a natural person who is a resident of the
State of Delaware or, if not a natural person, an entity which has its principal
place of business in the State of Delaware.
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ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights Agreement; Liquidated Damages.
-------------------------------------------------
The Holders of the Capital Securities, the Debentures and the Capital
Securities Guarantee (collectively, the "Registrable Securities") are entitled
to the benefits of a Registration Rights Agreement. Pursuant to the
Registration Rights Agreement, the Sponsor and the Trust have agreed for the
benefit of the Holders of Registrable Securities that (i) they will, at the
Sponsor's cost, within 150 days after January 31, 1997 (the "Issue Date"), use
their best efforts to file a shelf registration statement (the "Shelf
Registration Statement") with the Commission with respect to resales of the
Registrable Securities, (ii) they will use their best efforts to cause such
Shelf Registration Statement to be declared effective by the Commission within
180 days after the Issue Date and (iii) they will use their best efforts to
maintain the Shelf Registration Statement continuously effective under the
Securities Act until the third anniversary of the effectiveness of the Shelf
Registration Statement or such earlier date as is provided in the Registration
Rights Agreement (the "Effectiveness Period").
The Sponsor and the Trust will have the option, in lieu of effecting
the Shelf Registration Statement, (i) to file, at the Sponsor's cost, within 150
days after the Issue Date, a registration statement (the "Exchange Registration
Statement") with the Commission relating an Exchange Offer pursuant to which
each issuer of such respective Registrable Securities would issue amounts of
such Registrable Securities as are accepted in the Exchange Offer which shall be
identical in all respects to those exchanged, except they will have been
registered under the Securities Act and no longer will provide for additional
Distributions as described below and (ii) to use their best efforts to cause the
Exchange Registration Statement to be declared effective under the Securities
Act within 180 days after the Issue Date. In addition, in the event that the
Company has filed a Shelf Registration Statement in accordance with the first
paragraph of Section 14.1 in lieu of conducting an Exchange Offer in accordance
with the foregoing sentence, the Company may, if permitted in accordance with
then applicable regulations and the then current interpretations of the staff of
the Commission, elect to conduct an Exchange Offer in accordance with the terms
set forth in the Registration Rights Agreement, other than with respect to the
specific timing requirements set forth in the foregoing sentence. If the
Exchange Offer is consummated, the obligation to maintain the effectiveness of
the Shelf Registration Statement will terminate with respect to certain Holders
of Registrable Securities. All references herein to such Registrable Securities
shall be deemed to include, as the context may require, the Registrable
Securities into which such Securities have been exchanged pursuant to the
Exchange Registration ("Exchange Securities") and all references to numbers or
amounts of such Securities shall be deemed to include, as the context may
require, such Exchanged Securities.
If: (i) neither the Shelf Registration Statement nor an Exchange
Registration Statement is filed with the Commission on or prior to the 150th day
after the Issue
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Date, then, commencing on the day after the required filing date, additional
Distributions shall accumulate on the liquidation amount of the Capital
Securities at a rate of 0.25% per annum;
(ii) neither the Shelf Registration Statement nor an
Exchange Registration Statement is declared effective by the Commission on or
prior to the 30th day after the required filing date, then, commencing on the
31st day after the required filing date, additional Distributions shall
accumulate on the liquidation amount of the Capital Securities at a rate of
0.25% per annum; or
(iii) (A) the Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective at any
time prior to the third anniversary of the Issue Date (other than (a) after such
time as all Capital Securities have been disposed of thereunder or otherwise
cease to be Registrable Securities or (b) if the Exchange Offer is consummated
and the Sponsor's and the Trust's obligation to maintain the effectiveness of
the Shelf Registration Statement has ceased), or (B) if applicable, the Trust
has not exchanged Exchange Capital Securities for all Capital Securities or the
Debenture Issuer has not exchanged Exchange Guarantees or Exchange Subordinated
Debentures for all Guarantees or Subordinated Debentures validly tendered, in
accordance with the terms of the Exchange Offer on or prior to the 45th day
after the date on which the Exchange Registration Statement was declared
effective, then additional Distributions shall accumulate on the liquidation
amount of the Capital Securities at a rate of 0.25% per annum commencing on (x)
the day such Shelf Registration Statement ceases to be effective in the case of
(A) above or (y) the 45th day after such effective date, in the case of (B)
above;
provided, however, that the additional Distribution rate on the liquidation
- -------- -------
amount of the Capital Securities may not exceed in the aggregate 0.25% per
annum; provided, further, however, that (1) upon the filing of the Shelf
-------- ------- -------
Registration Statement or an Exchange Registration Statement (in the case of
clause (i) above), (2) upon the effectiveness of the Shelf Registration
Statement or an Exchange Registration Statement (in the case of clause (ii)
above), or (3) upon the effectiveness of the Shelf Registration Statement which
had ceased to remain effective (in the case of clause (iii)(A) above), or upon
the exchange of Exchange Capital Securities, Exchange Guarantees and Exchange
Subordinated Debentures for all Capital Securities, Guarantees and Subordinated
Debentures tendered (in the case of clause (iii) (B) above), additional
Distributions on the liquidation amount of the Capital Securities as a result of
such clause (or the relevant subclause thereof), as the case may be, shall cease
to accumulate; provided, further, however, that each of the time periods set
---------- ------- -------
forth in clauses (i) and (ii) above shall be extended by the number of days, if
any, which elapse from and including (x) the date on which the holders of a
Majority in liquidation amount of the Capital Securities or any broker-dealer
who acquired the Capital Securities for its own account as a result of
marketmaking or other trading activities (or their counsel or any managing
underwriter) shall have exercised their rights under the Registration Rights
Agreement to object to the filing of the Shelf Registration Statement as the
Exchange Registration Statement or any supplements or amendments thereto until
(y) the date on which any such objection is withdrawn.
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Any amounts of additional Distributions due pursuant to clauses (i),
(ii) or (iii) above will be payable in cash on February 1 and August 1 of each
year to the Holders on the date fifteen days prior to the relevant Distribution
date.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices.
-------
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the Trust
may give notice of to the Holders):
Investors Capital Trust I
c/o Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Attention: Kevin J. Sheehan, Administrative Trustee
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders):
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, DE 19711
Attention: Corporate Trust Department
(c) if given to the Property Trustee, at the Property Trustee's
mailing address set forth below (or such other address as the Property Trustee
may give notice of to the Holders):
The Bank of New York
101 Barclay Street
21st Floor West
New York, NY 10286
Attention: Corporate Trust Trustee Administration
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
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<PAGE>
Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Attention: Chief Financial Officer
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 15.2 Governing Law.
-------------
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 15.3 Intention of the Parties.
------------------------
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 15.4 Headings.
--------
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 15.5 Successors and Assigns.
----------------------
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 15.6 Partial Enforceability.
----------------------
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application
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of such provision to persons or circumstances other than those to which it is
held invalid, shall not be affected thereby.
SECTION 15.7 Counterparts.
------------
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
/s/ Kevin J. Sheehan
----------------------------------
Kevin J. Sheehan,
as Administrative Trustee
/s/ Karen C. Keenan
----------------------------------
Karen C. Keenan,
as Administrative Trustee
/s/ Earl W. Zimmerman, Jr.,
----------------------------------
Earl W. Zimmerman, Jr.,
as Administrative Trustee
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: /s/ Mary Jane Morrissey
----------------------------
Name: Mary Jane Morrissey
Title: Authorized Signatory
THE BANK OF NEW YORK,
as Property Trustee
By: /s/ Mary Jane Morrissey
----------------------------
Name: Mary Jane Morrissey
Title: Vice President
INVESTORS FINANCIAL SERVICES CORP.,
as Sponsor
By: /s/ John E. Henry
----------------------------
Name: John E. Henry
Title: General Counsel & Secretary
<PAGE>
ANNEX I
TERMS OF
9.77% SERIES A/SERIES B CAPITAL SECURITIES
9.77% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of January 31, 1997 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Securities are set out below (each
capitalized term used but not defined herein has the meaning set forth in the
Declaration or, if not defined in such Declaration, as defined in the Offering
Memorandum referred to below in Section 2(c) of this Annex I):
1. Designation and Number.
----------------------
(a) Capital Securities. 25,000 Series A Capital Securities of the
------------------
Trust and 25,000 Series B Capital Securities of the Trust, each series with an
aggregate liquidation amount with respect to the assets of the Trust of Twenty-
Five Million Dollars ($25,000,000), and each with a liquidation amount with
respect to the assets of the Trust of $1,000 per security, are hereby designated
for the purposes of identification only as "9.77% Series A Capital Securities"
and "9.77% Series B Capital Securities", respectively (collectively, the
"Capital Securities"). The certificates evidencing the Capital Securities shall
be substantially in the form of Exhibit A-1 to the Declaration, with such
changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice or to conform to the rules of any stock
exchange on which the Capital Securities are listed.
(b) Common Securities. 774 Common Securities of the Trust with an
-----------------
aggregate liquidation amount with respect to the assets of the Trust of Seven
Hundred and Seventy-Four Thousand Dollars ($774,000) and a liquidation amount
with respect to the assets of the Trust of $1,000 per security, are hereby
designated for the purposes of identification only as "9.77% Common Securities"
(the "Common Securities"). The certificates evidencing the Common Securities
shall be substantially in the form of Exhibit A-2 to the Declaration, with such
changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice.
2. Distributions.
-------------
(a) Distributions payable on each Security will be fixed at a rate
per annum of 9.77% (the "Coupon Rate") of the liquidation amount of $1,000 per
Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one semi-annual period will bear additional distributions
thereon compounded semi-annually at the Coupon Rate (to the extent permitted by
applicable law). Pursuant to the Registration Rights Agreement, in certain
limited
<PAGE>
circumstances, the Debenture Issuer will be required to pay Liquidated Damages
(as defined in the Registration Rights Agreement) with respect to the
Debentures. The term "Distributions", as used herein, includes distributions of
any such interest and Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
(b) Distributions on the Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from January 31, 1997, and will be payable
semi-annually in arrears on February 1 and August 1 of each year, commencing on
August 1, 1997 (each, a "Distribution Date"), except as otherwise described
below. Distributions will be computed on the basis of a 360-day year consisting
of twelve 30-day months and for any period less than a full calendar month on
the basis of the actual number of days elapsed in such month. As long as no
Event of Default has occurred and is continuing under the Indenture, the
Debenture Issuer has the right under the Indenture to defer payments of interest
by extending the interest payment period at any time and from time to time on
the Debentures for a period not exceeding 10 consecutive semi-annual periods,
including the first such semi-annual period during such period (each an
"Extension Period"), during which Extension Period no interest shall be due and
payable on the Debentures, provided that no Extension Period shall extend beyond
-------- ----
the Maturity Date of the Debentures. As a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, Distributions will
continue to accumulate with additional Distributions thereon (to the extent
permitted by applicable law but not at a rate greater than the rate at which
interest is then accruing on the Debentures) at the Coupon Rate compounded semi-
annually during any such Extension Period. Prior to the termination of any such
Extension Period, the Debenture Issuer may further defer payments of interest by
further extending such Extension Period; provided that such Extension Period,
-------- ----
together with all such previous and further extensions within such Extension
Period, may not exceed 10 consecutive semi-annual periods, including the first
semi-annual period during such Extension Period, or extend beyond the Maturity
Date of the Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on the date fifteen
days prior to the relevant Distribution Date, which Distribution Dates
correspond to the interest payment dates on the Debentures. Subject to any
applicable laws and regulations and the provisions of the Declaration, each such
payment in respect of the Capital Securities will be made as described under the
heading "Description of the Capital Securities -- Form, Denomination, Book-Entry
Procedures and Transfer" in the Offering Memorandum dated January 30, 1997, of
the Debenture Issuer and the Trust relating to the Securities and the
Debentures. The relevant record dates for the Common Securities shall be the
same as the record dates for the Capital Securities. Distributions payable on
any Securities that are not punctually paid on any Distribution Date, as a
result of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Holder on the relevant record date,
and such defaulted Distribution will instead be payable to the Person in whose
name such Securities are registered on the special record date or other
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<PAGE>
specified date determined in accordance with the Indenture. If any date on
which Distributions are payable on the Securities is not a Business Day, then
payment of the Distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), with the same force and effect as if made on such
date.
(d) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the Securities.
3. Liquidation Distribution Upon Dissolution.
-----------------------------------------
In the event of any termination of the Trust or the Sponsor otherwise
gives notice of its election to liquidate the Trust pursuant to Section
8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to the Holders a Like
Amount (as defined below) of the Debentures, unless such distribution is
determined by the Property Trustee not to be practicable, in which event such
Holders will be entitled to receive out of the assets of the Trust legally
available for distribution to Holders, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, an amount equal to the
aggregate of the liquidation amount of $1,000 per Security plus accumulated and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to the principal amount
of Debentures to be paid in accordance with their terms and (ii) with respect to
a distribution of Debentures upon the liquidation of the Trust, Debentures
having a principal amount equal to the Liquidation Amount of the Securities of
the Holder to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets on hand legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Securities shall be paid on a Pro
Rata basis, except that if a Event of Default has occurred and is continuing,
the Capital Securities shall have priority over the Common Securities.
4. Redemption and Distribution.
---------------------------
(a) Upon the repayment of the Debentures in whole or in part, at
maturity or upon early redemption (either at the option of the Debenture Issuer
or pursuant to a Special Event, as described below), the proceeds from such
repayment shall be simultaneously applied by the Property Trustee (subject to
the Property Trustee having received notice no later than 45 days prior to such
repayment) to redeem a Like Amount of the Securities at a redemption price equal
to (i) in the case of the repayment of the Debentures at maturity, the Maturity
Redemption Price (as defined below), (ii) in the case of the optional redemption
of the Debentures upon the
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<PAGE>
occurrence and continuation of a Special Event, the Special Event Redemption
Price (as defined below) and (iii) in the case of the optional redemption of the
Debentures other than as a result of the occurrence and continuance of a Special
Event, the Optional Redemption Price (as defined below). The Maturity Redemption
Price, the Special Event Redemption Price and the Optional Redemption Price are
referred to collectively as the "Redemption Price". Holders will be given not
less than 30 nor more than 60 days notice of such redemption.
(b) (i) The "Maturity Redemption Price", with respect to a
redemption of Securities, shall mean an amount equal to the principal of and
accrued and unpaid interest on the Debentures as of the maturity date thereof.
(ii) In the case of an optional redemption, if fewer than all the
outstanding Securities are to be so redeemed, the Capital Securities will be
redeemed Pro Rata and the Capital Securities to be redeemed will be determined
as described in Section 4(g)(ii) below. Upon the entry of an order for the
dissolution of the Trust by a court of competent jurisdiction, the Debentures
thereafter will be subject to optional repayment, in whole, but not in part, on
or after February 1, 2007 (the "Initial Optional Redemption Date").
The Debenture Issuer shall have the right (subject to the conditions
in the Indenture) to elect to redeem the Debentures in whole or in part at any
time on or after the Initial Optional Redemption Date, subject to the Debenture
Issuer having received prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve, upon not
less than 30 days and not more than 60 days notice, at the Optional Redemption
Price and, simultaneous with such redemption, to cause a Like Amount of the
Securities to be redeemed by the Trust at the Optional Redemption Price on a Pro
Rata basis. "Optional Redemption Price" shall mean a price equal to the
percentage of the liquidation amount of Securities to be redeemed plus
accumulated and unpaid Distributions thereon, if any, to the date of such
redemption if redeemed during the 12-month period beginning February 1 of the
years indicated below:
Year Percentage
---- ----------
2007 104.8850%
2008 104.3965%
2009 103.9080%
2010 103.4195%
2011 102.9310%
2012 102.4425%
2013 101.9540%
2014 101.4655%
2015 100.9770%
2016 100.4885%
2017 and thereafter 100.0000%
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<PAGE>
(c) If a Tax Event occurs and in the opinion of counsel to the
Debenture Issuer experienced in such matters, there would in all cases, after
effecting a Tax Event Maturity Advancement (as defined below), be more than an
insubstantial risk that an Adverse Tax Consequence (as defined herein) would
continue to exist, or, if a Regulatory Capital Event (as defined below) occurs,
then the Debenture Issuer will have the right, within 90 days following the
occurrence of such Tax Event or Regulatory Capital Event, as the case may be, to
redeem the Debentures in whole (but not in part) and therefore to cause a
mandatory redemption of the Capital Securities at the Special Event Redemption
Price prior to the Maturity Date of the Debentures (the circumstances under
which the Debenture Issuer has the right to so redeem the Debentures in
connection with a Tax Event being referred to herein as a "Conditional Tax
Redemption Event"). Each of the Conditional Tax Redemption Event or a
Regulatory Capital Event are sometimes referred to herein as "Special Event."
(d) If a Tax Event occurs, then the Debenture Issuer will have the
right, in lieu of terminating the Trust, to advance the Maturity Date of the
Debentures to the minimum extent required in order to allow for the payments of
interest in respect of the Debentures to continue to be deductible by the
Debenture Issuer for U.S. federal income tax purposes, but in no event shall the
resulting maturity of the Debentures be less than 20 years from the date of
original issuance thereof. Such maturity date shall be advanced only (i) if, in
the opinion of counsel to the Debenture Issuer experienced in such matters,
after advancing the maturity date, interest payable on the Debentures will be
deductible for federal income tax purposes and (ii) upon the receipt of prior
approval of the Federal Reserve Board if then required under applicable capital
guidelines or policies of the Federal Reserve Board (the action referred to
above being referred to herein as a "Tax Event Maturity Advancement").
"Tax Event" shall occur upon receipt by the Sponsor and the
Administrative Trustee of an opinion of a nationally recognized tax counsel (a
"Tax Event Opinion") experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which (x) amendment or change is effective or
(y) which pronouncement or decision is announced, on or after the Issue Date,
there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date of such opinion, subject to United States federal
income tax with respect to income received or accrued on the Debentures, (ii)
interest payable by the Debenture Issuer on the Debentures is not, or within 90
days of the date of such opinion, will not be, deductible by the Debenture
Issuer, in whole or in part, for United States federal income tax purposes, or
(iii) the Trust is, or will be within 90 days of the date of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges (each of the circumstances referred to in clauses (i), (ii)
and (iii) being an "Adverse Tax Consequence").
"Regulatory Capital Event" shall occur at any time, that the Debenture
Issuer shall have received an opinion of independent bank regulatory counsel
experienced in such matters to the effect that, as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any rules,
-5-
<PAGE>
guidelines or policies of the Federal Reserve Board or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which (i) amendment or change is effective or (ii) such
pronouncement or decision is announced, on or after the Issue Date, the Capital
Securities do not constitute, or within 90 days of the date thereof, will not
constitute, Tier I Capital (or its then equivalent); provided, however, that a
Regulatory Capital Event shall not occur by reason of the use of the proceeds of
the Debentures by the Sponsor.
"Special Event Redemption Price" shall mean, with respect to a
redemption of Securities, a price equal to the greater of (i) 100% of the
principal of a Like Amount of Debentures to be redeemed or (ii) the sum, as
determined by a Quotation Agent (as defined in the Indenture), of the present
values of the principal amount and premium payable with respect to an optional
redemption of a Like Amount of the Debentures on the Initial Optional Redemption
Date, together with scheduled payments of interest on the Debentures from the
redemption date to and including the Initial Optional Redemption Date, in each
case, discounted to the redemption date on a semi-annual basis (assuming a 360-
day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined in the Indenture), plus, in each case, accumulated and unpaid
Distributions thereon, if any, to the date of such redemption.
(e) On and from the date fixed by the Administrative Trustees for any
distribution of Debentures and liquidation of the Trust: (i) the Securities
will no longer be deemed to be outstanding, (ii) the Clearing Agency or its
nominee (or any successor Clearing Agency or its nominee), as the Holder of the
Capital Securities, will receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution and any
certificates representing Securities not held by the Clearing Agency or its
nominee (or any successor Clearing Agency or its nominee) will be deemed to
represent beneficial interests in a Like Amount of Debentures until such
certificates are presented to the Debenture Issuer or its agent for transfer or
reissue.
(f) The Trust may not redeem fewer than all the outstanding
Securities unless all accumulated and unpaid Distributions have been paid on all
Securities for all semi-annual Distribution periods terminating on or before the
date of redemption.
(g) The procedure with respect to redemptions or distributions of
Debentures shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution Notice")
will be given by the Trust by mail to each Holder to be redeemed or exchanged
not fewer than 30 nor more than 60 days before the date fixed for redemption or
exchange thereof which, in the case of a redemption, will be the date fixed for
redemption of the Debentures. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given pursuant to this
Section 4(f)(i), a Redemption/ Distribution Notice shall be deemed to be given
on the day such notice is first mailed by first-class mail, postage prepaid, to
Holders. Each Redemption/Distribution Notice shall be addressed to the Holders
of Securities at the address of each such Holder appearing in the
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<PAGE>
books and records of the Trust. No defect in the Redemption/Distribution Notice
or in the mailing of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect to any other
Holder.
(ii) In the event that fewer than all the outstanding
Securities are to be redeemed, the Securities to be redeemed shall be redeemed
Pro Rata from each Holder of Capital Securities, it being understood that, in
respect of Capital Securities registered in the name of and held of record by
the Clearing Agency or its nominee (or any successor Clearing Agency or its
nominee) or any nominee, the distribution of the proceeds of such redemption
will be made to the Clearing Agency and disbursed by such Clearing Agency in
accordance with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, (which notice will be irrevocable), then (A)
with respect to Capital Securities issued in book-entry form, by 12:00 noon, New
York City time, on the redemption date, provided that the Debenture Issuer has
paid the Property Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Debentures by 10:00 a.m., New York City
time, on the maturity date or the date of redemption, as the case requires, the
Property Trustee will deposit irrevocably with the Clearing Agency or its
nominee (or successor Clearing Agency or its nominee) funds sufficient to pay
the applicable Redemption Price with respect to such Capital Securities and will
give the Clearing Agency irrevocable instructions and authority to pay the
Redemption Price to the relevant Clearing Agency Participants, and (B) with
respect to Capital Securities issued in certificated form and Common Securities,
provided that the Debenture Issuer has paid the Property Trustee a sufficient
amount of cash in connection with the related redemption or maturity of the
Debentures, the Property Trustee will pay the relevant Redemption Price to the
Holders by check mailed to the address of the relevant Holder appearing on the
books and records of the Trust on the redemption date. If a
Redemption/Distribution Notice shall have been given and funds deposited as
required, if applicable, then immediately prior to the close of business on the
date of such deposit, or on the redemption date, as applicable, Distributions
will cease to accumulate on the Securities so called for redemption and all
rights of Holders so called for redemption will cease, except the right of the
Holders of such Securities to receive the Redemption Price, but without interest
on such Redemption Price, and such Securities shall cease to be outstanding.
(iv) Payment of accumulated and unpaid Distributions on the
Redemption Date of the Securities will be subject to the rights of Holders of
Securities on the close of business on a regular record date in respect of a
Distribution Date occurring on or prior to such Redemption Date.
Neither the Administrative Trustees nor the Trust shall be required to
register or cause to be registered the transfer of (i) any Securities beginning
on the opening of business 15 days before the day of mailing of a notice of
redemption or any notice of selection of Securities for redemption or (ii) any
Securities selected for redemption except the unredeemed portion of any Security
being redeemed. If any date fixed for redemption of Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next
-7-
<PAGE>
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), with the same force and effect as if made on such
date fixed for redemption. If payment of the Redemption Price in respect of any
Securities is improperly withheld or refused and not paid either by the Property
Trustee or by the Sponsor as guarantor pursuant to the relevant Securities
Guarantee, Distributions on such Securities will continue to accumulate from the
original redemption date to the actual date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the Redemption Price.
(v) Redemption/Distribution Notices shall be sent by the
Property Trustee on behalf of the Trust to (A) in respect of the Capital
Securities, the Clearing Agency or its nominee (or any successor Clearing Agency
or its nominee) if the Global Certificates have been issued or, if Definitive
Capital Security Certificates have been issued, to the Holder thereof, and (B)
in respect of the Common Securities to the Holder thereof.
(vi) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws and banking laws),
provided the acquiror is not the Holder of the Common Securities or the obligor
under the Indenture, the Sponsor or any of its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
5. Voting Rights - Capital Securities.
----------------------------------
(a) Except as provided under Sections 5(b) and 7 and as otherwise
required by law and the Declaration, the Holders of the Capital Securities will
have no voting rights.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on such Debenture Trustee with respect to the
Debentures, (ii) waive any past default that is waivable under Section 5.07 of
the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a majority in liquidation amount
of all outstanding Capital Securities; provided, however, that where a consent
-------- -------
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Capital Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Capital Securities except by subsequent vote of such Holders. The
Property Trustee shall notify each Holder of Capital Securities of any notice of
default with respect to the Debentures. In addition to obtaining the foregoing
approvals of such Holders of the Capital Securities, prior to taking any of the
foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that the Trust will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action.
-8-
<PAGE>
If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on the due
date (or in the case of redemption, on the redemption date), then a Holder of
Capital Securities may directly institute a proceeding for enforcement of
payment to such Holder of the principal of or premium, if any, or interest on a
Like Amount of Debentures (a "Direct Action") on or after the respective due
date specified in the Debentures. In connection with such Direct Action, the
rights of the Common Securities Holder will be subrogated to the rights of such
Holder of Capital Securities to the extent of any payment made by the Debenture
Issuer to such Holder of Capital Securities in such Direct Action. Except as
provided in the second preceding sentence, the Holders of Capital Securities
will not be able to exercise directly any other remedy available to the holders
of the Debentures.
Any approval or direction of Holders of Capital Securities may be
given at a separate meeting of Holders of Capital Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Property Trustees will cause a notice of any
meeting at which Holders of Capital Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Capital Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Capital Securities will be
required for the Trust to redeem and cancel Capital Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
Notwithstanding that Holders of Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor
shall not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
---------------------------------
(a) Except as provided under Sections 6(b), 6(c), and 7 as otherwise
required by law and the Declaration, the Holders of the Common Securities will
have no voting rights.
(b) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in liquidation amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Sponsor as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee shall be effective until the
-9-
<PAGE>
acceptance of appointment by the successor trustee in accordance with the
provisions of the Declaration.
(c) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on such Debenture Trustee with respect to the
Debentures, (ii) waive any past default that is waivable under Section 5.07 of
the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a majority in liquidation amount
of all outstanding Common Securities; provided, however, that where a consent
-------- -------
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Common Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Common Securities except by subsequent vote of such Holders. The
Property Trustee shall notify each Holder of Common Securities of any notice of
default with respect to the Debentures. In addition to obtaining the foregoing
approvals of such Holders of the Common Securities, prior to taking any of the
foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that the Trust will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action.
If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on the due
date (or in the case of redemption, on the redemption date), then a Holder of
Common Securities may institute a Direct Action for enforcement of payment to
such Holder of the principal of or premium, if any, or interest on a Like Amount
of Debentures on or after the respective due date specified in the Debentures.
In connection with Direct Action, the rights of the Common Securities Holder
will be subordinated to the rights of such Holder of Capital Securities to the
extent of any payment made by the Debenture Issuer to such Holder of Common
Securities in such Direct Action. Except as provided in the second preceding
sentence, the Holders of Common Securities will not be able to exercise directly
any other remedy available to the holders of the Debentures.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent. The Administrative Trustees will cause a notice of any meeting
at which Holders of Common Securities are entitled to vote, or of any matter
upon which action by written consent of such Holders is to be taken, to be
mailed to each Holder of record of Common Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
-10-
<PAGE>
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
7. Amendments to Declaration and Indenture.
---------------------------------------
In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor,
the Property Trustee and the Administrative Trustees, without the consent of the
Holders of the Securities (i) to cure any ambiguity, correct or supplement any
provisions in the Declaration that may be inconsistent with any other
provisions, or to make any other provisions with respect to matters or questions
arising under the Declaration which shall not be inconsistent with the other
provisions of the Declaration, or (ii) to modify, eliminate or add to any
provisions of the Declaration to such extent as shall be necessary to ensure
that the Trust will be classified for United States federal income tax purposes
as a grantor trust at all times that any Securities are outstanding or to ensure
that the Trust will not be required to register as an "Investment Company" under
the Investment Company Act; provided, however, that such action shall not
-------- -------
adversely affect in any material respect the interests of any Holder of
Securities, and any amendments of the Declaration shall become effective when
notice thereof is given to the holders of the Securities. The Declaration may
be amended by the Trustees and the Sponsor (i) with the consent of Holders
representing a majority in liquidation amount of all outstanding Securities, and
(ii) upon receipt by the Trustees of an Opinion of Counsel to the effect that
such amendment or the exercise of any power granted to the Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an Investment Company under the Investment Company Act, provided
--------
that, without the consent of each Holder of the Securities, the Declaration may
- ----
not be amended to (i) change the amount or timing of any Distribution on the
Securities or otherwise adversely affect the amount of any Distribution or other
payment required to be made in respect of the Securities as of a specified date
or (ii) restrict the right of a holder of Securities to institute suit for the
enforcement of any such payment on or after such date.
8. Pro Rata.
--------
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
according to the aggregate liquidation amount of the Securities held by the
relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Capital
Securities pro rata according to the aggregate liquidation amount of Capital
Securities held by the relevant Holder relative to the aggregate liquidation
amount of all Capital Securities outstanding, and only after satisfaction of all
amounts owed to the Holders of the Capital Securities, to each Holder of Common
Securities pro rata according to the aggregate liquidation amount of Common
Securities held by
-11-
<PAGE>
the relevant Holder relative to the aggregate liquidation amount of all Common
Securities outstanding.
9. Ranking.
-------
The Capital Securities rank pari passu with the Common Securities and
---- -----
payment thereon shall be made Pro Rata with the Common Securities, except that,
if an Event of Default under the Declaration occurs and is continuing, no
payments in respect of Distributions on, or payments upon liquidation,
redemption or otherwise with respect to, the Common Securities shall be made
until the Holders of the Capital Securities shall be paid in full the
Distributions, Redemption Price, Liquidation Distribution and other payments to
which they are entitled at such time.
10. Acceptance of Securities Guarantee and Indenture.
------------------------------------------------
Each Holder of Capital Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Capital Securities Guarantee
and the Common Securities Guarantee, respectively, including the subordination
provisions therein and to the provisions of the Indenture and the Declaration.
11. No Preemptive Rights.
--------------------
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
12. Miscellaneous.
-------------
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Capital
Securities Guarantee or the Common Securities Guarantee (as may be appropriate),
the Indenture (including any supplemental indenture) to a Holder without charge
on written request to the Sponsor at its principal place of business.
-12-
<PAGE>
EXHIBIT A-1
FORM OF CAPITAL SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS GLOBAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT: THIS
CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE
DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS
CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY
THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE
CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING
AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK), A NEW YORK CORPORATION, TO THE TRUST OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF IS DEEMED
TO HAVE AGREED TO BE BOUND BY THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT
AMONG THE TRUST, INVESTORS FINANCIAL SERVICES CORP. (THE "SPONSOR") AND KEEFE,
BRUYETTE & WOODS, INC. DATED JANUARY 31, 1997 (THE "REGISTRATION RIGHTS
AGREEMENT"). THE SPONSOR WILL PROVIDE A COPY OF THE REGISTRATION RIGHTS
AGREEMENT TO A HOLDER WITHOUT CHARGE UPON WRITTEN REQUEST TO THE TRUST AT ITS
PRINCIPAL PLACE OF BUSINESS.
THE CAPITAL SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS OR ANY OTHER
<PAGE>
APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF
THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
"AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY
PREDECESSOR OF THIS CAPITAL SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS CAPITAL SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA") OR (ii) THE ACQUISITION
-2-
<PAGE>
AND HOLDING OF THIS CAPITAL SECURITY BY IT IS NOT PROHIBITED BY EITHER SECTION
406 OF ERISA OR SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS
AMENDED, OR EXEMPT FROM ANY SUCH PROHIBITION.
-3-
<PAGE>
Certificate Number Number of Capital Securities
CUSIP NO. __________
Certificate Evidencing Capital Securities
of
Investors Capital Trust I
9.77% Series __ Capital Securities
(liquidation amount $1,000 per Capital Security)
Investors Capital Trust I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that
______________ (the "Holder") is the registered owner of __________ securities
of the Trust representing preferred undivided beneficial interests in the assets
of the Trust designated the 9.77% Series __ Capital Securities (liquidation
amount $1,000 per Capital Security) (the "Capital Securities"). The Capital
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities represented hereby are issued and shall in all respects be subject to
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of January 31, 1997, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Capital Securities
as set forth in Annex I to the Declaration. Capitalized terms used but not
defined herein shall have the meaning given them in the Declaration. The
Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee
and the Indenture to a Holder without charge upon written request to the Trust
at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Capital Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Capital Securities
as evidence of indirect beneficial ownership in the Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this ____
day of __________, ____.
INVESTORS CAPITAL TRUST I
By:_____________________________________
Name:
Title: Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the within-
mentioned Declaration.
Dated:______________,_____
THE BANK OF NEW YORK,
as Property Trustee
By:_____________________________________
Authorized Signatory
-2-
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a rate
per annum of 9.77% (the "Coupon Rate") of the liquidation amount of $1,000 per
Capital Security, such rate being the rate of interest payable on the Debentures
to be held by the Property Trustee. Distributions in arrears for more than one
semi-annual period will bear interest thereon compounded semi-annually at the
Coupon Rate (to the extent permitted by applicable law). Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Debenture
Issuer will be required to pay Liquidated Damages (as defined in the
Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes such cash distributions and any such
interest and such Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
Distributions on the Capital Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from January 31, 1997 and will be payable
semi-annually in arrears, on February 1 and August 1 of each year, commencing on
August 1, 1997, except as otherwise described below. Distributions will be
computed on the basis of a 360-day year consisting of twelve 30-day months and,
for any period less than a full calendar month, the number of days elapsed in
such month. As long as no Event of Default has occurred and is continuing under
the Indenture, the Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period at any time and
from time to time on the Debentures for a period not exceeding 10 consecutive
calendar semi-annual periods, including the first such semi-annual period during
such extension period (each an "Extension Period"), provided that no Extension
-------- ----
Period shall extend beyond the Maturity Date of the Debentures. As a
consequence of such deferral, Distributions will also be deferred. Despite such
deferral, semi-annual Distributions will continue to accumulate with interest
thereon (to the extent permitted by applicable law, but not at a rate exceeding
the rate of interest then accruing on the Debentures) at the Coupon Rate
compounded semi-annually during any such Extension Period. Prior to the
termination of any such Extension Period, the Debenture Issuer may further defer
payments of interest by further extending such Extension Period; provided that
-------- ----
such Extension Period, together with all such previous and further extensions
within such Extension Period, may not exceed 10 consecutive semi-annual periods,
including the first semi-annual period during such Extension Period, or extend
beyond the Maturity Date of the Debentures. Payments of accumulated
Distributions will be payable to Holders as they appear on the books and records
of the Trust on the first record date after the end of the Extension Period.
Upon the termination of any Extension Period and the payment of all amounts then
due, the Debenture Issuer may commence a new Extension Period, subject to the
above requirements.
Subject to the prior obtaining of any regulatory approval then
required and to certain other conditions set forth in the Declaration and the
Indenture, the Property Trustee may, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneous with any
<PAGE>
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Capital Securities shall be redeemable as provided in the
Declaration.
The Capital Securities and the rights of the Holders shall be governed
by and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to principles
of conflict of laws.
_____________________
-2-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security
Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints________________________________________________________
________________________________________________________________________________
___________________________________________________________ agent to transfer
this Capital Security Certificate on the books of the Trust. The agent may
substitute another to act for him or her.
Date: _______________________
Signature: _____________________________________________________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
Signature Guarantee/1/ ___________________________________
_____________________
/1/ Signature must be guaranteed by an "eligible guarantor institution" that
is a bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
<PAGE>
In connection with any transfer of any of the Capital Securities evidenced by
this certificate, the undersigned confirms that such Capital Securities are
being:
CHECK ONE BOX BELOW
[_] (1) exchanged for the undersigned's own account without transfer; or
[_] (2) transferred pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
[_] (3) transferred pursuant to and in compliance with Regulation S under the
Securities Act of 1933; or
[_] (4) transferred to an institutional "accredited investor" within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act of 1933 that is acquiring the Capital Securities for
its own account, or for the account of such an institutional
"accredited investor," for investment purposes and not with a view
to, or for offer or sale in connection with, any distribution in
violation of the Securities Act of 1933; or
[_] (5) transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933; or
[_] (6) transferred pursuant to an effective registration statement.
Unless one of the boxes is checked, the Exchange Agent will refuse to register
any of the Capital Securities evidenced by this certificate in the name of any
person other than the registered Holder thereof; provided, however, that if box
-------- -------
(3), (4) or (5) is checked, the Exchange Agent may require, prior to registering
any such transfer of the Capital Securities such legal opinions, certifications
and other information as the Trust has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, such as
the exemption provided by Rule 144 under such Act; provided, further, that (i)
-------- -------
if box (2) is checked, the transferee must also certify that it is a qualified
institutional buyer as defined in Rule 144A by executing the Certificate of
Qualified Institutional Buyer attached hereto or (ii) if box (4) is checked, the
transferee must also provide to the Exchange Agent a Transferee Letter of
Representation in the form attached to the Offering Memorandum of the Trust
dated January 30, 1997; provided, further, that after the date that a
-------- -------
Registration Statement has been filed and so long as such Registration Statement
continues to be effective, the Exchange Agent may only permit transfers for
which box (6) has been checked.
________________________________________
Signature
-2-
<PAGE>
CERTIFICATE OF QUALIFIED INSTITUTIONAL BUYER
The undersigned transferee of Capital Securities hereby certifies that (i)
the undersigned is a "qualified institutional buyer" (a "QIB") as defined in
Rule 144A ("Rule 144A") promulgated under the Securities Act of 1933, (ii) the
undersigned is aware that the transfer of the Capital Securities to the
undersigned is being made in reliance on Rule 144A and (iii) the undersigned is
acquiring the Capital Securities for its own account or for the account of
another QIB over which the undersigned exercises its sole investment discretion.
The undersigned also understands and acknowledges that the Capital
Securities have not been registered under the Securities Act or any other
applicable securities law, are being offered for resale in transactions not
requiring registration under the Securities Act, and may not be offered, sold,
pledged or otherwise transferred except in compliance with the registration
requirements of the Securities Act or any other applicable securities laws,
pursuant to an exemption therefrom or in a transaction not subject thereto and,
in each case, in compliance with the terms of the Capital Securities and the
terms of the Amended and Restated Declaration of Trust of Investors Capital
Trust I dated January 31, 1997, as the same may be amended from time to time.
________________________________________
Signature
-3-
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF
THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
"AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY
PREDECESSOR OF THIS CAPITAL SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) SO LONG AS THIS COMMON SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THIS COMMON SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
PURSUANT TO CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE REVERSE OF THIS COMMON SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL
<PAGE>
DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
-2-
<PAGE>
Certificate Number: Number of Common Securities:
Certificate Evidencing Common Securities
of
Investors Capital Trust I
9.77% Common Securities
(liquidation amount $1,000 per Common Security)
Investors Capital Trust I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that Investors
Financial Services Corp. (the "Holder") is the registered owner of ____________
common securities of the Trust representing undivided beneficial interests in
the assets of the Trust designated the 9.77% Common Securities (liquidation
amount $1,000 per Common Security) (the "Common Securities"). Subject to the
limitation in Section 9.1(c) of the Declaration, the Common Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities represented
hereby are issued and shall in all respects be subject to the provisions of the
Amended and Restated Declaration of Trust of the Trust dated as of January 31,
1997, as the same may be amended from time to time (the "Declaration"),
including the designation of the terms of the Common Securities as set forth in
Annex I to the Declaration. Capitalized terms used but not defined herein shall
have the meaning given them in the Declaration. The Sponsor will provide a copy
of the Declaration, the Common Securities Guarantee and the Indenture (including
any supplemental indenture) to a Holder without charge upon written request to
the Sponsor at its principal place of business.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Common Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of _____________, _____.
INVESTORS CAPITAL TRUST I
By:_____________________________
Name:
Title: Administrative Trustee
-2-
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of 9.77% (the "Coupon Rate") of the liquidation amount of $1,000 per
Common Security, such rate being the rate of interest payable on the Debentures
to be held by the Property Trustee. Distributions in arrears for more than one
semi-annual period will bear interest thereon compounded semi-annually at the
Coupon Rate (to the extent permitted by applicable law). Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Debenture
Issuer will be required to pay Liquidated Damages (as defined in the
Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes such cash distributions and any such
interest and such Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor.
Distributions on the Common Securities will be cumulative, will accrue
from the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from January 31, 1997 and will be payable semi-
annually in arrears, on February 1 and August 1 of each year, commencing on
August 1, 1997, except as otherwise described below. Distributions will be
computed on the basis of a 360-day year consisting of twelve 30-day months and,
for any period less than a full calendar month, the number of days elapsed in
such month. As long as no Event of Default has occurred and is continuing under
the Indenture, the Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period at any time and
from time to time on the Debentures for a period not exceeding 10 consecutive
calendar semi-annual periods, including the first such semi-annual period during
such extension period (each an "Extension Period"), provided that no Extension
-------- ----
Period shall extend beyond the Maturity Date of the Debentures. As a
consequence of such deferral, Distributions will also be deferred. Despite such
deferral, Distributions will continue to accumulate with interest thereon (to
the extent permitted by applicable law, but not at a rate exceeding the rate of
interest then accruing on the Debentures) at the Coupon Rate compounded semi-
annually during any such Extension Period. Prior to the termination of any such
Extension Period, the Debenture Issuer may further defer payments of interest by
further extending such Extension Period; provided that such Extension Period,
-------- ----
together with all such previous and further extensions within such Extension
Period, may not exceed 10 consecutive semi-annual periods, including the first
semi-annual period during such Extension Period, or extend beyond the Maturity
Date of the Debentures. Payments of accrued Distributions will be payable to
Holders as they appear on the books and records of the Trust on the first record
date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period, subject to the above requirements.
Subject to the Sponsor obtaining any regulatory prior approval then
required and to certain other conditions set forth in the Declaration and the
Indenture, the Property Trustee may, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneous with any
<PAGE>
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Common Securities shall be redeemable as provided in the
Declaration.
The Common Securities and the rights of the holders thereof hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
_____________________
-2-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints________________________________________________________
________________________________________________________________________________
______________________________________________ agent to transfer this Common
Security Certificate on the books of the Trust. The agent may substitute
another to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
Signature Guarantee/1/: ___________________________________
____________________
/1/ Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
<PAGE>
In connection with any transfer of any of the Common Securities evidenced by
this certificate, the undersigned confirms that such Common Securities are
being:
CHECK ONE BOX BELOW
[_] (1) exchanged for the undersigned's own account without transfer; or
[_] (2) transferred pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
[_] (3) transferred pursuant to and in compliance with Regulation S under the
Securities Act of 1933; or
[_] (4) transferred to an institutional "accredited investor" within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act that is acquiring the Preferred Security for its own
account, or for the account of such an institutional "accredited
investor," for investment purposes and not with a view to, or for
offer or sale in connection with, any distribution in violation of the
Securities Act; or
[_] (5) transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933; or
[_] (6) transferred pursuant to an effective Registration Statement.
Unless one of the boxes is checked, the Exchange Agent will refuse to register
any of the Common Securities evidenced by this certificate in the name of any
person other than the registered Holder thereof; provided, however, that if box
-------- -------
(3), (4) or (5) is checked, the Exchange Agent may require, prior to registering
any such transfer of the Preferred Securities such legal opinions,
certifications and other information as the Trust has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933, such as the exemption provided by Rule 144 under such Act; provided,
--------
further, that (i) if box (2) is checked, the transferee must also certify that
- -------
it is a qualified institutional buyer as defined in Rule 144A by executing the
Certificate of Qualified Institutional Buyer attached hereto or (ii) if box (4)
is checked, the transferee must also provide a Transferee Representation Letter
in the form attached to the Offering Memorandum of the Trust, dated January 30,
1997; provided, further, that after the date that a Registration Statement has
-------- -------
been filed and so long as such Registration Statement continues to be effective,
the Exchange Agent may only permit transfers for which box (6) has been checked.
________________________________________
Signature
-2-
<PAGE>
CERTIFICATE OF QUALIFIED INSTITUTIONAL BUYER
The undersigned transferee of Common Securities hereby certifies that (i)
the undersigned is a "qualified institutional buyer" (a "QIB") as defined in
Rule 144A ("Rule 144A") promulgated under the Securities Act of 1933, (ii) the
undersigned is aware that the transfer of the Common Securities to the
undersigned is being made in reliance on Rule 144A and (iii) the undersigned is
acquiring the Common Securities for its own account or for the account of
another QIB over which the undersigned exercises its sole investment discretion.
The undersigned also understands and acknowledges that the Common
Securities have not been registered under the Securities Act or any other
applicable securities law, are being offered for resale in transactions not
requiring registration under the Securities Act, and may not be offered, sold,
pledged or otherwise transferred except in compliance with the registration
requirements of the Securities Act or any other applicable securities laws,
pursuant to an exemption therefrom or in a transaction not subject thereto and,
in each case, in compliance with the terms of the Common Securities and the
terms of the Amended and Restated Declaration of Trust of Investors Capital
Trust I dated January 31, 1997, as the same may be amended from time to time.
________________________________________
Signature
-3-
<PAGE>
EXHIBIT B
$25,000,000
Investors Capital Trust I
9.77% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
guaranteed by
Investors Financial Services Corp.
PURCHASE AGREEMENT
------------------
January 30, 1997
KEEFE, BRUYETTE & WOODS, INC.
as the Initial Purchaser
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Investors Capital Trust I (the "Trust"), a statutory business trust created
under the Business Trust Act (the "Delaware Act") of the State of Delaware
(Chapter 38, Title 12, of the Delaware Code, 12 Del. C. ((S) 3801, et seq.)) and
Investors Financial Services Corp., a Delaware corporation (the "Company" and
together with the Trust, the "Offerors"), confirm their agreement (the
"Agreement") with Keefe, Bruyette & Woods, Inc. (the "Initial Purchaser"), with
respect to the issue and sale by the Trust and the purchase by the Initial
Purchaser of 25,000 9.77% Capital Securities (liquidation amount of $1,000 per
security) of the Trust (the "Capital Securities"). The Capital Securities will
be guaranteed by the Company, to the extent described in the Offering Memorandum
(as defined below), with respect to distributions and payments upon liquidation,
redemption and otherwise pursuant to the Capital Securities Guarantee Agreement
(the "Capital Securities Guarantee"), to be dated as of January 31, 1997,
between the Company and The Bank of New York, as Trustee (the "Guarantee
Trustee"). The Capital Securities issued in book-entry form will be issued to
Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to an
additional or supplemented letter agreement, to be dated on or prior to the
Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among the
Trust, the Guarantee Trustee and DTC.
<PAGE>
The Company is a registered bank holding company under the provisions of
the Bank Holding Company Act of 1956, as amended, whose subsidiary, Investors
Bank & Trust Company, is a Massachusetts chartered trust company (the "Bank").
The entire proceeds from the sale of the Capital Securities will be combined
with the entire proceeds from the sale by the Trust to the Company of its common
securities (the "Common Securities"), as guaranteed by the Company, to the
extent set forth in the Offering Memorandum, with respect to distributions and
payments upon liquidation, redemption and otherwise pursuant to the Common
Securities Guarantee Agreement (the "Common Securities Guarantee" and, together
with the Capital Securities Guarantee, the "Guarantees"), to be dated as of
January 31, 1997, made by the Company, and will be used by the Trust to purchase
$25,774,000 of 9.77% Junior Subordinated Deferrable Interest Debentures due
February 1, 2027 (the "Subordinated Debentures") issued by the Company. The
Capital Securities and the Common Securities will be issued pursuant to the
Amended and Restated Declaration of Trust, to be dated as of January 31, 1997
(the "Declaration"), among the Company, as sponsor, Kevin J. Sheehan, Karen C.
Keenan and Earl W. Zimmerman, Jr., as administrative trustees (the
"Administrative Trustees"), The Bank of New York , as property trustee (the
"Property Trustee"), and The Bank of New York (Delaware), as Delaware trustee
(the "Delaware Trustee," and, together with the Property Trustee and the
Administrative Trustees, the "Trustees"). The Subordinated Debentures will be
issued pursuant to an indenture, to be dated as of January 31, 1997 (the
"Indenture"), between the Company and The Bank of New York, as trustee (the
"Debenture Trustee").
The Capital Securities, the Capital Securities Guarantee and the
Subordinated Debentures are hereinafter collectively referred to as the "Initial
Securities."
The Initial Securities will be subject to the registration rights set forth
in the registration rights agreement (the "Registration Rights Agreement"), to
be executed on and dated as of the Closing Time. Pursuant to the Registration
Rights Agreement, the Offerors will agree, among other things, to file with the
Securities and Exchange Commission (the "Commission") (i) a shelf registration
statement (the "Shelf Registration Statement") pursuant to Rule 415 of the rules
and regulations (the "1933 Act Regulations") under the United States Securities
Act of 1933, as amended (the "1933 Act"), relating to the resale by certain
holders of the Capital Securities and/or (ii) a registration statement (the
"Exchange Offer Registration Statement") under the 1933 Act, relating to another
series of capital securities (liquidation amount $1,000 per security) of the
Trust (the "Exchange Capital Securities"), another capital securities guarantee
(the "Exchange Capital Securities Guarantee"), and another series of Junior
Subordinated Deferrable Interest Debentures due February 1, 2027 (the "Exchange
Subordinated Debentures" and, collectively with the Exchange Capital Securities
and the Exchange Capital Securities Guarantee, the "Exchange Securities"), to be
offered in exchange for the Initial Securities (such offer to exchange being
referred to as the "Exchange Offer"). The Registration Rights Agreement shall be
in a form, and shall contain terms and provisions, customary for similar Rule
144A transactions, and shall otherwise be in form and substance reasonably
satisfactory to the Initial Purchaser.
2
<PAGE>
The Initial Securities and the Exchange Securities are jointly referred to
as the "Securities". The Indenture, the Declaration, the Guarantees, the
Registration Rights Agreement, the DTC Agreement and this Agreement are
hereinafter referred to collectively as the "Operative Documents."
The Offerors understand that the Initial Purchaser proposes to make an
offering of the Capital Securities (as guaranteed by the Capital Securities
Guarantee) on the terms and in the manner set forth herein and agree that the
Initial Purchaser may resell, subject to the conditions set forth herein, all or
a portion of the Capital Securities to purchasers ("Subsequent Purchasers") at
any time after the date of this Agreement. The Capital Securities are to be
offered and sold through the Initial Purchaser without being registered under
the 1933 Act, in reliance upon exemptions therefrom. Pursuant to the terms of
the Capital Securities, investors that acquire Capital Securities may only
resell or otherwise transfer such Capital Securities if such Capital Securities
are hereafter registered under the 1933 Act or if an exemption from the
registration requirements of the 1933 Act is available (including the exemption
afforded by Rule 144A ("Rule 144A") or Regulation S ("Regulation S") of the 1933
Act Regulations).
The Offerors have prepared and delivered to the Initial Purchaser copies of
a preliminary offering memorandum dated January 20, 1997 (the "Preliminary
Offering Memorandum") and have prepared and will deliver to the Initial
Purchaser, as soon as practicable, but not later than January 31, 1997, copies
of a final offering memorandum, dated January 30, 1997 (the "Final Offering
Memorandum"), each for use by such Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the Capital Securities. "Offering
Memorandum" means, with respect to any date or time referred to in this
Agreement, the most recent offering memorandum (whether the Preliminary Offering
Memorandum or the Final Offering Memorandum, or any amendment or supplement to
either such document), including annexes and exhibits thereto and any documents
incorporated therein by reference, which has been prepared and delivered by the
Offerors to the Initial Purchaser in connection with its solicitation of
purchases of, or offering of, the Capital Securities.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included," "disclosed" or "stated"
in the Offering Memorandum (or other references of like import) shall be deemed
to mean and include all such financial statements and schedules and other
information which are incorporated by reference in the Offering Memorandum; and
all references in this Agreement to amendments or supplements to the Offering
Memorandum shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934, as amended (the "1934 Act") which is
incorporated by reference in the Offering Memorandum.
3
<PAGE>
SECTION 1. Representations and Warranties.
------------------------------
(a) The Offerors jointly and severally represent and warrant to the
Initial Purchaser as of the date hereof and as of the Closing Time, and agree
with the Initial Purchaser as follows:
(i) The Offerors have not, directly or indirectly, solicited any
offer to buy or offered to sell, and will not, directly or indirectly, solicit
any offer to buy or offer to sell, in the United States or to any United States
citizen or resident, any security which is or would be integrated with the sale
of the Capital Securities in a manner that would require the Capital Securities
to be registered under the 1933 Act.
(ii) The Offering Memorandum does not, and at the Closing Time will
not, include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that this
representation, warranty and agreement shall not apply to statements in or
omissions from the Offering Memorandum made in reliance upon and in conformity
with information furnished to the Offerors in writing by or on behalf of the
Initial Purchaser expressly for use in the Offering Memorandum.
(iii) The documents incorporated or deemed to be incorporated by
reference in the Offering Memorandum at the time they were or hereafter are
filed with the Commission conformed and will conform in all material respects to
the requirements of the 1934 Act and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations"), and, when read together with the other
information in the Offering Memorandum, at the date of the Offering Memorandum
and at the Closing Time, do not and will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(iv) The consolidated financial statements of the Company (together
with the related notes) included or incorporated by reference in the Offering
Memorandum present fairly the financial position of the Company and its
consolidated subsidiaries at the dates indicated and the consolidated results of
operations and cash flows of such entities for the periods specified; except as
otherwise stated in the Offering Memorandum or in the notes to such financial
statements, such financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved; and the supporting schedules for the Company
and its consolidated subsidiaries incorporated by reference in the Offering
Memorandum present fairly the information required to be stated therein. The
selected consolidated financial data included in the Offering Memorandum present
fairly the information shown therein and have been compiled on a basis
consistent with that of the financial statements included in the Offering
Memorandum.
4
<PAGE>
(v) The accountants who certified the financial statements and
supporting schedules of the Company and its consolidated subsidiaries included
in or incorporated by reference in the Offering Memorandum are independent
public accountants as required by the 1933 Act and the 1933 Act Regulations.
(vi) Since the respective dates as of which information is given in
the Offering Memorandum, except as may otherwise be stated in, or referred to
therein: (1) there has not been any material adverse change in the results of
operations, condition (financial or otherwise), business affairs or business
prospects of the Trust or of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, (2) there
have not been any transactions entered into by the Trust or by the Company or
any of its subsidiaries other than in the ordinary course of business which are
material to the Trust or the Company and its consolidated subsidiaries
considered as one enterprise, and (3) except for regular quarterly dividends on
the Company's outstanding shares of common stock and Class A Common Stock, there
has been no dividend or distribution of any kind declared, paid or made by the
Company on its capital stock or by the Trust on any class of its securities.
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware and
has corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum and to enter
into and perform its obligations under this Agreement; the Company is duly
qualified as a foreign corporation to transact business and is in good standing
in Massachusetts; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not have a material adverse effect on the results
of operations, condition (financial or otherwise), business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise; and
the Company is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended.
(viii) The Bank has been duly incorporated and is validly existing as
a trust company in good standing under the laws of the Commonwealth of
Massachusetts, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum
and is duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing would
not have a material adverse effect on the results of operations, condition
(financial or otherwise), business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise; all of the issued and
outstanding capital stock of the Bank has been duly authorized and validly
issued, is fully paid and non-assessable and is directly owned by the Company,
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
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claim or equity; none of the outstanding shares of capital stock of the Bank was
issued in violation of the preemptive or similar rights of any stockholder of
the Bank arising by operation of law, under the charter or by-laws of the Bank
or under any agreement to which the Company or the Bank is a party. Except for
the shares of capital stock of the Bank owned by the Company, neither the
Company nor the Bank owns any shares of stock or any other equity securities of
any corporation or has any equity interest in any firm, partnership, association
or other entity, except (a) securities held in the ordinary course of business
and (b) as described in the Offering Memorandum.
(ix) Each of the Company's subsidiaries other than the Bank has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation or organization (to the
extent that such concepts apply in the relevant jurisdiction) and, to the extent
applicable, each subsidiary is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, except for such jurisdictions where the failure to be
so qualified would not have a material adverse effect on the results of
operations, condition (financial or otherwise), business affairs or business
prospects of the Company and its consolidated subsidiaries considered as one
enterprise; all of the issued and outstanding capital stock of each such
subsidiary has been duly authorized and validly issued and is fully paid and
nonassessable (to the extent that such concepts apply); except as set forth or
incorporated by reference in the Offering Memorandum, the capital stock of each
such subsidiary is owned by the Company, free and clear of any pledge, lien,
encumbrance, claim or equity.
(x) The Company and its subsidiaries have good and marketable title
to all properties (real and personal) described in the Offering Memorandum as
owned by the Company and its subsidiaries, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Offering Memorandum or (b) are not
material in amount nor significant in relation to the business of the Company
and its subsidiaries taken as a whole; and all properties described in the
Offering Memorandum as held under lease by the Company or its subsidiaries are
held under leases which are in full force and effect.
(xi) The description of the authorized, issued and outstanding
capital stock of the Company set forth in the Offering Memorandum under the
heading "Capitalization" is accurate in all material respects as of the date
indicated in such document; and the shares of such issued and outstanding
capital stock have been duly authorized and validly issued and are fully paid
and non-assessable and such capital stock conforms in all material respects to
all statements relating thereto contained in the Offering Memorandum.
(xii) The Trust has been duly created and is validly existing in good
standing as a statutory business trust under the Delaware Act; the Trust, at the
Closing Time, will have the power and authority to own property and to conduct
its business as described in the Offering Memorandum and to enter into and
perform its obligations under the Operative Documents, as applicable, and the
Capital Securities; the Trust is not a party to or otherwise
6
<PAGE>
bound by any material agreement other than those described in the Offering
Memorandum; the Trust is and will, under current law, be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation; the Trust does not have any consolidated or
unconsolidated subsidiaries; the Trust is and will be treated as a consolidated
subsidiary of the Company pursuant to GAAP; and the Trust is not required to be
authorized to do business in any jurisdiction other than the State of Delaware.
(xiii) At the Closing Time, the Common Securities will have been duly
authorized by the Declaration and, when issued and delivered by the Trust to the
Company against payment therefor as described in the Offering Memorandum, will
be validly issued and will represent undivided beneficial interests in the
assets of the Trust; the issuance of the Common Securities is not subject to
preemptive or other similar rights; and at the Closing Time all of the issued
and outstanding Common Securities of the Trust will be directly owned by the
Company free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equitable right.
(xiv) As of the Closing Time, the Capital Securities will have been
duly authorized by the Trust and, when issued and delivered against payment
therefor as provided herein, will be validly issued and fully paid and non-
assessable undivided beneficial interests in the assets of the Trust and the
issuance of the Capital Securities will not be subject to preemptive or other
similar rights; and as of the Closing Time, the Exchange Capital Securities will
have been duly authorized by the Trust, and when and if issued in accordance
with the Declaration, will be validly issued and fully paid and non-assessable
undivided beneficial interests in the assets of the Trust.
(xv) The execution and delivery by the Trust and the Company of this
Agreement and the performance by the Trust and the Company of their respective
obligations hereunder, have been duly authorized by all necessary business trust
action on the part of the Trust and corporate action on the part of the Company;
and this Agreement has been duly executed and delivered by the Trust and the
Company.
(xvi) The Declaration has been duly authorized by the Company and, at
the Closing Time, will have been duly executed and delivered by the Company and
the Administrative Trustees, and assuming due authorization, execution and
delivery of the Declaration by the Property Trustee and the Delaware Trustee,
the Declaration will, at the Closing Time, be a valid and binding obligation of
the Company and the Trustees, enforceable against the Company and the Trustees
in accordance with its terms, except to the extent that enforcement thereof may
be limited by the receivership, conservatorship and supervisory powers of bank
regulatory agencies generally as well as by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by general principles of equity (regardless of whether enforcement
is considered in a proceeding at law or in equity) and the availability of
equitable remedies (collectively, the "Enforceability Exceptions"); and at the
time the Exchange Offer is consummated (if so
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<PAGE>
consummated), the Declaration will have been duly qualified under the Trust
Indenture Act of 1939, as amended (the "1939 Act").
(xvii) Each of the Guarantees and the Exchange Capital Securities
Guarantee has been duly authorized by the Company and, at the Closing Time, each
of the Guarantees will have been duly executed and delivered by the Company, and
will constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions; at or prior
to the time the Exchange Offer is consummated (if so consummated), the Exchange
Capital Securities Guarantee will have been duly executed and delivered by the
Company, and will constitute a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforcement thereof may be limited by the Enforceability Exceptions;
and at the time the Exchange Offer is consummated (if so consummated), the
Exchange Capital Securities Guarantee will have been duly qualified under the
1939 Act.
(xviii) The Indenture has been duly authorized by the Company and, at
the Closing Time, will have been duly executed and delivered by the Company and
will constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions; and at the
time the Exchange Offer is consummated (if so consummated), the Indenture will
have been duly qualified under the 1939 Act.
(xix) The Subordinated Debentures have been duly authorized by the
Company and, at the Closing Time, will have been duly executed by the Company
and, when authenticated in the manner provided for in the Indenture and
delivered against payment therefor as described in the Offering Memorandum, will
constitute valid and binding obligations of the Company, and the Exchange
Subordinated Debentures have been duly authorized by the Company and, if the
Exchange Offer is consummated, when duly executed by the Company and
authenticated in the manner provided in the Indenture, will constitute valid and
binding obligations of the Company, in each case, enforceable against the
Company in accordance with their terms, except to the extent that enforcement
thereof may be limited by the Enforceability Exceptions; and the Subordinated
Debentures will be in the form contemplated by, and entitled to the benefits of,
the Indenture and will conform in all material respects to the description
thereof in the Offering Memorandum.
(xx) The Registration Rights Agreement has been duly authorized by
each of the Offerors and, at the Closing Time, will have been duly executed and
delivered and will constitute a valid and binding agreement of each of the
Offerors, enforceable against each of the Offerors in accordance with its terms,
except to the extent enforcement thereof may be limited by (i) the
Enforceability Exceptions and (ii) the Commission's position that
indemnification for liabilities under the 1933 Act is against public policy.
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<PAGE>
(xxi) The Operative Documents, the Capital Securities and the Common
Securities each conform in all material respects to the descriptions thereof
contained in the Offering Memorandum.
(xxii) Each of the Administrative Trustees is an officer or employee
of the Company and has been duly authorized by the Company to execute and
deliver the Declaration.
(xxiii) At the Closing Time, the Property Trustee will be the record
holder of the Subordinated Debentures and no security interest, mortgage,
pledge, lien, encumbrance, claim or equity will be noted thereon or on the
Subordinated Debenture register maintained by or on behalf of the Company.
(xxiv) Neither the Trust nor the Company is, and following
consummation of the transactions contemplated hereby will not be, an "investment
company" or a company "controlled" by an "investment company" which is required
to be registered under the Investment Company Act of 1940, as amended (the "1940
Act").
(xxv) The Trust is not in violation of the Trust Certificate (defined
below) or the Declaration, and neither the Company nor the Bank is in violation
of its charter or by-laws and none of the Trust, the Company or any of the
Company's subsidiaries is in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any indenture,
mortgage, loan agreement, or any contract, note, lease or other instrument to
which it is a party or by which it or its properties may be bound, which
violation or default, singly or in the aggregate, would have a material adverse
effect on the properties, results of operations, condition (financial or
otherwise), business affairs or business prospects of the Trust or the Company
and its subsidiaries considered as one enterprise; the execution and delivery of
this Agreement and the Operative Documents by the Trust or the Company, as the
case may be, and the consummation by the Offerors of the transactions herein and
therein contemplated and the compliance with the terms of this Agreement and the
issuance and delivery of the Capital Securities have been duly authorized by all
necessary corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Trust, the Company or the Bank under, any contract,
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Trust, the Company or the Bank is a party or by which it or any of
their respective properties are bound, except for such conflicts, breaches and
defaults as, in the aggregate, would not be material to the properties, results
of operations, condition (financial or otherwise), business affairs or business
prospects of the Trust or the Company and its subsidiaries considered as one
enterprise, nor will such action result in any violation of the charter or
by-laws of the Company or the Bank or the Declaration or the trust certificate
of the Trust filed with the State of Delaware on January 17, 1997 (the "Trust
Certificate"), or any existing applicable law, rule, regulation, judgment, order
or decree of any government,
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governmental instrumentality or court, domestic or foreign, having jurisdiction
over the Trust, the Company or the Bank or any of their respective properties.
(xxvi) No filing with, or approval, authorization or consent of, any
court or governmental authority or agency is required for the performance by the
Company or the Trust of their respective obligations hereunder in connection
with the offering, issuance or sale of the Capital Securities under this
Agreement or the consummation of the transactions contemplated by the Operative
Documents, except such as have been obtained or will have been obtained prior to
the Closing Time or as may be required under state or foreign securities laws.
(xxvii) There is no action, suit or proceeding, or, to the knowledge
of the Company, inquiry or investigation before or by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of the
Company, threatened, against or affecting the Company or its subsidiaries which
is not disclosed in the Offering Memorandum which might reasonably be expected
to have a material adverse effect on the results of operations, condition
(financial or otherwise), business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise, or which might reasonably be
expected to materially and adversely affect the consummation of this Agreement
or the performance by the Company of its obligations hereunder; the aggregate of
all pending legal or governmental proceedings to which the Company or and of its
subsidiaries is a party or of which any of their respective property or assets
is the subject which are not described in the Offering Memorandum, including
ordinary routine litigation incidental to the business could not reasonably be
expected to have a material adverse effect on the results of operations,
condition (financial or otherwise), business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise.
(xxviii) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns that are required to be filed or have duly
requested extensions thereof and have paid all taxes required to be paid by any
of them and any related assessments, fines or penalties, except for any such
tax, assessment, fine or penalty that is being contested in good faith and by
appropriate proceedings; and adequate charges, accruals and reserves have been
provided for in the financial statements referred to in Section 1(a)(iv) above
in respect of all federal, state, local and foreign taxes for all periods as to
which the tax liability of the Company or its subsidiaries has not been finally
determined or remains open to examination by applicable taxing authorities.
(xxix) The Company and its subsidiaries carry or are entitled to the
benefits of insurance in such amounts and covering such risks as is generally
maintained by companies of established repute engaged in the same or similar
business, and all such insurance is in full force and effect.
(xxx) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are
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<PAGE>
executed in accordance with management's general and specific authorizations;
(ii) transactions are recorded as necessary to permit preparations of financial
statements in conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorizations; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xxxi) The Company and its subsidiaries possess such certificates,
authorities, permits, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them; the Company and its subsidiaries are in
compliance with the terms and conditions of all such Governmental Licenses,
except where the failure so to comply would not, singly or in the aggregate,
have a material adverse effect on the results of operations, condition
(financial or otherwise), business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise; all of the Governmental
Licenses are valid and in full force and effect, except when the invalidity of
such Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not have a material adverse effect on the results of
operations, condition (financial or otherwise), business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise; and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the results
of operations, condition (financial or otherwise), business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise.
(xxxii) The Company and its subsidiaries own, possess, have rights to
or can acquire on reasonable terms, the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively, "patent
and proprietary rights") presently employed by them in connection with the
business now operated by them as described in the Offering Memorandum, except
where lack thereof would not have a material adverse effect on the results of
operations, condition (financial or otherwise), business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise, and
the Company and its subsidiaries have not received any notice or do not
otherwise have knowledge of any infringement of or conflict with asserted rights
of others with respect to any patent or proprietary rights or of any facts or
circumstances which would render any patent and proprietary rights invalid or
inadequate to protect the interest of the Company and its subsidiaries therein,
and which infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would have a material adverse effect on the results of operations, condition
(financial or otherwise), business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise.
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(xxxiii) The Trust, the Company and its subsidiaries are in compliance
with, and conduct their respective businesses in conformity with, all applicable
laws and governmental regulations, the violation of which would have a material
adverse effect on the condition, financial or otherwise, or on the earnings,
business affairs or business prospects of the Trust, or the Company and its
subsidiaries considered as one enterprise.
(xxxiv) Other than such agreements, contracts and other documents as
are described in the Offering Memorandum or otherwise filed as Exhibits to the
Company's annual report on Form 10-K, Transition Report on Form 10-K, or
quarterly reports on Form 10-Q incorporated by reference in the Offering
Memorandum, there are no agreements, contracts or documents of a character
described in Item 601 of Regulation S-K under the 1933 Act to which the Company
or any of the Principal Subsidiaries is a party.
(xxxv) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Capital
Securities.
(xxxvi) The Capital Securities will, at the Closing Time, be eligible
for resale pursuant to Rule 144A and will not be, at the Closing Time, of the
same class as securities listed on a national securities exchange registered
under Section 6 of the 1934 Act, or quoted in a U.S. automated interdealer
quotation system.
(xxxvii) None of the Trust, the Company, or any of their affiliates,
as such term is defined in Rule 501(b) under the 1933 Act ("Affiliates"), or any
person acting on its or any of their behalf (other than the Initial Purchaser,
as to whom the Offerors make no representation) has engaged or will engage, in
connection with the offering of the Capital Securities, in any form of general
solicitation or general advertising within the meaning of Rule 502(c) under the
1933 Act.
(xxxviii) Subject to compliance by the Initial Purchaser with the
representations and warranties set forth in Section 2 hereof and the procedures
set forth in Section 6 hereof, prior to the Exchange Offer, it is not necessary
in connection with the offer, sale and delivery of the Capital Securities to the
Initial Purchaser and to each Subsequent Purchaser in the manner contemplated by
this Agreement and the Offering Memorandum to register the Capital Securities
under the 1933 Act or to qualify any indenture or any guarantee under the 1939
Act.
(xxxix) With respect to those Capital Securities, if any, sold in
reliance on Regulation S, (A) none of the Trust, the Company, its Affiliates or
any person acting on its or their behalf (other than the Initial Purchaser, as
to whom the Offerors make no representation) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S and (B) each of the
Trust, the Company and its Affiliates and any person acting on its or their
behalf (other than the Initial Purchaser, as to whom the Offerors make no
representation) has complied and will comply with the offering restrictions
requirement of Regulation S.
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(b) Any certificate signed by any Trustee of the Trust or any duly
authorized officer of the Company or the Bank and delivered to you or to counsel
for the Initial Purchaser shall be deemed a representation and warranty by the
Trust or the Company, as the case may be, to the Initial Purchaser as to the
matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchaser; Closing.
(a) On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Trust agrees to
sell to the Initial Purchaser and the Initial Purchaser agrees to purchase from
the Trust, at a price of $1,000 per Capital Security, 25,000 Capital Securities.
(b) Deliveries of certificates for the Capital Securities shall be made at
the office of the Initial Purchaser in New York (or at the offices of Brown &
Wood llp specified below in the case of Capital Securities registered in the
name of Cede & Co.), and payment of the purchase price for the Capital
Securities shall be made by the Initial Purchaser to the Trust by wire transfer
of immediately available funds contemporaneous with closing at the offices of
Brown & Wood llp, One World Trade Center, New York, New York 10048, at 10:00
A.M. on January 31, 1997, or such other time not later than ten business days
after such date as shall be agreed upon by the Initial Purchaser and the
Offerors (such time and date of payment and delivery being herein called the
"Closing Time").
Payment for the Capital Securities purchased by the Initial Purchaser shall
be made to the Trust by wire transfer of immediately available funds, against
delivery for the account of the Initial Purchaser of certificates for the
Capital Securities. Certificates for the Capital Securities shall be in such
denominations and registered in such names as the Initial Purchaser may request
in writing at least one business day before the Closing Time. The certificates
representing the Capital Securities which are not resold to institutional
"accredited investors" shall be registered in the name of Cede & Co. pursuant to
the DTC Agreement and shall be made available for examination and packaging by
the Initial Purchaser in The City of New York not later than 10:00 A.M. on the
last business day prior to the Closing Time.
(c) As compensation to the Initial Purchaser for its commitment hereunder
and in view of the fact that the proceeds of the sale of the Capital Securities
will be used to purchase Subordinated Debentures of the Company, the Company
hereby agrees to pay at the Closing Time to the Initial Purchaser in immediately
available funds $22.50 per Capital Security to be delivered by the Company
hereunder at the Closing Time.
(d) The Initial Purchaser represents and warrants to, and agrees with, the
Company that it is a Qualified Institutional Buyer (as defined in Section
6(a)(i)) and an Institutional Accredited Investor (as defined in Section
6(a)(i)).
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SECTION 3. Covenants of the Offerors. The Offerors covenant with the
-------------------------
Initial Purchaser as follows:
(a) The Offerors, as promptly as possible, will furnish to the Initial
Purchaser, without charge, such number of copies of the Offering Memorandum and
any amendments and supplements thereto and documents incorporated by reference
therein as the Initial Purchaser may reasonably request.
(b) The Offerors will immediately notify the Initial Purchaser, and
confirm such notice in writing, of (x) any filing made by the Offerors of
information relating to the offering of the Capital Securities with any
securities exchange or any other regulatory body in the United States or any
other jurisdiction, and (y) prior to the completion of the placement of the
Capital Securities by the Initial Purchaser as evidenced by a notice in writing
from the Initial Purchaser to the Offerors, any material changes in or affecting
the results of operations, condition (financial or otherwise), business affairs
or business prospects of the Trust, or the Company and its subsidiaries
considered as one enterprise, which (i) make any statement in the Offering
Memorandum false or misleading or (ii) are not disclosed in the Offering
Memorandum. In such event or if during such time any event shall occur as a
result of which it is necessary, in the reasonable opinion of the Company, its
counsel or counsel for the Initial Purchaser, to amend or supplement the
Offering Memorandum in order that the Offering Memorandum not include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading in the light of the circumstances
then existing, the Company will forthwith amend or supplement the Offering
Memorandum by preparing and furnishing to the Initial Purchaser an amendment or
amendments of, or a supplement or supplements to, the Offering Memorandum (in
form and substance satisfactory in the reasonable opinion of counsel for the
Initial Purchaser) so that, as so amended or supplemented, the Offering
Memorandum will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a Subsequent
Purchaser, not misleading.
(c) The Offerors will advise the Initial Purchaser promptly of any
proposal to amend or supplement the Offering Memorandum and will not effect such
amendment or supplement without the consent of the Initial Purchaser, which
consent shall not be unreasonably withheld. Neither the consent of the Initial
Purchaser, nor the Initial Purchaser's delivery of any such amendment or
supplement, shall constitute a waiver of any of the conditions set forth in
Section 5 hereof.
(d) The Offerors will cooperate with the Initial Purchaser and use their
reasonable best efforts to permit the Capital Securities to be eligible for
clearance and settlement through the facilities of DTC.
(e) The Trust will use the proceeds received by it from the sale of the
Capital Securities in the manner specified in the Offering Memorandum under "Use
of Proceeds", and
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the Company will use the net proceeds received by it from the
sale of the Subordinated Debentures substantially in the manner specified or
contemplated in the Offering Memorandum under "Use of Proceeds".
(f) Prior to the thirtieth day after the date of the Closing Time, neither
the Trust nor the Company will, without the prior written consent of the Initial
Purchaser, directly or indirectly, issue, sell, offer or agree to sell, grant
any option for the sale of, or otherwise dispose of, Capital Securities, any
security convertible into exchangeable or exercisable for Capital Securities or
the Subordinated Debentures or any debt securities substantially similar
(including provisions with respect to the deferral of interest) to the
Subordinated Debentures or any equity security substantially similar to the
Capital Securities (except for the Securities issued pursuant to this
Agreement).
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations and the obligations of the Trust under this
Agreement, including (i) the preparation, printing and any filing of the
Preliminary Offering Memorandum, the Final Offering Memorandum (including
financial statements and any schedules or exhibits and any document incorporated
therein by reference) and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Initial Purchaser of this Agreement,
the Operative Documents and such other documents as may be required in
connection with the offering, purchase, sale and delivery of the Securities,
(iii) the preparation, issuance and delivery of the certificates for the
Securities to the Initial Purchaser, (iv) the fees and disbursements of the
Company's counsel, accountants and other advisors, and (v) the fees and expenses
of any trustee appointed under any of the Operative Documents, including the
fees and disbursements of counsel for such trustees in connection with the
Operative Documents.
(b) Termination of Agreement. If this Agreement is terminated by the
Initial Purchaser in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchaser for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
Brown & Wood llp, counsel for the Initial Purchaser.
SECTION 5. Conditions of the Initial Purchaser's Obligations. The
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obligations of the Initial Purchaser hereunder are subject to the accuracy of
the representations and warranties of the Offerors contained in Section 1 hereof
or in certificates of any Trustee of the Trust, officer of the Company or any of
its subsidiaries delivered pursuant to the provisions hereof, to the performance
in all material respects by the Offerors of their obligations hereunder, and to
the following further conditions:
(a) Opinion of Outside Counsel for Offerors. At the Closing Time, the
Initial Purchaser shall have received the favorable opinion, dated as of the
Closing Time, of Testa, Hurwitz & Thibeault, LLP, counsel for the Company, to
the effect set forth in Exhibit A hereto.
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(b) Opinion of Special Delaware Counsel for Offerors. At the Closing Time,
the Initial Purchaser shall have received the favorable opinion, dated as of the
Closing Time, of Richards, Layton & Finger P.A., special Delaware counsel to the
Offerors to the effect set forth in Exhibit B hereto.
(c) Opinion of Counsel for The Bank of New York. At the Closing Time, the
Initial Purchaser shall have received the favorable opinion, dated as of the
Closing Time, of Emmet, Marvin & Martin, LLP, counsel to The Bank of New York,
as Property Trustee under the Declaration, and Guarantee Trustee under the
Capital Securities Guarantee Agreement, to the effect set forth as Exhibit C
hereto.
(d) Tax Opinion of Counsel for the Offerors. At the Closing Time, the
Initial Purchaser shall have received an opinion, dated as of the Closing Time,
of Testa, Hurwitz & Thibeault, LLP, counsel to the Offerors, to the effect set
forth in Exhibit D hereto.
(e) Opinion of Counsel for Initial Purchaser. At the Closing Time, the
Initial Purchaser shall have received the favorable opinion, dated as of the
Closing Time, of Brown & Wood llp, counsel for the Initial Purchaser, with
respect to the incorporation and legal existence of the Company, the Series A
Capital Securities, the Indenture, the Series A Capital Securities Guarantee
Agreement, this Agreement, the Registration Rights Agreement, the Offering
Memorandum and other related matters as the Initial Purchaser may require. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of Trustees
of the Trust, officers of the Company and its subsidiaries and certificates of
public officials.
(f) Certificates. At the Closing Time, there shall not have been, since
the date hereof or since the respective dates as of which information is given
in the Offering Memorandum, any material adverse change in the results of
operations, condition (financial or otherwise), business affairs or business
prospects of the Trust, or the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Initial Purchaser shall have received a certificate of any Chairman, any Vice
Chairman, the Chief Executive Officer, the President, any Executive Vice
President, Senior Vice President of the Company or the Company's General Counsel
and Secretary and of the chief financial officer or the chief accounting officer
of the Company and a certificate of an Administrative Trustee of the Trust,
dated as of the Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Section 1
hereof were true and correct when made and are true and correct with the same
force and effect as though expressly made at and as of the Closing Time, and
(iii) the Offerors have complied in all material respects with all agreements
and satisfied all conditions on their part to be performed or satisfied at or
prior to the Closing Time.
(g) Accountant's Comfort Letter. At the time of execution of this
Agreement, the Initial Purchaser shall have received from Deloitte & Touche LLP
a letter dated such date, in form and substance satisfactory to the Initial
Purchaser, containing statements and information
16
<PAGE>
of the type ordinarily included in accountants' "comfort letters" to initial
purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(h) Bring-down Comfort Letter. At the Closing Time, the Initial Purchaser
shall have received from Deloitte & Touche LLP a letter, dated as of the Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (g) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to the
Closing Time.
(i) Additional Documents. At the Closing Time, counsel for the Initial
Purchaser shall have been furnished with the Registration Rights Agreement,
executed by the Company and the Trust, and such other documents and opinions as
they may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Capital Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties of the
Offerors, or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Offerors in connection with the issuance and sale of
the Capital Securities as herein contemplated shall be reasonably satisfactory
in form and substance to the Initial Purchaser and counsel for the Initial
Purchaser.
(j) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchaser by written notice to the
Offerors at any time at or prior to the Closing Time, and such termination shall
be without liability of any party to any other party except as provided in
Section 4 and except that Sections 7, 8 and 9 shall survive any such termination
and remain in full force and effect.
SECTION 6. Subsequent Offers and Sales of the Capital Securities.
-----------------------------------------------------
(a) Offer and Sale Procedures. The Initial Purchaser and the Offerors
hereby establish and agree to observe the following procedures in connection
with the offer and sale of the Capital Securities:
(i) Offers and Sales only to Institutional Accredited Investors,
------------------------------------------------------------
Qualified Institutional Buyers and Non-U.S. Persons. Offers and sales of the
- ---------------------------------------------------
Capital Securities will be made only by the Initial Purchaser or Affiliates
thereof qualified to do so in the jurisdictions in which such offers or sales
are made. Each such offer or sale shall only be made (A) to persons whom the
offeror or seller reasonably believes to be qualified institutional buyers (as
defined in Rule 144A under the Securities Act) ("Qualified Institutional
Buyers"), or (B) to a limited number of other institutional accredited investors
(as such term is defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D)
that the offeror or seller reasonably believes to be and, with respect to sales
and deliveries, that are accredited investors ("Institutional Accredited
Investors"), or (C) non-U.S. persons outside the United States to whom the
offeror or seller
17
<PAGE>
reasonably believes offers and sales of the Capital Securities may be made in
reliance upon Regulation S under the 1933 Act.
(ii) No General Solicitation. No general solicitation or general
-----------------------
advertising (within the meaning of Rule 502(c) under the 1933 Act) will be used
in the United States in connection with the offering of the Capital Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
---------------------------------
Subsequent Purchaser of a Capital Security acting as a fiduciary for one or more
third parties in connection with an offer and sale to such purchaser pursuant to
clause (a) above, each third party shall, in the judgment of the applicable
Initial Purchaser, be an Institutional Accredited Investor or a Qualified
Institutional Buyer or a non-U.S. person outside the United States.
(iv) Subsequent Purchaser Notification. The Initial Purchaser will
---------------------------------
take reasonable steps to inform, and cause each of its U.S. Affiliates to take
reasonable steps to inform, persons acquiring Capital Securities from such
Initial Purchaser or affiliate, as the case may be, in the United States that
the Capital Securities (A) have not been and will not be registered under the
1933 Act, (B) are being sold to them without registration under the 1933 Act in
reliance on Rule 144A or in accordance with another exemption from registration
under the 1933 Act, as the case may be, and (C) may not be offered, sold or
otherwise transferred except (1) to the Company, (2) outside the United States
in accordance with Regulation S, or (3) inside the United States in accordance
with (x) Rule 144A to a person whom the seller reasonably believes is a
Qualified Institutional Buyer that is purchasing such Securities for its own
account or for the account of a Qualified Institutional Buyer to whom notice is
given that the offer, sale or transfer is being made in reliance on Rule 144A or
(y) an exemption from registration under the 1933 Act (including the exemption
provided by Rule 144), if available.
(v) Minimum Amount. No sale of the Capital Securities to any one
--------------
Subsequent Purchaser will be in blocks of less than U.S. $100,000 liquidation
amount.
(vi) Restrictions on Transfer. The transfer restrictions and the
------------------------
other provisions of the Declaration, including the legend required thereby,
shall apply to the Capital Securities except as otherwise agreed by the Offerors
and the Initial Purchaser. Following the sale of the Capital Securities by the
Initial Purchaser to Subsequent Purchasers pursuant to the terms hereof, the
Initial Purchaser shall not be liable or responsible to the Offerors for any
losses, damages or liabilities suffered or incurred by the Offerors, including
any losses, damages or liabilities under the 1933 Act, arising from or relating
to any resale or transfer of any Capital Security.
(vii) Delivery of Offering Memorandum. The Initial Purchaser will
-------------------------------
deliver to each purchaser of the Capital Securities from the Initial Purchaser,
in connection with its original distribution of the Capital Securities, a copy
of the Offering Memorandum, as amended and supplemented at the date of such
delivery.
18
<PAGE>
(b) Covenants of the Offerors. Each of the Offerors, jointly and
severally, covenants with the Initial Purchaser as follows:
(i) Due Diligence. In connection with the original distribution of
-------------
the Capital Securities, the Offerors agree that, prior to any offer or sale of
the Capital Securities by the Initial Purchaser, the Initial Purchaser and
counsel for the Initial Purchaser shall have the right to make reasonable
inquiries into the business of the Trust, the Company and its subsidiaries. The
Offerors also agree to provide information to each prospective Subsequent
Purchaser of Capital Securities who so requests concerning the Trust, the
Company and its subsidiaries (to the extent that such information is available
or can be acquired and made available to prospective Subsequent Purchasers
without unreasonable effort or expense and to the extent the provision thereof
is not prohibited by applicable law) and the terms and conditions of the
offering of the Securities, as provided in the Offering Memorandum.
(ii) Integration. The Offerors agree that they will not and will
-----------
cause their Affiliates not to make any offer or sale of securities of the
Offerors of any class if, as a result of the doctrine of "integration" referred
to in Rule 502 under the 1933 Act, such offer or sale would render invalid (for
the purpose of (i) the sale of the Capital Securities by the Trust to the
Initial Purchaser or (ii) the resale of the Capital Securities by the Initial
Purchaser to Subsequent Purchasers) the exemption from the registration
requirements of the 1933 Act provided by Section 4(2) thereof or by Rule 144A or
by Regulation S thereunder or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order to
---------------------
render the Capital Securities eligible for resale pursuant to Rule 144A under
the 1933 Act, while any of the Capital Securities remain outstanding, the
Company will make available, upon request, to any holder of Capital Securities
or prospective purchasers of Capital Securities the information specified in
Rule 144A(d)(4), unless such information is furnished to the Commission pursuant
to Section 13 or 15(d) of the 1934 Act (such information, whether made available
to holders or prospective purchasers or furnished to the Commission, is herein
referred to as "Additional Information").
(iv) Restriction on Repurchases. Until the expiration of three
--------------------------
years (or such shorter period as may hereafter be referred to in Rule 144(k) (or
similar successor rule)) after the original issuance of the Capital Securities,
the Offerors will not, and will cause their Affiliates not to, purchase or agree
to purchase or otherwise acquire any Capital Securities which are "restricted
securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act),
whether as beneficial owner or otherwise unless, immediately upon any such
purchase, the Offerors or any Affiliate shall submit such securities to the
Trustee for cancellation.
(c) Resale Pursuant to Rule 903 of Regulation S or Rule 144A. The Initial
Purchaser understands that the Capital Securities have not been and will not be
registered under the 1933 Act and may not be offered or sold within the United
States or to, or for the account or benefit of U.S. persons except in accordance
with Regulation S under the 1933 Act or
19
<PAGE>
pursuant to an exemption from the registration requirements of the 1933 Act. The
Initial Purchaser represents and agrees, that, except as permitted below, it has
offered and sold Capital Securities and will offer and sell Capital Securities
(i) as part of their distribution at any time and (ii) otherwise until forty
days after the later of the date upon which the offering of the Capital
Securities commences and the Closing Time, only in accordance with Rule 903 of
Regulation S or Rule 144A under the 1933 Act or to Institutional Accredited
Investors. Accordingly, neither the Initial Purchaser, its affiliates nor any
persons acting on its behalf have engaged or will engage in any directed selling
efforts with respect to Capital Securities, and the Initial Purchaser, its
affiliates and any person acting on its behalf have complied and will comply
with the offering restriction requirements of Regulation S. The Initial
Purchaser agrees that, at or prior to confirmation of a sale of Capital
Securities (other than a sale of Capital Securities pursuant to Rule 144A or to
Institutional Accredited Investors), it will have sent to each distributor,
dealer or person receiving a selling concession, fee or other remuneration that
purchases Securities from it or through it during the restricted period a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been
registered under the United States Securities
Act of 1933 (the "Securities Act") and may
not be offered or sold within the United
States or to or for the account or benefit of
U.S. persons (i) as part of their
distribution at any time and (ii) otherwise
until forty days after the later of the date
upon which the offering of the Securities
commenced and the date of closing, except in
either case in accordance with Regulation S
or Rule 144A under the Securities Act. Terms
used above have the meaning given to them by
Regulation S."
Terms used in the above paragraph have the meanings given to them by Regulation
S.
The Initial Purchaser represents and agrees that it has not entered and will not
enter into any contractual arrangements with respect to the distribution of the
Capital Securities, except with its affiliates or with the prior written consent
of the Offerors.
(d) Compliance with United Kingdom Law. The Initial Purchaser represents
and agrees that (i) it has not offered or sold and, prior to the expiry of the
period of six months from the date hereof, will not offer or sell any Capital
Securities to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has only issued or passed on and
will only issue or pass on
20
<PAGE>
in the United Kingdom any document received by it in connection with the issue
of the Capital Securities to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on, and (iii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to any Capital Securities in, from or otherwise
involving the United Kingdom.
(e) Compliance with Other Laws. The Initial Purchaser acknowledges that no
action has been taken to permit a public offering of the Capital Securities in
any jurisdiction outside of the United States where action would be required for
such purpose. The Initial Purchaser agrees that it will not offer or sell any
Capital Securities in any jurisdiction outside of the United States except under
circumstances that will result in compliance with all applicable laws thereof.
SECTION 7. Indemnification.
---------------
(a) Indemnification of Initial Purchaser. The Offerors agree to jointly
and severally indemnify and hold harmless the Initial Purchaser and each person,
if any, who controls the Initial Purchaser within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact included in the Final Offering
Memorandum (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of the
Offerors; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to the third sentence of Section 7(c) hereof, the fees and
disbursements of counsel chosen by the Initial Purchaser), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
21
<PAGE>
statement or omission, to the extent that any such expense is not paid
under (i) or (ii) above;
provided, however, that (i) this indemnity agreement shall not apply to any
- -------- -------
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Offerors by the Initial Purchaser expressly for use in the Final Offering
Memorandum (or any amendment thereto) and (ii) the Offerors shall not be liable
to the Initial Purchaser or any controlling person with respect to any untrue
statement or alleged untrue statement or omission or alleged omission in the
Final Offering Memorandum to the extent that any such loss, liability, claim,
damage or expense of the Initial Purchaser or controlling person results from
the fact that the Initial Purchaser sold Capital Securities to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of an amendment or supplement thereto if the Company had previously
furnished copies of such amendment or supplement to the Initial Purchaser and
the loss, liability, claim, damage or expense of the Initial Purchaser or
controlling person results from an untrue statement or omission of a material
fact contained in the Final Offering Memorandum which was corrected in such
amendment or supplement.
(b) Indemnification of Offerors, Directors and Officers. The Initial
Purchaser agrees to indemnify and hold harmless the Company, its directors and
officers, the Trust, each of the Administrative Trustees and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Offering Memorandum in
reliance upon and in conformity with written information furnished to the
Company by the Initial Purchaser expressly for use in the Offering Memorandum.
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) be counsel to
the indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by
22
<PAGE>
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification could be sought under this
Section 7 (whether or not the indemnified parties are actual or potential
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 7(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement; provided that an indemnifying party shall not be liable for any such
settlement effected without its consent if such indemnifying party, prior to the
date of such settlement, (1) reimburses such indemnified party in accordance
with such request for the amount of such fees and expenses of counsel as the
indemnifying party believes in good faith to be reasonable and (2) provides
written notice to the indemnified party that the indemnifying party disputes in
good faith the reasonableness of the unpaid balance of such fees and expenses.
SECTION 8. Contribution. In order to provide for just and equitable
------------
contribution in circumstances under which the indemnification provided for in
Section 7 hereof is judicially determined to be unenforceable by an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Offerors on the one
hand and the Initial Purchaser on the other hand from the offering of the
Capital Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Offerors, on the one hand, and of the
Initial Purchaser, on the other hand, in connection with the statements or
omissions which resulted in such losses liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Offerors on the one hand and the
Initial Purchaser on the other hand in connection with the offering of the
Capital Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Capital Securities pursuant to this Agreement (before deducting expenses)
received by the Offerors and the total commission received by the Initial
Purchaser, bear to the aggregate initial offering price of the Capital
Securities.
23
<PAGE>
The relative fault of the Offerors, on the one hand, and the Initial
Purchaser, on the other hand, shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statements of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Offerors or by the Initial Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Offerors and the Initial Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, the Initial Purchaser
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Capital Securities purchased by it and distributed
to the public were offered to the public exceeds the amount of any damages which
the Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls the
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as the Initial
Purchaser, and each officer and director of the Company, each Administrative
Trustee of the Trust, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company and the Trust.
SECTION 9. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or trustees of the Trust submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Initial Purchaser or
controlling person, or by or on behalf of the Trust or the Company, and shall
survive delivery of the Capital Securities to the Initial Purchaser.
24
<PAGE>
SECTION 10. Termination of Agreement.
------------------------
(a) The Initial Purchaser may terminate this Agreement, by notice to the
Company, at any time at or prior to the Closing Time (i) if there has been,
since the time of execution of this Agreement or since the respective dates as
of which information is given in the Offering Memorandum, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Trust or the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or elsewhere, any outbreak of hostilities
or escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Initial Purchaser, impracticable to market the Capital
Securities or to enforce contracts for the sale of the Capital Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the over-the-counter market has been suspended or
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal, New York or Massachusetts authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof, and provided further that Sections 1, 7 and 8
shall survive such termination and remain in full force and effect.
SECTION 11. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchaser shall be directed to the Initial Purchaser c/o Keefe, Bruyette &
Woods, Inc. at Two World Trade Center, New York, New York 10048, Attention of
John G. Duffy, with a copy to Brown & Wood llp, One World Trade Center, 58th
Floor, New York, New York 10048, Attention of Mitchell Kleinman, Esq.; notices
to the Offerors shall be directed to Investors Financial Services Corp., 89
South Street, P.O. Box 1537, Boston, Massachusetts 02205-1537, Attention of
General Counsel, with a copy to Testa, Hurwitz & Thibeault, LLP, High Street
Tower, 125 High Street, Boston, Massachusetts, 02110, Attention of Steven C.
Browne, Esq.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Initial Purchaser and the Offerors and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchaser and the Offerors and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
25
<PAGE>
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchaser and the
Offerors and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
the Initial Purchaser shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
26
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Initial Purchaser and the Offerors in accordance with its terms. The
execution and delivery of this Agreement by the Offerors and its acceptance,
execution and delivery by or on behalf of the Initial Purchaser may be evidenced
by an exchange of telecopied or other written communications.
Very truly yours,
INVESTORS FINANCIAL SERVICES CORP.
By__________________________________
Name:
Title:
INVESTORS CAPITAL TRUST I
By INVESTORS FINANCIAL SERVICES CORP.
as Sponsor
By__________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
KEEFE, BRUYETTE & WOODS, INC.
By______________________________________
Authorized Signatory
27
<PAGE>
EXHIBIT 10.21
================================================================================
INVESTORS FINANCIAL SERVICES CORP.
______________________________
______________________________
INDENTURE
DATED AS OF JANUARY 31, 1997
______________________________
THE BANK OF NEW YORK
AS TRUSTEE
______________________________
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
================================================================================
<PAGE>
TIE-SHEET
of provisions of Trust Indenture Act of 1939 with Indenture dated as of
January 31, 1997 between Investors Financial Services Corp. and The Bank of New
York, as Trustee:
<TABLE>
<CAPTION>
ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1)................................................................. 6.09
(a)(2)................................................................. 6.09
310(a)(3)................................................................. N/A
(a)(4)................................................................. N/A
310(a)(5)............................................................ 6.10, 6.11
310(b).................................................................... 6.08
310(c).................................................................... N/A
311(a) and (b)............................................................ 6.13
311(c).................................................................... N/A
312(a)............................................................ 4.01, 4.02(a)
312(b) and (c)............................................................ 4.02
313(a).................................................................... 4.04
313(b)(1)................................................................. 4.04
313(b)(2)................................................................. 4.04
313(c).................................................................... 4.04
313(d).................................................................... 4.04
314(a)............................................................... 3.05, 4.03
314(b).................................................................... N/A
314(c)(1) and (2)....................................................6.07, 13.06
314(c)(3)................................................................. N/A
314(d).................................................................... N/A
314(e).................................................................... 6.07
314(f).................................................................... N/A
315(a),(c) and (d)........................................................ 6.01
315(b).................................................................... 5.08
315(e).................................................................... 5.09
316(a)(1)................................................................. 5.07
316(a)(2)................................................................. N/A
316(a) last sentence...................................................... 2.09
316(b).................................................................... 9.02
317(a)............................................................... 5.02, 5.05
317(b).................................................................... 6.05
318(a).................................................................... 13.08
</TABLE>
__________________________________
THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED.
<PAGE>
TABLE OF CONTENTS*
<TABLE>
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ARTICLE I
DEFINITIONS............................... 1
SECTION 1.01. Definitions.............................................. 1
Additional Interest.................................................... 1
Adjusted Treasury Rate................................................. 2
Adverse Tax Consequence................................................ 2
Affiliate.............................................................. 2
Authenticating Agent................................................... 2
Bankruptcy Law......................................................... 2
Board of Directors..................................................... 3
Board Resolution....................................................... 3
Business Day........................................................... 3
Capital Securities..................................................... 3
Capital Securities Guarantee........................................... 3
Commission............................................................. 3
Common Securities...................................................... 3
Common Securities Guarantee............................................ 4
Common Stock........................................................... 4
Company................................................................ 4
Company Request........................................................ 4
Comparable Treasury Issue.............................................. 4
Comparable Treasury Price.............................................. 4
Compounded Interest.................................................... 5
Conditional Tax Redemption Event....................................... 5
Custodian.............................................................. 5
Declaration............................................................ 5
Default................................................................ 5
Defeasance Agent....................................................... 5
Deferred Interest...................................................... 5
Definitive Securities.................................................. 5
Depositary............................................................. 5
Discharged............................................................. 5
Dissolution Event...................................................... 5
Event of Default....................................................... 6
Exchange Act........................................................... 6
Exchange Offer......................................................... 6
Extended Interest Payment Period....................................... 6
Federal Reserve........................................................ 6
Global Security........................................................ 6
Indebtedness for Money Borrowed........................................ 6
</TABLE>
____________________
* THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A
PART OF THE INDENTURE.
i
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Indebtedness Ranking Junior to the Securities.......................... 6
Indebtedness Ranking on a Parity with the Securities................... 7
Indenture.............................................................. 7
Initial Optional Redemption Date....................................... 7
Interest Payment Date.................................................. 7
Issue Date............................................................. 7
Investors Capital Trust................................................ 7
Liquidated Damages..................................................... 7
Maturity Date.......................................................... 7
Mortgage............................................................... 7
Non Book-Entry Capital Securities...................................... 7
Officers............................................................... 7
Officers' Certificate.................................................. 8
Opinion of Counsel..................................................... 8
Optional Redemption Price.............................................. 8
Other Debentures....................................................... 8
Other Guarantees....................................................... 8
outstanding............................................................ 8
Person................................................................. 8
Predecessor Security................................................... 9
Principal Office of the Trustee........................................ 9
Purchase Agreement..................................................... 9
Property Trustee....................................................... 9
Quotation Agent........................................................ 9
Redemption Price....................................................... 9
Reference Treasury Dealer.............................................. 9
Reference Treasury Dealer Quotations................................... 9
Registration Rights Agreement.......................................... 9
Regulatory Capital Event............................................... 10
Responsible Officer.................................................... 10
Restricted Security.................................................... 10
Rule 144A.............................................................. 10
Securities............................................................. 10
Securities Act......................................................... 10
Securityholder, holder of Securities................................... 10
Security Register...................................................... 10
Security Registrar..................................................... 11
Senior Indebtedness.................................................... 11
Series A Securities.................................................... 11
Series B Securities.................................................... 11
Special Event.......................................................... 11
Special Event Redemption Price......................................... 11
Subsidiary............................................................. 11
Tax Event.............................................................. 12
Trustee................................................................ 12
Trust Indenture Act of 1939............................................ 12
Trust Securities....................................................... 12
U.S. Government Obligations............................................ 12
</TABLE>
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<TABLE>
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ARTICLE II
SECURITIES................................ 13
SECTION 2.01. Forms Generally......................................... 13
SECTION 2.02. Execution and Authentication............................ 13
SECTION 2.03. Form and Payment........................................ 14
SECTION 2.04. Legends................................................. 14
SECTION 2.05. Global Security......................................... 15
SECTION 2.06 Interest................................................ 16
SECTION 2.07. Transfer and Exchange................................... 17
SECTION 2.08. Replacement Securities.................................. 20
SECTION 2.09. Treasury Securities..................................... 20
SECTION 2.10. Temporary Securities.................................... 20
SECTION 2.11. Cancellation............................................ 21
SECTION 2.12. Defaulted Interest...................................... 21
SECTION 2.13. CUSIP Numbers........................................... 22
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY..................... 23
SECTION 3.01. Payment of Principal, Premium and Interest.............. 23
SECTION 3.02. Offices for Notices and Payments, etc................... 23
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office...... 24
SECTION 3.04. Provision as to Paying Agent............................ 24
SECTION 3.05. Certificate to Trustee.................................. 25
SECTION 3.06. Compliance with Consolidation Provisions................ 25
SECTION 3.07. Limitation on Dividends................................. 25
SECTION 3.08. Covenants as to Investors Capital Trust................. 26
SECTION 3.09. Payment of Expenses..................................... 27
SECTION 3.10. Payment Upon Resignation or Removal..................... 28
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE........................... 28
SECTION 4.01. Securityholders' Lists.................................. 28
SECTION 4.02. Preservation and Disclosure of Lists.................... 28
SECTION 4.03. Reports by Company...................................... 30
SECTION 4.04. Reports by the Trustee.................................. 31
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT............................. 32
SECTION 5.01. Events of Default....................................... 32
</TABLE>
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SECTION 5.02. Payment of Securities on Default; Suit Therefor......... 34
SECTION 5.03. Application of Moneys Collected by Trustee.............. 36
SECTION 5.04. Proceedings by Securityholders.......................... 37
SECTION 5.05. Proceedings by Trustee.................................. 38
SECTION 5.06. Remedies Cumulative and Continuing...................... 38
SECTION 5.07. Direction of Proceedings and Waiver of Defaults
by Majority of Securityholders.......................... 39
SECTION 5.08. Notice of Defaults...................................... 40
SECTION 5.09. Undertaking to Pay Costs................................ 40
ARTICLE VI
CONCERNING THE TRUSTEE........................... 41
SECTION 6.01. Duties and Responsibilities of Trustee.................. 41
SECTION 6.02. Reliance on Documents, Opinions, etc.................... 42
SECTION 6.03. No Responsibility for Recitals, etc..................... 44
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Securities......... 44
SECTION 6.05. Moneys to be Held in Trust.............................. 44
SECTION 6.06. Compensation and Expenses of Trustee.................... 44
SECTION 6.07. Officers' Certificate as Evidence....................... 45
SECTION 6.08. Conflicting Interest of Trustee......................... 46
SECTION 6.09. Eligibility of Trustee.................................. 46
SECTION 6.10. Resignation or Removal of Trustee....................... 46
SECTION 6.11. Acceptance by Successor Trustee......................... 48
SECTION 6.12. Succession by Merger, etc............................... 49
SECTION 6.13. Limitation on Rights of Trustee as a Creditor........... 49
SECTION 6.14. Authenticating Agents................................... 49
ARTICLE VII
CONCERNING THE SECURITYHOLDERS....................... 51
SECTION 7.01. Action by Securityholders............................... 51
SECTION 7.02. Proof of Execution by Securityholders................... 52
SECTION 7.03. Who Are Deemed Absolute Owners.......................... 52
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding...... 52
SECTION 7.05. Revocation of Consents; Future Holders Bound............ 53
ARTICLE VIII
SECURITYHOLDERS' MEETINGS......................... 53
SECTION 8.01. Purposes of Meetings.................................... 53
SECTION 8.02. Call of Meetings by Trustee............................. 54
</TABLE>
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SECTION 8.03. Call of Meetings by Company or Securityholders.......... 54
SECTION 8.04. Qualifications for Voting............................... 54
SECTION 8.05. Regulations............................................. 55
SECTION 8.06. Voting.................................................. 56
ARTICLE IX
AMENDMENTS................................ 57
SECTION 9.01. Without Consent of Securityholders...................... 57
SECTION 9.02. With Consent of Securityholders......................... 59
SECTION 9.03. Compliance with Trust Indenture Act of 1939;
Effect of Supplemental Indentures....................... 60
SECTION 9.04. Notation on Securities.................................. 60
SECTION 9.05. Evidence of Compliance of Supplemental Indenture
to be Furnished Trustee................................. 60
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE............. 61
SECTION 10.01. Company May Consolidate, etc., on Certain Terms......... 61
SECTION 10.02. Successor Corporation to be Substituted for Company..... 62
SECTION 10.03. Opinion of Counsel to be Given Trustee.................. 62
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE.................. 62
SECTION 11.01. Discharge of Indenture.................................. 62
SECTION 11.02. Deposited Moneys and U.S. Government Obligations
to be Held in Trust by Trustee.......................... 63
SECTION 11.03. Paying Agent to Repay Moneys Held....................... 64
SECTION 11.04. Return of Unclaimed Moneys.............................. 64
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S.
Government Obligations.................................. 64
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS........................... 66
SECTION 12.01. Indenture and Securities Solely Corporate
Obligations............................................. 66
</TABLE>
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<TABLE>
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ARTICLE XIII
MISCELLANEOUS PROVISIONS.......................... 67
SECTION 13.01. Successors.............................................. 67
SECTION 13.02. Official Acts by Successor Corporation.................. 67
SECTION 13.03. Surrender of Company Powers............................. 67
SECTION 13.04. Addresses for Notices, etc.............................. 67
SECTION 13.05. Governing Law........................................... 68
SECTION 13.06. Evidence of Compliance with Conditions Precedent........ 68
SECTION 13.07. Business Days........................................... 68
SECTION 13.08. Trust Indenture Act of 1939 to Control.................. 68
SECTION 13.09. Table of Contents, Headings, etc........................ 69
SECTION 13.10. Execution in Counterparts............................... 69
SECTION 13.11. Separability............................................ 69
SECTION 13.12. Assignment.............................................. 69
SECTION 13.13. Acknowledgement of Rights............................... 69
ARTICLE XIV
REDEMPTION OF SECURITIES -- MANDATORY AND
OPTIONAL SINKING FUND............................ 70
SECTION 14.01. Special Event Redemption................................ 70
SECTION 14.02. Optional Redemption by Company.......................... 70
SECTION 14.03. No Sinking Fund......................................... 71
SECTION 14.04. Notice of Redemption; Selection of Securities........... 71
SECTION 14.05. Payment of Securities Called for Redemption............. 72
SECTION 14.06. Conditional Right to Advance Maturity................... 73
ARTICLE XV
SUBORDINATION OF SECURITIES......................... 74
SECTION 15.01. Agreement to Subordinate................................ 74
SECTION 15.02. Default on Senior Indebtedness.......................... 74
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.................... 75
SECTION 15.04. Subrogation............................................. 76
SECTION 15.05. Trustee to Effectuate Subordination..................... 77
SECTION 15.06. Notice by the Company................................... 77
SECTION 15.07. Rights of the Trustee; Holders of Senior Indebtedness... 79
SECTION 15.08. Subordination May Not Be Impaired....................... 79
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD.................... 80
SECTION 16.01. Extension of Interest Payment Period.................... 80
SECTION 16.02. Notice of Extension..................................... 81
</TABLE>
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<TABLE>
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EXHIBIT A................................................................... A-1
</TABLE>
Testimonium
Signatures
Acknowledgements
vii
<PAGE>
THIS INDENTURE, dated as of January 31, 1997, between Investors
Financial Services Corp., a Delaware corporation (hereinafter sometimes called
the "Company"), and The Bank of New York, a New York banking corporation, as
trustee (hereinafter sometimes called the "Trustee"),
W I T N E S E T H :
In consideration of the premises, and the purchase of the Securities
by the holders thereof, the Company covenants and agrees with the Trustee for
the equal and proportionate benefit of the respective holders from time to time
of the Securities, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein otherwise
expressly provided or unless the context other wise requires) for all purposes
of this Indenture shall have the respective meanings specified in this Section
1.01. All other terms used in this Indenture which are defined in the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act of 1939"), or which
are by reference therein defined in the Securities Act, shall (except as herein
otherwise expressly provided or unless the context otherwise requires) have the
meanings assigned to such terms in said Trust Indenture Act of 1939 and in said
Securities Act as in force at the date of this Indenture as originally executed.
The following terms have the meanings given to them in the Declaration: (i)
Clearing Agency; (ii) Delaware Trustee; (iii) Property Trustee; (iv)
Administrative Trustees; (v) Direct Action; (vi) Purchase Agreement; (vii)
Distributions; (viii) Series A Capital Securities; and (ix) Series B Capital
Securities. All accounting terms used herein and not expressly defined shall
have the meanings assigned to such terms in accordance with generally accepted
accounting principles and the term "generally accepted accounting principles"
means such accounting principles as are generally accepted at the time of any
computation. The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision. Headings are used for convenience of
reference only and do not affect interpretation. The singular includes the
plural and vice versa.
"Additional Interest" shall have the meaning set forth in Section
2.06(c).
<PAGE>
"Adjusted Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to (i) the yield, under the heading which represents
the average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15 (519)" or any successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Initial Optional Redemption Date (if no maturity
is within three months before or after the Initial Optional Redemption Date,
yields for the two published maturities most closely corresponding to the
Initial Optional Redemption Date shall be interpolated, and the Adjusted
Treasury Rate shall be interpolated or extrapolated from such yields on a
straight-line basis, rounding to the nearest month) or (ii) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semiannual equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for such redemption
date plus, in each case, (a) 1.90% if such redemption date occurs on or prior to
February 1, 1998, and (b) 1.50% in all other cases.
"Adverse Tax Consequence" shall have the meaning set forth in the
definition of Tax Event.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding the power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, (d) a partnership in which the specified Person is a
general partner, (e) any officer or director of the specified Person, and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
"Authenticating Agent" shall mean any agent or agents of the Trustee
which at the time shall be appointed and acting pursuant to Section 6.14.
"Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.
2
<PAGE>
"Board of Directors" shall mean either the Board of Directors of the
Company or any duly authorized committee of that board.
"Board Resolution" shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" shall mean, with respect to any series of Securities,
any day other than a Saturday or a Sunday or a day on which banking institutions
in The City of New York or Boston, Massachusetts are authorized or required by
law or executive order to close.
"Capital Securities" shall mean undivided beneficial interests in the
assets of Investors Capital Trust which rank pari passu with the Common
Securities issued by Investors Capital Trust; provided, however, that if an
-------- -------
Event of Default has occurred and is continuing, no payments in respect of
Distributions on, or payments upon liquidation, redemption or otherwise with
respect to, the Common Securities shall be made until the holders of the Capital
Securities shall be paid in full the Distributions and the liquidation,
redemption and other payments to which they are entitled. References to
"Capital Securities" shall include collectively any Series A Capital Securities
and Series B Capital Securities.
"Capital Securities Guarantee" shall mean any guarantee that the
Company may enter into with The Bank of New York or other Persons that operates
directly or indirectly for the benefit of holders of Capital Securities of
Investors Capital Trust and shall include a Series A Capital Securities
Guarantee and a Series B Capital Securities Guarantee with respect to the Series
A Capital Securities and the Series B Capital Securities, respectively.
"Commission" shall mean the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act of 1939,
then the body performing such duties at such time.
"Common Securities" shall mean undivided beneficial interests in the
assets of Investors Capital Trust which rank pari passu with Capital Securities
issued by Investors Capital Trust; provided, however, that if an Event of
-------- -------
Default has oc curred and is continuing, no payments in respect of Distributions
on, or payments upon liquidation, redemption or otherwise with respect to, the
Common Securities shall be made until the holders
3
<PAGE>
of the Capital Securities shall be paid in full the Distributions and the
liquidation, redemption and other payments to which they are entitled.
"Common Securities Guarantee" shall mean any guarantee of the Company
that operates directly or indirectly for the benefit of holders of Common
Securities of Investors Capital Trust.
"Common Stock" shall mean (i) the Common Stock, par value $.01 per
share, of the Company, (ii) the Class A Common Stock, par value $.01 per share,
of the Company or (iii) any other class of stock resulting from changes or
reclassifications of such Common Stock or Class A Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
"Company" shall mean Investors Financial Services Corp., a Delaware
corporation, and, subject to the provisions of Article X, shall include its
successors and assigns.
"Company Request" or "Company Order" shall mean a written request or
order signed in the name of the Company by the Chairman, the Chief Executive
Officer, the President, a Vice Chairman, a Vice President, the Comptroller, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity date corresponding to the
Initial Optional Redemption Date that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities with a maturity date corresponding to the
Initial Optional Redemption Date. If no United States Treasury security has a
maturity date which is within three months before or after the Initial Optional
Redemption Date, the two most closely corresponding United States Treasury
securities shall be used as the Comparable Treasury Issue, and the Adjusted
Treasury Rate shall be interpolated or extrapolated on a straight-line basis,
rounding to the nearest month.
"Comparable Treasury Price" means, with respect to any redemption date
pursuant to Section 14.01, (i) the average of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) on the third Business Day preceding such redemption date, as
set forth in the daily statistical release (or any successor release) published
by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government Securities" or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
Business Day, (A) the average of five Reference Treasury Dealer Quotations for
such
4
<PAGE>
redemption date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (B) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Compounded Interest" shall have the meaning set forth in Section
16.01.
"Conditional Tax Redemption Event" shall have the meaning set forth in
Section 14.06.
"Custodian" shall mean any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Declaration" means the Amended and Restated Declaration of Trust of
Investors Capital Trust, dated as of the Issue Date.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Defeasance Agent" shall have the meaning set forth in Section 11.05.
"Deferred Interest" shall have the meaning set forth in Section 16.01.
"Definitive Securities" shall mean those securities issued in fully
registered certificated form not otherwise in global form.
"Depositary" shall mean, with respect to Securities of any series, for
which the Company shall determine that such Securities will be issued as a
Global Security, The Depository Trust Company, New York, New York, another
clearing agency, or any successor registered as a clearing agency under the
Exchange Act or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to Section 2.05(d).
"Discharged" shall have the meaning set forth in Section 11.05.
"Dissolution Event" means the liquidation of the Trust pursuant to the
Declaration, and the distribution of the Securities held by the Property
Trustee to the holders of the Trust Securities issued by Investors Capital Trust
pro rata in accordance with the Declaration.
- --- ----
5
<PAGE>
"Event of Default" shall mean any event specified in Section 5.01,
continued for the period of time, if any, and after the giving of the notice, if
any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the offer that may be made pursuant to the
Registration Rights Agreement (i) by the Company to exchange Series B Securities
for Series A Securities and to exchange a Series B Capital Securities Guarantee
for a Series A Capital Securities Guarantee and (ii) by Investors Capital Trust
to exchange Series B Capital Securities for Series A Capital Securities.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 16.01.
"Federal Reserve" shall mean the Board of Governors of the Federal
Reserve System.
"Global Security" means, with respect to the Securities, a Security
executed by the Company and delivered by the Trustee to the Depositary or
pursuant to the Depositary's instruction, all in accordance with the Indenture,
which shall be registered in the name of the Depositary or its nominee.
"Indebtedness for Money Borrowed" shall mean (i) any obligation of, or
any obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments and any deferred obligation for the payment of the purchase price of
property or assets acquired other than in the ordinary course of business, and
(ii) all indebtedness of the Company for claims in respect of derivative
products such as interest and foreign exchange rate contracts, commodity
contracts and similar arrangements, whether outstanding on the date of
execution of the Indenture or thereafter created, assumed or incurred. For
purposes of this definition, "claim" shall have the meaning assigned in Section
101(5) of the Bankruptcy Code of 1978, as amended and in effect on the date of
the execution of this Indenture.
"Indebtedness Ranking Junior to the Securities" shall mean any
Indebtedness for Money Borrowed, whether outstanding on the date of execution of
this Indenture or hereafter created, assumed or incurred, which specifically by
its terms ranks junior to and not equally with or prior to the Securities (and
any other Indebtedness Ranking on a Parity with the Securities) in right of
payment upon the happening of any dissolution or winding up or liquidation or
reorganization of the Company. The securing of any Indebtedness for Money
Borrowed, otherwise constituting
6
<PAGE>
Indebtedness Ranking Junior to the Securities, shall not be deemed to prevent
such Indebtedness for Money Borrowed from constituting Indebtedness Ranking
Junior to the Securities.
"Indebtedness Ranking on a Parity with the Securities" shall mean
Indebtedness for Money Borrowed, whether outstanding on the date of execution of
this Indenture or hereafter created, assumed or incurred, which specifically by
its terms ranks equally with and not prior to the Securities in the right of
payment upon the happening of any dissolution or winding up or liquidation or
reorganization of the Company. The securing of any Indebtedness for Money
Borrowed, otherwise constituting Indebtedness Ranking on a Parity with the
Securities, shall not be deemed to prevent such Indebtedness for Money Borrowed
from constituting Indebtedness Ranking on a Parity with the Securities.
"Indenture" shall mean this instrument as originally executed or, if
amended as herein provided, as so amended.
"Initial Optional Redemption Date" means February 1, 2007.
"Interest Payment Date" shall have the meaning set forth in Section
2.06.
"Issue Date" means January 31, 1997.
"Investors Capital Trust" shall mean Investors Capital Trust I, a
Delaware business trust created for the purpose of issuing undivided beneficial
interests in its assets in connection with the issuance of Securities under
this Indenture.
"Liquidated Damages" shall have the meaning set forth in the
Registration Rights Agreement.
"Maturity Date" shall mean February 1, 2027, or such other date to
which the maturity of the Securities is changed pursuant to the right of the
Company to advance the maturity date pursuant to the provisions of Section
14.06.
"Mortgage" shall mean and include any mortgage, pledge, lien, security
interest, conditional sale or other title retention agreement or other similar
encumbrance.
"Non Book-Entry Capital Securities" shall have the meaning set forth
in Section 2.05.
"Officers" shall mean any of the Chairman, a Vice Chairman, the Chief
Executive Officer, the President, a Vice President, the Comptroller, the Group
Director, the Secretary or an Assistant Secretary of the Company.
7
<PAGE>
"Officers' Certificate" shall mean a certificate signed by two
Officers and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who may
be an employee of the Company, and who shall be acceptable to the Trustee.
"Optional Redemption Price" shall have the meaning set forth in
Section 14.02.
"Other Debentures" means all junior subordinated debentures issued by
the Company from time to time and sold to trusts to be established by the
Company (if any), in each case similar to Investors Capital Trust.
"Other Guarantees" means all guarantees issued by the Company with
respect to capital securities (if any) and issued to other trusts established by
the Company (if any), in each case similar to Investors Capital Trust.
The term "outstanding" when used with reference to Securities, shall,
subject to the provisions of Section 7.04, mean, as of any particular time, all
Securities authenticated and delivered by the Trustee or the Authenticating
Agent under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or the
Authenticating Agent or delivered to the Trustee for
cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount shall have been deposited in
trust with the Trustee or with any paying agent (other than the
Company) or shall have been set aside and segregated in trust by
the Company (if the Company shall act as its own paying agent);
provided that, if such Securities, or portions thereof, are to be
redeemed prior to maturity thereof, notice of such redemption
shall have been given as in Article XIV provided or provision
satisfactory to the Trustee shall have been made for giving such
notice; and
(c) Securities in lieu of or in substitution for which other
Securities shall have been authenticated and delivered pursuant
to the terms of Section 2.08 unless proof satisfactory to the
Company and the Trustee is presented that any such Securities are
held by bona fide holders in due course.
"Person" shall mean any individual, corporation, estate, partnership,
joint venture, association, joint-stock
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company, limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt and as that evidenced by
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 2.08 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Principal Office of the Trustee", or other similar term, shall mean
the office of the Trustee, at which at any particular time its corporate trust
business shall be principally administered.
"Purchase Agreement" shall mean the Purchase Agreement dated January
30, 1997 among the Company, Investors Capital Trust and the initial purchaser
named therein.
"Property Trustee" shall have the same meaning as set forth in the
Declaration.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company.
"Redemption Price" means the Special Event Redemption Price or the
Optional Redemption Price, as the context requires.
"Reference Treasury Dealer" means (i) Goldman, Sachs & Co. and its
successors; provided, however, that if the foregoing shall cease to be a primary
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U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer,
and (ii) any other Primary Treasury Dealer selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date pursuant to Section 14.01, the
average, as determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Trustee by such Reference Treasury
Dealer at 5:00 p.m. New York City time on the third Business Day preceding such
redemption date.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Issue Date, by and among the Company, the Trust and
the Initial Purchaser named therein as such agreement may be amended, modified
or supplemented from time to time.
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"Regulatory Capital Event" means that the Company shall have received
an opinion of independent bank regulatory counsel experienced in such matters to
the effect that, as a result of (a) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any rules, guidelines or policies of the Federal Reserve or
(b) any official administrative pronouncement or judicial decision interpreting
or applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the Issue Date, the
Capital Securities do not constitute, or within 90 days of the date thereof,
will not constitute, Tier I Capital (or its then equivalent); provided,
--------
however, that a Regulatory Capital Event shall not occur by reason of the use of
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the proceeds of the Securities in the manner contemplated by the Offering
Memorandum dated January 30, 1997 relating to the Capital Securities.
"Responsible Officer", when used with respect to the Trustee, shall
mean any vice president, any assistant vice president, any assistant secretary,
any assistant treasurer or senior trust officer, any trust officer or assistant
trust officer or any other officer or assistant officer in the Principal Office
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Restricted Security" shall mean Securities that bear or are required
to bear the Securities Act legends set forth in Exhibit A hereto.
"Rule 144A" means Rule 144A under the Securities Act, as such Rule may
be amended from time to time, or under any similar rule or regulation hereafter
adopted by the Commission.
"Securities" means, collectively, the Series A Securities and the
Series B Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securityholder", "holder of Securities", or other similar terms,
shall mean any person in whose name at the time a particular Security is
registered on the register kept by the Company or the Trustee for that purpose
in accordance with the terms hereof.
"Security Register" shall mean (i) prior to a Dissolution Event, the
list of holders provided to the Trustee pursuant to Section 4.01, and (ii)
following a Dissolution Event, any security register maintained by a Security
Registrar for the
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Securities appointed by the Company following the execution of a supplemental
indenture providing for transfer procedures as provided for in Section 2.07(a).
"Security Registrar" shall mean the Person who is appointed by the
Company to maintain the Security Register.
"Senior Indebtedness" shall mean all Indebtedness for Money Borrowed,
whether outstanding on the date of execution of this Indenture or thereafter
created, assumed or incurred, except Indebtedness Ranking on a Parity with the
Securities or Indebtedness Ranking Junior to the Securities, and any deferrals,
renewals or extensions of such Senior Indebtedness.
"Series A Securities" means the Company's 9.77% Series A Junior
Subordinated Deferrable Interest Debentures due February 1, 2027, as
authenticated and issued under this Indenture.
"Series B Securities" means the Company's Series B 9.77% Junior
Subordinated Deferrable Interest Debentures due February 1, 2027, as
authenticated and issued under this Indenture.
"Special Event" means a Conditional Tax Redemption Event or a
Regulatory Capital Event, as the case may be.
"Special Event Redemption Price" shall mean, with respect to any
redemption of the Securities pursuant to Section 14.01 hereof, an amount in cash
equal to the greater of (i) 100% of the principal amount to be redeemed or (ii)
the sum, as determined by a Quotation Agent, of the present values of the
principal amount and premium payable with respect to an optional redemption
pursuant to Section 14.02 on the Initial Optional Redemption Date, together with
scheduled payments of interest on the Securities from the redemption date to and
including the Initial Optional Redemption Date, in each case discounted to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case, any
accrued and unpaid interest thereon, including Compounded Interest and
Additional Interest, if any, to the date of such redemption.
"Subsidiary" shall mean with respect to any Person, (i) any
corporation at least a majority of whose outstanding voting stock is owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries, or
by such Person and one or more of its Subsidiaries, (ii) any general
partnership, joint venture or similar entity, at least a majority of whose
outstanding partnership or similar interests shall at the time be owned by such
Person, or by one or more of its Subsidiaries, or by such Person and one or more
of its Subsidiaries and (iii) any limited partnership of which such Person or
any of its Subsidiaries is a
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general partner. For the purposes of this definition, "voting stock" means
shares, interests, participations or other equivalents in the equity interest
(however designated) in such Person having ordinary voting power for the
election of a majority of the directors (or the equivalent) of such Person,
other than shares, interests, participations or other equivalents having such
power only by reason of the occurrence of a contingency.
"Tax Event" shall mean the receipt by Investors Capital Trust and the
Company of an opinion of a nationally recognized tax counsel experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, which
(a) amendment or change is effective or (b) which pronouncement or decision is
announced, on or after the Issue Date, there is more than an insubstantial risk
that (i) Investors Capital Trust is, or will be within 90 days of the date of
such opinion, subject to United States Federal income tax with respect to income
received or accrued on the Securities, (ii) interest payable by the Company on
the Securities is not, or within 90 days of the date of such opinion, will not
be, deductible by the Company, in whole or in part, for United States federal
income tax purposes, or (iii) Investors Capital Trust is, or will be within 90
days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges (each of the circumstances
referred to in clauses (i), (ii) and (iii) being referred to herein as an
"Adverse Tax Consequence").
"Trustee" shall mean the Person identified as "Trustee" in the first
paragraph hereof, and, subject to the provisions of Article VI hereof, shall
also include its successors and assigns as Trustee hereunder.
"Trust Indenture Act of 1939" shall mean the Trust Indenture Act of
1939 as in force at the date of execution of this Indenture, except as provided
in Section 9.03.
"Trust Securities" shall mean the Capital Securities and the Common
Securities, collectively.
"U.S. Government Obligations" shall mean securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable
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or redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank or trust company as custodian with respect
to any such U.S. Government Obligation or a specific payment of interest on or
principal of any such U.S. Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of interest on or principal of the U.S. Government Obligation evidenced
by such depository receipt.
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A, the terms of which are incorporated
in and made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject or usage. Each Security shall be dated the date of
its authentication. The Securities shall be issued in minimum denominations of
$100,000 and integral multiples of $1,000 above $100,000.
SECTION 2.02. Execution and Authentication.
The Securities shall be signed on behalf of the Company by the
Chairman, a Vice Chairman, the Chief Executive Officer, the President, a Vice
President or the Controller and attested by its Secretary or an Assistant
Secretary. Any signature may be in the form of a manual or facsimile signature
in the manner set forth in Exhibit A. If an Officer whose signature is on a
Security no longer holds that office at the time the Security is authenticated,
the Security shall nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature of the
Trustee shall be conclusive evidence that the Security has been authenticated
under this Indenture. The form of Trustee's certificate of authentication to be
borne by the Securities shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a Company Order, authenticate for original
issue up to, and the aggregate principal amount of Securities outstanding at any
time may not exceed the sum of
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$25,774,000 aggregate principal amount of the Securities, except as provided in
Sections 2.07, 2.08, 2.10 and 14.05. The series of Securities to be initially
issued hereunder shall be the Series A Securities.
SECTION 2.03. Form and Payment.
Except as provided in Section 2.05, the Securities shall be issued in
fully registered certificated form without interest coupons. Principal of,
premium, if any, and interest on the Securities issued in certificated form will
be payable, the transfer of such Securities will be registrable and such
Securities will be exchangeable for Securities bearing identical terms and
provisions at the office or agency of the Company maintained for such purpose
under Section 3.02; provided, however, that payment of interest with respect to
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the Securities (other than Securities issued in global form, the payment of
interest on which shall be made in immediately available funds) may be made at
the option of the Company (i) by check mailed to the holder at such address as
shall appear in the Security Register or (ii) by wire transfer to an account
maintained by the Person entitled thereto, provided that proper wire transfer
instructions have been received in writing by the relevant record date.
Notwithstanding the foregoing, so long as the holder of any Securities is the
Property Trustee, the payment of the principal of, premium, if any, and
interest (including Compounded Interest and Additional Interest, if any) on such
Securities held by the Property Trustee will be made in immediately available
funds at such place and to such account as may be designated by the Property
Trustee.
SECTION 2.04. Legends.
(a) Except as permitted by subsection (b) of this Section 2.04 or as
otherwise determined by the Company in accordance with applicable law, each
Security shall bear the applicable legends relating to restrictions on transfer
pursuant to the securities laws in substantially the form set forth on Exhibit A
hereto.
(b) The Company shall issue and the Trustee shall authenticate Series
B Securities in exchange for Series A Securities accepted for exchange in the
Exchange Offer, which Series B Securities shall not bear the legends required by
subsection (a) above, in each case unless the holder of such Series A Securities
is either (A) a broker-dealer who purchased such Series A Securities directly
from the Company for resale pursuant to Rule 144A or any other available
exemption under the Securities Act, (B) a Person participating in the
distribution of the Series A Securities or (C) a Person who is an affiliate (as
defined in Rule 144 under the Securities Act) of the Company.
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SECTION 2.05. Global Security.
(a) In connection with a Dissolution Event,
(i) if any Capital Securities are held in book-entry form, the
related Definitive Securities shall be presented to the Trustee (if an
arrangement with the Depositary has been maintained) by the Property
Trustee in exchange for one or more Global Securities (as may be required
pursuant to Section 2.07) in an aggregate principal amount equal to the
aggregate principal amount of all outstanding Securities, to be registered
in the name of the Depositary, or its nominee, and delivered by the Trustee
to the Depositary for crediting to the accounts of its participants
pursuant to the instructions of the Administrative Trustees; the Company
upon any such presentation shall execute one or more Global Securities in
such aggregate principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with this Indenture; and payments
on the Securities issued as a Global Security will be made to the
Depositary; and
(ii) if any Capital Securities are held in certificated form,
the related Definitive Securities may be presented to the Trustee by the
Property Trustee and any Capital Security certificate which represents
Capital Securities other than Capital Securities in book-entry form ("Non
Book-Entry Capital Securities") will be deemed to represent beneficial
interests in Securities presented to the Trustee by the Property Trustee
having an aggregate principal amount equal to the aggregate liquidation
amount of the Non Book-Entry Capital Securities until such Capital Security
certificates are presented to the Security Registrar for transfer or
reissuance, at which time such Capital Security certificates will be
cancelled and a Security, registered in the name of the holder of the
Capital Security certificate or the transferee of the holder of such
Capital Security certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the Capital
Security certificate cancelled, will be executed by the Company and
delivered to the Trustee for authentication and delivery in accordance with
this Indenture. Upon the issuance of such Securities, Securities with an
equivalent aggregate principal amount that were presented by the Property
Trustee to the Trustee will be deemed to have been cancelled.
(b) The Global Securities shall represent the aggregate amount of
outstanding Securities from time to time endorsed thereon; provided, that the
--------
aggregate amount of outstanding Securities represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges and redemp-
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tions. Any endorsement of a Global Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the Trustee, in accordance with instructions given by the
Company as required by this Section 2.05.
(c) The Global Securities may be transferred, in whole but not in
part, only to the Depositary, another nominee of the Depositary, or to a
successor Depositary selected or approved by the Company or to a nominee of such
successor Depositary.
(d) If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or the Depositary has ceased to be
a clearing agency registered under the Exchange Act, and a successor Depositary
is not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such condition, as the case may be, the Company will
execute, and the Trustee, upon Company Order, will authenticate and make
available for delivery the Definitive Securities, in authorized denominations,
and in an aggregate principal amount equal to the principal amount of the Global
Security in exchange for such Global Security. If there is an Event of Default,
the Depositary shall have the right to exchange the Global Securities for
Definitive Securities. In addition, the Company may at any time determine that
the Securities shall no longer be represented by a Global Security. In the
event of such an Event of Default or such a determination, the Company shall
execute, and subject to Section 2.07, the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Company, will authenticate and
make available for delivery the Definitive Securities, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security in exchange for such Global Security. Upon the
exchange of the Global Security for such Definitive Securities, in authorized
denominations, the Global Security shall be cancelled by the Trustee. Such
Definitive Securities issued in exchange for the Global Security shall be
registered in such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such Definitive
Securities to the Depositary for delivery to the Persons in whose names such
Definitive Securities are so registered.
SECTION 2.06 Interest.
(a) Each Security will bear interest at the rate of 9.77% per annum
(the "Coupon Rate") from the most recent date to which interest has been paid or
duly provided for or, if no interest has been paid or duly provided for, from
the Issue Date, until the principal thereof becomes due and payable, and at the
Coupon Rate on any overdue principal (and premium, if any) and
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(to the extent that payment of such interest is enforceable under applicable
law) on any overdue installment of interest, compounded semiannually, payable
(subject to the provisions of Article XVI) semiannually in arrears on February 1
and August 1 of each year (each, an "Interest Payment Date") commencing on
August 1, 1997, to the Person in whose name such Security or any predecessor
Security is registered, at the close of business on the regular record date for
such interest installment, which shall be the date fifteen days prior to the
relevant Interest Payment Date.
(b) Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months and, for any period of less than a full
calendar month, the number of days elapsed in such month. In the event that any
Interest Payment Date falls on a day that is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), with the same force and effect as if made on such date.
(c) During such time as the Property Trustee is the holder of any
Securities, the Company shall pay any additional amounts on the Securities as
may be necessary in order that the amount of Distributions then due and payable
by Investors Capital Trust on the outstanding Securities shall not be reduced as
a result of any additional taxes, duties and other governmental charges to which
Investors Capital Trust has become subject as a result of a Tax Event
("Additional Interest").
SECTION 2.07. Transfer and Exchange.
(a) Transfer Restrictions. The Series A Securities, and those Series
---------------------
B Securities with respect to which any Person described in Section 2.04(b)(A),
(B) or (C) is the beneficial owner, may not be transferred except in compliance
with the legend contained in Exhibit A unless otherwise determined by the
Company in accordance with applicable law. The Securities may be transferred
only in blocks having an aggregate principal amount of not less than $100,000.
Any such transfer of the Securities in a block having an aggregate principal
amount of less than $100,000 shall be deemed to be void and of no legal effect
whatsoever. Any such transferee shall be deemed not to be holder of such
Securities for any purpose, including but not limited to the receipt of payment
on such Securities, and such transferee shall be deemed to have no interest
whatsoever in such Securities. Upon any distribution of the Securities
following a Dissolution Event, the Company and the Trustee shall enter into a
supplemental indenture pursuant to Section 9.01 to provide for the transfer
restrictions and procedures with respect to the Securities substantially similar
to those contained in the
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Declaration to the extent applicable in the circumstances existing at such
time.
(b) General Provisions Relating to Transfers and Exchanges. Upon
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surrender for registration of transfer of any Security at the office or agency
of the Company maintained for the purpose pursuant to Section 3.02, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of the
same series, of any authorized denominations and of a like aggregate principal
amount.
At the option of the holder, Securities of any series may be exchanged
for other Securities of the same series, of any authorized denominations and of
a like aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the holder making the exchange is entitled to
receive.
Every Security presented or surrendered for registration of transfer
or exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
holder thereof or his attorney duly authorized in writing.
All Definitive Securities and Global Securities issued upon any
registration of transfer or exchange of Definitive Securities or Global
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Definitive
Securities or Global Securities surrendered upon such registration of transfer
or exchange.
No service charge shall be made to a holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith.
The Company shall not be required to (i) issue, register the transfer
of or exchange Securities during a period beginning at the opening of business
15 days before the day of mailing of a notice of redemption or any notice of
selection of Securities for redemption under Article XIV hereof and ending at
the close of business on the day of such mailing; or (ii) register the transfer
of or exchange any Security so selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part.
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(c) Exchange of Series A Securities for Series B Securities. The
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Series A Securities may be exchanged for Series B Securities pursuant to the
terms of the Exchange Offer. The Trustee shall make the exchange as follows:
The Company shall present the Trustee with an Officers' Certificate
certifying the following:
(A) upon issuance of the Series B Securities, the transactions
contemplated by the Exchange Offer have been consummated; and
(B) the principal amount of Series A Securities properly tendered in
the Exchange Offer that are represented by a Global Security and
the principal amount of Series A Securities properly tendered in
the Exchange Offer that are represented by Definitive Securities,
the name of each holder of such Definitive Securities, the
principal amount properly tendered in the Exchange Offer by each
such holder and the name and address to which Definitive
Securities for Series B Securities shall be registered and sent
for each such holder.
The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an
Opinion of Counsel (x) to the effect that the Series B Securities have been
registered under Section 5 of the Securities Act and the Indenture has been
qualified under the Trust Indenture Act of 1939 and (y) with respect to the
matters set forth in Section 3(p) of the Registration Rights Agreement and (iii)
a Company Order, shall authenticate (A) a Global Security for Series B
Securities in aggregate principal amount equal to the aggregate principal amount
of Series A Securities represented by a Global Security indicated in such
Officers' Certificate as having been properly tendered and (B) Definitive
Securities representing Series B Securities registered in the names of, and in
the principal amounts indicated in, such Officers' Certificate.
If the principal amount of the Global Security for the Series B
Securities is less than the principal amount of the Global Security for the
Series A Securities, the Trustee shall make an endorsement on such Global
Security for Series A Securities indicating a reduction in the principal amount
represented thereby.
The Trustee shall deliver such Definitive Securities for Series B
Securities to the holders thereof as indicated in such Officers' Certificate.
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SECTION 2.08. Replacement Securities.
If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. An indemnity bond must be supplied by
the holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee and any authenticating agent from any loss that
any of them may suffer if a Security is replaced. The Company or the Trustee
may charge for its expenses in replacing a Security.
Every replacement Security is an obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
of mutilated, destroyed, lost or stolen Securities.
SECTION 2.09. Treasury Securities.
In determining whether the holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only
Securities that a Responsible Officer of the Trustee actually knows to be so
owned shall be so considered.
SECTION 2.10. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company shall cause definitive
Securities to be prepared without unreasonable delay. The definitive Securities
shall be printed, lithographed, typewritten or engraved, or provided by any
combination thereof,
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or in any other manner permitted by the rules and regulations of any applicable
securities exchange, all as determined by the officers executing such definitive
Securities. After the preparation of definitive Securities, the temporary
Securities shall be exchangeable for definitive Securities upon surrender of the
temporary Securities at the office or agency maintained by the Company for such
purpose pursuant to Section 3.02 hereof, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Securities, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, in exchange therefor the same aggregate principal amount of definitive
Securities of authorized denominations. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall retain or dispose of cancelled Securities in accordance
with its normal practices (subject to the record retention requirement of the
Exchange Act) unless the Company directs them to be returned to it. The Company
may not issue new Securities to replace Securities that have been redeemed or
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. Defaulted Interest.
Any interest on any Security that is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the holder on the
relevant regular record date by virtue of having been such holder; and such
Defaulted Interest shall be paid by the Company, at its election, as provided in
clause (a) or clause (b) below:
(a) The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered at the close of business
on a special record date for the payment of such Defaulted Interest, which
shall be fixed in the following manner: the Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each such Security and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in
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trust for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a special
record date for the payment of such Defaulted Interest which shall not be
more than 15 nor less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such special record date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be mailed, first class
postage prepaid, to each Securityholder at his or her address as it appears
in the Security Register, not less than 10 days prior to such special
record date. Notice of the proposed payment of such Defaulted Interest and
the special record date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names such
Securities (or their respective Predecessor Securities) are registered on
such special record date and shall be no longer payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest on any
Securities in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause, such manner of payment shall be deemed practicable by the
Trustee.
SECTION 2.13. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Securityholders; provided that any such notice
--------
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
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ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the holders of the
Securities that it will duly and punctually pay or cause to be paid the
principal of and premium, if any, and interest on the Securities at the place,
at the respective times and in the manner provided herein. Except as provided
in Section 2.03, each installment of interest on the Securities may be paid by
mailing checks for such interest payable to the order of the holder of Security
entitled thereto as they appear in the Security Register. The Company further
covenants to pay any and all amounts including, without limitation, Liquidated
Damages, if any, on the dates and in the manner required under the Registration
Rights Agreement.
SECTION 3.02. Offices for Notices and Payments, etc.
So long as any of the Securities remain outstanding, the Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Securities may be presented for payment, an office or agency where the
Securities may be presented for registration of transfer and for exchange as in
this Indenture provided and an office or agency where notices and demands to or
upon the Company in respect of the Securities or of this Indenture may be
served. The Company will give to the Trustee written notice of the location of
any such office or agency and of any change of location thereof. Until
otherwise designated from time to time by the Company in a notice to the
Trustee, any such office or agency for all of the above purposes shall be the
Principal Office of the Trustee. In case the Company shall fail to maintain any
such office or agency in the Borough of Manhattan, The City of New York, or
shall fail to give such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices may be served at the
Principal Office of the Trustee.
In addition to any such office or agency, the Company may from time to
time designate one or more offices or agencies outside the Borough of Manhattan,
The City of New York, where the Securities may be presented for payment,
registration of transfer and for exchange in the manner provided in this
Indenture, and the Company may from time to time rescind such designation, as
the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in the Borough of Manhattan,
The City of New York, for the purposes above mentioned. The Company will give
to the
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Trustee prompt written notice of any such designation or rescission thereof.
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office.
The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee with respect to the Securities, it will cause such paying
agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the
provision of this Section 3.04,
(1) that it will hold all sums held by it as such agent for the
payment of the principal of and premium, if any, or interest
on the Securities (whether such sums have been paid to it
by the Company or by any other obligor on the Securities of
such series) in trust for the benefit of the holders of the
Securities;
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Securities) to make
any payment of the principal of and premium or interest on
the Securities when the same shall be due and payable; and
(3) that it will at any time during the continuance of any such
failure, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by it as such
paying agent.
(b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of and premium, if any, or
interest on the Securities, set aside, segregate and hold in
trust for the benefit of the holders of the Securities a sum
sufficient to pay such principal, premium or interest so becoming
due and will notify the Trustee of any failure to take such
action and of any failure by the Company (or by any other obligor
under the Securities) to make any payment of the principal of and
premium, if any, or interest
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on the Securities when the same shall become due and payable.
(c) Anything in this Section 3.04 to the contrary notwithstanding,
the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge with respect to the Securities
hereunder, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust for any such Securities by the
Trustee or any paying agent hereunder, as required by this
Section 3.04, such sums to be held by the Trustee upon the trusts
herein contained.
(d) Anything in this Section 3.04 to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section
3.04 is subject to Sections 11.03 and 11.04.
SECTION 3.05. Certificate to Trustee.
The Company will deliver to the Trustee on or before 120 days after
the end of each fiscal year in each year, commencing with the first fiscal year
ending after the date hereof, so long as Securities are outstanding hereunder,
an Officers' Certificate, one of the signers of which shall be the principal
executive, principal financial or principal accounting officer of the Company
stating that in the course of the performance by the signers of their duties as
officers of the Company they would normally have knowledge of any default by the
Company in the performance of any covenants contained herein, stating whether or
not they have knowledge of any such default and, if so, specifying each such
default of which the signers have knowledge and the nature thereof.
SECTION 3.06. Compliance with Consolidation Provisions.
The Company will not, while any of the Securities remain outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all or
substantially all of its property to any other Person unless the provisions of
Article X hereof are complied with.
SECTION 3.07. Limitation on Dividends.
The Company will not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock (which includes common and preferred stock)
or (ii) make any payment of principal, interest or premium, if any, on or repay
or repurchase or redeem any debt securities of the Company
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(including any Other Debentures) that rank pari passu with or junior in right of
payment to the Securities or (iii) make any guarantee payments with respect to
any guarantee by the Company of any securities of any Subsidiary of the Company
(including Other Guarantees) if such guarantee ranks pari passu or junior in
right of payment to the Securities (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock of the Company; (b) any declaration of a dividend in connection
with the implementation of a stockholder's rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto; (c) payments under the Capital Securities Guarantee;
(d) as a direct result of, and only to the extent required in order to avoid the
issuance of fractional shares of capital stock following a reclassification of
the Company's capital stock or the exchange or the conversion of one class or
series of the Company's capital stock for another class or series of the
Company's capital stock; (e) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged; and (f)
purchases of Common Stock related to the issuance of Common Stock or rights
under any of the Company's benefit plans for its directors, officers or
employees or any of the Company's dividend reinvestment plans) if at such time
(i) an Event of Default shall have occurred and be continuing, (ii) there shall
have occurred any event of which the Company has actual knowledge that (a) is,
or with the giving of notice or the lapse of time, or both, would constitute, an
Event of Default and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (iii) if the Securities are held by the Property
Trustee, the Company shall be in default with respect to its payment obligations
under the Capital Securities Guarantee or (iv) the Company shall have given
notice of its election of the exercise of its right to extend the interest
payment period pursuant to Section 16.01 and any such extension shall be
continuing.
SECTION 3.08. Covenants as to Investors Capital Trust.
In the event Securities are issued to Investors Capital Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
Investors Capital Trust, for so long as such Trust Securities remain
outstanding, the Company will (i) maintain 100% direct ownership of the Common
Securities of Investors Capital Trust; provided, however, that any successor of
-------- -------
the Company, permitted pursuant to Article X, may succeed to the Company's
ownership of such Common Securities, (ii) use its reasonable efforts to cause
Investors Capital Trust (a) to remain a statutory business trust, except in
connection with a distribution of Securities, the redemption of all of the Trust
Securities of Investors Capital Trust or certain mergers, consolidations or
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amalgamations, each as permitted by the Declaration of Investors Capital Trust,
and (b) to otherwise continue to be treated as a grantor trust and not an
association taxable as a corporation for United States federal income tax
purposes and (iii) to use its reasonable efforts to cause each holder of Trust
Securities to be treated as owning an undivided beneficial interest in the
Securities.
SECTION 3.09. Payment of Expenses.
In connection with the offering, sale and issuance of the Securities
to Investors Capital Trust and in connection with the sale of the Trust
Securities by Investors Capital Trust, the Company, in its capacity as borrower
with respect to the Securities, shall:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Securities, including commissions to the initial purchaser
payable pursuant to the Purchase Agreement, fees and expenses in connection
with any exchange offer or other action to be taken pursuant to the Registration
Rights Agreement and compensation of the Trustee in accordance with the
provisions of Section 6.06;
(b) pay all costs and expenses of Investors Capital Trust (including,
but not limited to, costs and expenses relating to the organization of Investors
Capital Trust, the offering, sale and issuance of the Trust Securities
(including commissions to the initial purchaser in connection therewith), the
fees and expenses of the Property Trustee and the Delaware Trustee, the costs
and expenses relating to the operation of Investors Capital Trust, including
without limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses and
costs and expenses incurred in connection with the acquisition, financing, and
disposition of assets of Investors Capital Trust;
(c) be primarily and fully liable for any indemnification obligations
arising with respect to the Declaration;
(d) pay any and all taxes (other than United States withholding taxes
attributable to Investors Capital Trust or its assets) and all liabilities,
costs and expenses with respect to such taxes of Investors Capital Trust; and
(e) pay all other fees, expenses, debts and obligations (other than
payments of principal of, premium, if any, or interest on the Trust Securities)
related to Investors Capital Trust.
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SECTION 3.10. Payment Upon Resignation or Removal.
Upon termination of this Indenture or the removal or resignation of
the Trustee, unless otherwise stated, the Company shall pay to the Trustee all
amounts accrued and owing to the date of such termination, removal or
resignation. Upon termination of the Declaration or the removal or resignation
of the Delaware Trustee or the Property Trustee, as the case may be, pursuant to
Section 5.7 of the Declaration, the Company shall pay to the Delaware Trustee or
the Property Trustee, as the case may be, all amounts accrued and owing to the
date of such termination, removal or resignation.
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders' Lists.
The Company covenants and agrees that it will furnish or cause to be
furnished to the Trustee:
(a) on a semiannual basis on each regular record date for the
Securities, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Securityholders as of
such record date; and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company, of any such request, a
list of similar form and content as of a date not more than 15
days prior to the time such list is furnished,
except that, no such lists need be furnished so long as the Trustee is
in possession thereof by reason of its acting as Security Registrar.
SECTION 4.02. Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the
holders of the Securities (1) contained in the most recent list
furnished to it as provided in Section 4.01 or (2) received by it
in the capacity of Securities registrar (if so acting)
hereunder. The Trustee may destroy any list furnished to it as
provided in Section 4.01 upon receipt of a new list so furnished.
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(b) In case three or more holders of Securities (hereinafter referred
to as "applicants") apply in writing to the Trustee and furnish
to the Trustee reasonable proof that each such applicant has
owned a Security for a period of at least six months preceding
the date of such application, and such application states that
the applicants desire to communicate with other holders of
Securities or with holders of all Securities with respect to
their rights under this Indenture and is accompanied by a copy
of the form of proxy or other communication which such
applicants propose to transmit, then the Trustee shall within 5
Business Days after the receipt of such application, at its
election, either:
(1) afford such applicants access to the information preserved at the
time by the Trustee in accordance with the provisions of
subsection (a) of this Section 4.02; or
(2) inform such applicants as to the approximate number of holders
of all Securities, whose names and addresses appear in the
information preserved at the time by the Trustee in accordance
with the provisions of subsection (a) of this Section 4.02, and
as to the approximate cost of mailing to such Securityholders the
form of proxy or other communication, if any, specified in such
application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written
request of such applicants, mail to each Securityholder whose
name and address appear in the information preserved at the time
by the Trustee in accordance with the provisions of subsection
(a) of this Section 4.02 a copy of the form of proxy or other
communication which is specified in such request with reasonable
promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the
reasonable expenses of such mailing, unless within five days
after such tender, the Trustee shall mail to such applicants and
file with the Commission, together with a copy of the material to
be mailed, a written statement to the effect that, in the opinion
of the Trustee, such mailing would be contrary to the best
interests of the holders of Securities of such series or all
Securities, as the case may be, or would be in violation of
applicable law. Such written statement shall specify the basis of
such opinion.
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If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if,
after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and
opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee
shall mail copies of such material to all such Securityholders
with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall be relieved
of any obligation or duty to such applicants respecting their
application.
(c) Each and every holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any paying agent shall be held
accountable by reason of the disclosure of any such information
as to the names and addresses of the holders of Securities in
accordance with the provisions of subsection (b) of this Section
4.02, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under
said subsection (b).
SECTION 4.03. Reports by Company.
(a) The Company covenants and agrees to file with the Trustee, within
15 days after the date on which the Company is required to file
the same with the Commission, copies of the annual reports and of
the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not
required to file information, documents or reports pursuant to
either of such sections, then to file with the Trustee and the
Commission, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary
and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of
a security listed and registered on a national securities
exchange as may be pre-
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scribed from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations
prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by
the Company with the conditions and covenants provided for in
this Indenture as may be required from time to time by such rules
and regulations.
(c) The Company covenants and agrees to transmit by mail to all
holders of Securities, as the names and addresses of such holders
appear upon the Security Register, within 30 days after the
filing thereof with the Trustee, such summaries of any
information, documents and reports required to be filed by the
Company pursuant to subsections (a) and (b) of this Section 4.03
as may be required by rules and regulations prescribed from time
to time by the Commission.
(d) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's
receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information
contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to
rely exclusively on Officers' Certificates).
(e) So long as is required for an offer or sale of the Securities to
qualify for an exemption under Rule 144A under the Securities
Act, the Company shall, upon request, provide the information
required by clause (d)(4) thereunder to each Holder and to each
beneficial owner and prospective purchaser of Securities
identified by any holder of Restricted Securities, unless such
information is furnished to the Commission pursuant to Section 13
or 15(d) of the Exchange Act.
SECTION 4.04. Reports by the Trustee.
(a) The Trustee shall transmit to Securityholders such reports
concerning the Trustee and its actions under this Indenture as
may be required pursuant to the Trust Indenture Act of 1939 at
the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture
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Act of 1939, the Trustee shall, within sixty days after each May
15, following the date of this Indenture, commencing May 15,
1997, deliver to Securityholders a brief report, dated as of such
May 15, which complies with the provisions of such Section
313(a).
(b) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with
each stock exchange, if any, upon which the Securities are
listed, with the Commission and with the Company. The Company
will promptly notify the Trustee when the Securities are listed
on any stock exchange.
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01. Events of Default.
One or more of the following events of default shall constitute an
Event of Default hereunder (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of any interest upon any Security or any
Other Debentures when it becomes due and payable, and continuance
of such default for a period of 30 days; provided, however, that
--------
a valid extension of an interest payment period by the Company in
accordance with the terms hereof shall not constitute a default
in the payment of interest for this purpose; or
(b) default in the payment of all or any part of the principal of (or
premium, if any, on) any Security or any Other Debentures as and
when the same shall become due and payable either at maturity,
upon redemption, by declaration of acceleration of maturity or
otherwise; or
(c) default in any material respect in the performance, or breach,
of any covenant or warranty of the Company in this Indenture
(other than a covenant or warranty a default in whose performance
or whose breach is elsewhere in this Section specifically dealt
with), and continuance of such default
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or breach for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the outstanding Securities a
written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(d) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Company in an involuntary
case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Company or for any substantial part of
its property, or ordering the winding-up or liquidation of its
affairs and such decree or order shall remain unstayed and in
effect for a period of 90 consecutive days; or
(e) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar
official) of the Company or of any substantial part of its
property, or shall make any general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they
become due.
If an Event of Default with respect to Securities at the time
outstanding occurs and is continuing, then in every such case the Trustee or the
holders of not less than 25% in aggregate principal amount of the Securities
then outstanding may declare the principal amount of all Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by the holders of the outstanding Securities), and upon any
such declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the condition that
if, at any time after the principal of the Securities shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, (i)
the Company shall pay or shall deposit with the Trustee a sum sufficient to
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pay (A) all matured installments of interest upon all the Securities and the
principal of and premium, if any, on any and all Securities which shall have
become due otherwise than by acceleration (with interest upon such principal
and premium, if any, and, to the extent that payment of such interest is
enforceable under applicable law, on overdue installments of interest, at the
same rate as the rate of interest specified in the Securities to the date of
such payment or deposit) and (B) such amount as shall be sufficient to cover
reasonable compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of negligence or bad faith, and (ii) any and all Events of
Default under the Indenture, other than the non-payment of the principal of the
Securities which shall have become due solely by such declaration of
acceleration, shall have been cured, waived or otherwise remedied as provided
herein, then, in every such case, the holders of a majority in aggregate
principal amount of the Securities then outstanding, by written notice to the
Company and to the Trustee, may rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or shall impair any right consequent
thereon.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Securities shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the holders of the
Securities shall continue as though no such proceeding had been taken.
SECTION 5.02. Payment of Securities on Default; Suit Therefor.
The Company covenants that (a) in case default shall be made in the
payment of any installment of interest upon any of the Securities as and when
the same shall become due and payable, and such default shall have continued for
a period of 30 days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Securities as and when the same
shall have become due and payable, whether at maturity of the Securities or upon
redemption or by declaration or otherwise, then, upon demand of the Trustee, the
Company will pay to the Trustee, for the benefit of the holders of the
Securities, the whole amount that then shall have become due and payable on all
such Securities for principal and premium, if any, or interest, or both, as the
case may be, with interest upon the overdue principal and premium, if any, and
(to the extent that payment of
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such interest is enforceable under applicable law and, if the Securities are
held by Investors Capital Trust or a trustee of such trust, without duplication
of any other amounts paid by Investors Capital Trust or a trustee in respect
thereof) upon the overdue installments of interest at the rate borne by the
Securities; and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including a reasonable
compensation to the Trustee, its agents, attorneys and counsel, and any expenses
or liabilities incurred by the Trustee hereunder other than through its
negligence or bad faith.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the
Securities and collect in the manner provided by law out of the property of the
Company or any other obligor on the Securities wherever situated the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Securities under
Title 11, United States Code, or any other applicable law, or in case a receiver
or trustee shall have been appointed for the property of the Company or such
other obligor, or in the case of any other similar judicial proceedings relative
to the Company or other obligor upon the Securities, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 5.02,
shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of principal
and interest owing and unpaid in respect of the Securities and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for reasonable compensation to the Trustee and each
predecessor Trustee, and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee, except as a result of negligence or
bad faith) and of the Securityholders allowed in such judicial proceedings
relative to the Company or any other obligor on the Securities, or to the
creditors or property of the Company or such other obligor, unless prohibited by
applicable law and regulations, to vote on behalf of the holders of the
Securities in any election of a
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trustee or a standby trustee in arrangement, reorganization, liquidation or
other bankruptcy or insolvency proceedings or person performing similar
functions in comparable proceedings, and to collect and receive any moneys or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of its charges and expenses; and any receiver, assignee
or trustee in bankruptcy or reorganization is hereby authorized by each of the
Securityholders to make such payments to the Trustee, and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee such amounts as shall be sufficient to
cover reasonable compensation to the Trustee, each predecessor Trustee and their
respective agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of negligence or bad faith.
Nothing herein contained shall be construed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any holder thereof or to authorize the Trustee
to vote in respect of the claim of any Securityholder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or
under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities, or the production thereof on any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall be for the ratable benefit of the holders of the
Securities.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Securities, and it shall not be necessary to make any holders of the
Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected by Trustee.
Any moneys collected by the Trustee shall be applied in the order
following, at the date or dates fixed by the Trustee for the distribution of
such moneys, upon presentation of the Securities in respect of which moneys have
been collected, and stamping thereon the payment, if only partially paid, and
upon surrender thereof if fully paid:
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First: To the payment of costs and expenses of collection applicable
to the Securities and reasonable compensation to the Trustee, its agents,
attorneys and counsel, and of all other expenses and liabilities incurred, and
all advances made, by the Trustee except as a result of its negligence or bad
faith;
Second: To the payment of all Senior Indebtedness of the Company if
and to the extent required by Article XV;
Third: To the payment of the amounts then due and unpaid upon
Securities for principal of (and premium, if any) and interest on the
Securities, in respect of which or for the benefit of which money has been
collected, ratably, without preference of priority of any kind, according to the
amounts due on such Securities for principal (and premium, if any) and interest,
respectively; and
Fourth: To the Company.
SECTION 5.04. Proceedings by Securityholders.
Except as contemplated by this Section 5.04, no holder of any Security
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless such holder previously
shall have given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Securities specifying such Event of
Default, as hereinbefore provided, and unless also the holders of not less than
25% in aggregate principal amount of the Securities then outstanding shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action, suit or proceeding, it being understood and
intended, and being expressly covenanted by the taker and holder of every
Security with every other taker and holder and the Trustee, that no one or more
holders of Securities shall have any right in any manner whatever by virtue of
or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other holder of Securities, or to obtain or seek to
obtain priority over or preference to any other such holder, or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Securities.
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Notwithstanding any other provisions in this Indenture, however, the
right of any holder of any Security to receive payment of the principal of
(premium, if any) and interest on such Security, on or after the same shall have
become due and payable, or to institute suit for the enforcement of any such
payment, shall not be impaired or affected without the consent of such holder
and by accepting a Security hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Security with every other such taker
and holder and the Trustee, that no one or more holders of Securities shall have
any right in any manner whatsoever by virtue or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of the holders of any
other Securities, or to obtain or seek to obtain priority over or preference to
any other such holder, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common benefit of all
holders of Securities. For the protection and enforcement of the provisions of
this Section, each and every Securityholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
The Company and the Trustee acknowledge that pursuant to the
Declaration, the holders of Capital Securities are entitled, in the
circumstances and subject to the limitations set forth therein, to commence a
Direct Action with respect to any Event of Default under this Indenture and the
Securities.
SECTION 5.05. Proceedings by Trustee.
In case an Event of Default occurs with respect to Securities and is
continuing, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing.
Except as provided in the last paragraph of Section 2.08, all powers
and remedies given by this Article V to the Trustee or to the Securityholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any other powers and remedies available to the Trustee or the holders of the
Securities, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to the Securities, and no delay or omission
of the Trustee or of
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any holder of any of the Securities to exercise any right or power accruing upon
any Event of Default occurring and continuing as aforesaid shall impair any such
right or power, or shall be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of Section 5.04, every
power and remedy given by this Article V or by law to the Trustee or to the
Securityholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by
Majority of Securityholders.
The holders of a majority in aggregate principal amount of the
Securities at the time outstanding shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided,
--------
however, that (subject to the provisions of Section 6.01) the Trustee shall have
- -------
the right to decline to follow any such direction if the Trustee shall determine
that the action so directed would be unjustly prejudicial to the holders not
taking part in such direction or if the Trustee being advised by counsel
determines that the action or proceeding so directed may not lawfully be taken
or if the Trustee in good faith by its board of directors or trustees, executive
committee, or a trust committee of directors or trustees and/or Responsible
Officers shall determine that the action or proceedings so directed would
involve the Trustee in personal liability. Prior to any declaration
accelerating the maturity of the Securities, the holders of a majority in
aggregate principal amount of the Securities at the time outstanding may on
behalf of the holders of all of the Securities waive any past default or Event
of Default and its consequences except a default (a) in the payment of principal
of or premium, if any, or interest on any of the Securities or (b) in respect of
covenants or provisions hereof which cannot be modified or amended without the
consent of the holder of each Security affected; provided, however, that if the
-------- -------
Securities are held by the Property Trustee, such waiver or modification to such
waiver shall not be effective until the holders of a majority in aggregate
liquidation amount of Trust Securities shall have consented to such waiver or
modification to such waiver; provided further, that if the consent of the holder
-------- -------
of each outstanding Security is required, such waiver shall not be effective
until each holder of the Trust Securities shall have consented to such waiver.
Upon any such waiver, the default covered thereby shall be deemed to be cured
for all purposes of this Indenture and the Company, the Trustee and the holders
of the Securities shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon. Whenever any default or
Event of Default hereunder shall have been waived as permitted by this
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Section 5.07, said default or Event of Default shall for all purposes of the
Securities and this Indenture be deemed to have been cured and to be not
continuing.
SECTION 5.08. Notice of Defaults.
The Trustee shall, within 90 days after the occurrence of a default
with respect to the Securities mail to all Securityholders, as the names and
addresses of such holders appear upon the Security register, notice of all
defaults known to the Trustee, unless such defaults shall have been cured before
the giving of such notice (the term "defaults" for the purpose of this Section
5.08 being hereby defined to be the events specified in clauses (a), (b), (c),
(d) and (e) of Section 5.01, not including periods of grace, if any, provided
for therein, and irrespective of the giving of written notice specified in
clause (c) of Section 5.01); and provided that, except in the case of default in
-------- ----
the payment of the principal of or premium, if any, or interest on any of the
Securities, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee
of directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Securityholders;
and provided further, that in the case of any default of the character specified
-------- -------
in Section 5.01(c) no such notice to Securityholders shall be given until at
least 60 days after the occurrence thereof but shall be given within 90 days
after such occurrence.
SECTION 5.09. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 5.09 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Securityholder, or group of
Securityholders, holding in the aggregate more than 10% in aggregate principal
amount of the Securities outstanding, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Security against the Company on or after the
same shall have become due and payable.
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ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee.
With respect to the holders of the Securities issued hereunder, the
Trustee, prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. In case an Event of Default has occurred (which has not been cured or
waived) the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have
occurred
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for
the performance of such duties and obligations as are
specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this
Indenture; but, in the case of any such certificates or
opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture;
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(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith, in accordance with
the direction of the Securityholders pursuant to Section 5.07,
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this
Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there is reasonable ground for believing that the
repayment of such funds or liability is not reasonably assured to it under the
terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc.
Except as otherwise provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, bond, note, debenture or other paper or document believed
by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein may be sufficiently evidenced by an Officers' Certificate
(unless other evidence in respect thereof be herein specifically
prescribed); and any Board Resolution may be evidenced to the
Trustee by a copy thereof certified by the Secretary or an
Assistant Secretary of the Company;
(c) the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or
suffered omitted by it hereunder in good faith and in accordance
with such advice or Opinion of Counsel;
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(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders, pursuant to the
provisions of this Indenture, unless such Securityholders shall
have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred
therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this
Indenture; nothing contained herein shall, however, relieve the
Trustee of the obligation, upon the occurrence of an Event of
Default (that has not been cured or waived), to exercise such of
the rights and powers vested in it by this Indenture, and to use
the same degree of care and skill in their exercise, as a prudent
man would exercise or use under the circumstances in the conduct
of his own affairs;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, approval, bond, debenture, coupon or other paper or
document, unless requested in writing to do so by the holders of
a majority in aggregate principal amount of the outstanding
Securities; provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable
indemnity against such expense or liability as a condition to so
proceeding; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through
agents (including any Authenticating Agent) or attorneys, and the
Trustee shall not be responsible for any misconduct or negligence
on the part of any such agent or attorney appointed by it with
due care.
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SECTION 6.03. No Responsibility for Recitals, etc.
The recitals contained herein and in the Securities (except in the
certificate of authentication of the Trustee or the Authenticating Agent) shall
be taken as the statements of the Company and the Trustee and the Authenticating
Agent assume no responsibility for the correctness of the same. The Trustee and
the Authenticating Agent make no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee and the
Authenticating Agent shall not be accountable for the use or application by the
Company of any Securities or the proceeds of any Securities authenticated and
delivered by the Trustee or the Authenticating Agent in conformity with the
provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer
Agents or Registrar May Own Securities.
The Trustee or any Authenticating Agent or any paying agent or any
transfer agent or any Security Registrar, in its individual or any other
capacity, may become the owner or pledgee of Securities with the same rights it
would have if it were not Trustee, Authenticating Agent, paying agent, transfer
agent or Security Registrar.
SECTION 6.05. Moneys to be Held in Trust.
Subject to the provisions of Section 11.04, all moneys received by the
Trustee or any paying agent shall, until used or applied as herein provided, be
held in trust for the purpose for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
and any paying agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
So long as no Event of Default shall have occurred and be continuing, all
interest allowed on any such moneys shall be paid from time to time upon the
written order of the Company, signed by the Chairman of the Board of Directors,
the President or a Vice President or the Treasurer or an Assistant Treasurer of
the Company.
SECTION 6.06. Compensation and Expenses of Trustee.
The Company, as borrower, covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, such compensation as
shall be agreed to in writing between the Company and the Trustee (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Company will pay or reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in
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accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith. The Company also
covenants to indemnify each of the Trustee or any predecessor Trustee (and its
officers, agents, directors and employees) for, and to hold it harmless against,
any and all loss, damage, claim, liability or expense including taxes (other
than taxes based on the income of the Trustee) incurred without negligence or
bad faith on the part of the Trustee and arising out of or in connection with
the acceptance or administration of this trust, including the costs and expenses
of defending itself against any claim of liability in the premises. The
obligations of the Company under this Section 6.06 to compensate and indemnify
the Trustee and to pay or reimburse the Trustee for expenses, disbursements and
advances shall constitute additional indebtedness hereunder. Such additional
indebtedness shall be secured by a lien prior to that of the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the benefit of the holders of particular Securities.
Without prejudice to any other rights available to the Trustee under
applicable law, when the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(d) or Section
5.01(e), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable federal or state bankruptcy,
insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 6.07. Officers' Certificate as Evidence.
Except as otherwise provided in Sections 6.01 and 6.02, whenever in
the administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
omitting any action hereunder, such matter (unless other evidence in respect
thereof is herein specifically prescribed) may, in the absence of negligence or
bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee, and such
certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or omitted by
it under the provisions of this Indenture upon the faith thereof.
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SECTION 6.08. Conflicting Interest of Trustee.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act of 1939, the Trustee
and the Company shall in all respects comply with the provisions of Section
310(b) of the Trust Indenture Act of 1939, subject to the penultimate paragraph
thereof.
SECTION 6.09. Eligibility of Trustee.
The Trustee hereunder shall at all times be a corporation organized
and doing business under the laws of the United States of America or any state
or territory thereof or of the District of Columbia or a corporation or other
Person permitted to act as trustee by the Commission authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000) and subject to supervision or
examination by federal, state, territorial, or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 6.09 the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
The Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the Company, serve as
Trustee.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.09, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation or Removal of Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice of such resignation
to the Company and by mailing notice thereof to the holders of
the Securities at their addresses as they shall appear on the
Security register. Upon receiving such notice of resignation, the
Company shall promptly appoint a successor trustee or trustees by
written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 60 days after the
mailing of such notice of resignation to the
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Securityholders, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide holder of
a Security for at least six months may, subject to the provisions
of Section 5.09, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur --
(1) the Trustee shall fail to comply with the provisions of
Section 6.08 after written request therefor by the Company
or by any Securityholder who has been a bona fide holder of
a Security or Securities for at least six months, or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 6.09 and shall fail to resign
after written request therefor by the Company or by any such
Securityholder, or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of
its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, the Company may remove the Trustee and
appoint a successor trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or, subject to the
provisions of Section 5.09, any Securityholder who has been a
bona fide holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
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(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the
Trustee and nominate a successor trustee, which shall be deemed
appointed as successor trustee unless within 10 days after such
nomination the Company objects thereto or if no successor trustee
shall have been so appointed and shall have accepted appointment
within 30 days after such removal, in which case the Trustee so
removed or any Securityholder, upon the terms and conditions and
otherwise as in subsection (a) of this Section 6.10 provided, may
petition any court of competent jurisdiction for an appointment
of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this
Section 6.10 shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee.
Any successor trustee appointed as provided in Section 6.10 shall
execute, acknowledge and deliver to the Company and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal 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, duties and obligations of its predecessor
hereunder, with like effect as if originally named as trustee herein; but,
nevertheless, on the written request of the Company or of the successor trustee,
the trustee ceasing to act shall, upon payment of any amounts then due it
pursuant to the provisions of Section 6.06, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act and shall duly assign, transfer and deliver to such successor
trustee all property and money held by such retiring trustee thereunder. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.06.
No successor trustee shall accept appointment as provided in this
Section 6.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.
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Upon acceptance of appointment by a successor trustee as provided in
this Section 6.11, the Company shall mail notice of the succession of such
trustee hereunder to the holders of Securities at their addresses as they shall
appear on the Security register. If the Company fails to mail such notice within
10 days after the acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.
SECTION 6.12. Succession by Merger, etc.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any Securities shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor trustee; and in all such cases such certificates shall have the full
force which the Securities or this Indenture elsewhere provides that the
certificate of the Trustee shall have; provided, however, that the right to
adopt the certificate of authentication of any predecessor Trustee or
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a Creditor.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act of 1939, excluding any creditor relationship described in Section 311(b) of
the Trust Indenture Act of 1939. A Trustee who has resigned or been removed
shall be subject to Section 311(a) of the Trust Indenture Act of 1939 to the
extent included therein.
SECTION 6.14. Authenticating Agents.
There may be one or more Authenticating Agents appointed by the
Trustee upon the request of the Company with power to act on its behalf and
subject to its direction in the authentica-
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tion and delivery of Securities issued upon exchange or transfer thereof as
fully to all intents and purposes as though any such Authenticating Agent had
been expressly authorized to authenticate and deliver Securities; provided, that
--------
the Trustee shall have no liability to the Company for any acts or omissions of
the Authenticating Agent with respect to the authentication and delivery of
Securities. Any such Authenticating Agent shall at all times be a corporation
organized and doing business under the laws of the United States or of any state
or territory thereof or of the District of Columbia authorized under such laws
to act as Authenticating Agent, having a combined capital and surplus of at
least $5,000,000 and being subject to supervision or examination by federal,
state, territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually pursuant to law or the
requirements of such authority, then for the purposes of this Section 6.14 the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect herein specified in this Section.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of any Authenticating Agent, shall be the successor
of such Authenticating Agent hereunder, if such successor corporation is
otherwise eligible under this Section 6.14 without the execution or filing of
any paper or any further act on the part of the parties hereto or such
Authenticating Agent.
Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible under this Section 6.14, the
Trustee may, and upon the request of the Company shall, promptly appoint a
successor Authenticating Agent eligible under this Section 6.14, shall give
written notice of such appointment to the Company and shall mail notice of such
appointment to all Securityholders as the names and addresses of such holders
appear on the Security Register. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with
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like effect as if originally named as Authenticating Agent herein.
The Company, as borrower, agrees to pay to any Authenticating Agent
from time to time reasonable compensation for its services. Any Authenticating
Agent shall have no responsibility or liability for any action taken by it as
such in accordance with the directions of the Trustee.
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
Whenever in this Indenture it is provided that the holders of a
specified percentage in aggregate principal amount of the Securities may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action) the fact that at
the time of taking any such action the holders of such specified percentage have
joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by such Securityholders in person or by
agent or proxy appointed in writing, or (b) by the record of such holders of
Securities voting in favor thereof at any meeting of such Securityholders duly
called and held in accordance with the provisions of Article VIII, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of such Securityholders.
If the Company shall solicit from the Securityholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Securityholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action or to revoke any such action, but the Company shall have no obligation to
do so. If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other action or revocation may be given
before or after the record date, but only the Securityholders of record at the
close of business on the record date shall be deemed to be Securityholders for
the purposes of determining whether Securityholders of the requisite proportion
of Outstanding Securities have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
action, and for that purpose the Outstanding Securities shall be computed as of
the record date; provided, however, that no such authorization, agreement or
-------- -------
consent by such Securityholders on the record date shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
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SECTION 7.02. Proof of Execution by Securityholders.
Subject to the provisions of Sections 6.01, 6.02 and 8.05, proof of
the execution of any instrument by a Securityholder or his agent or proxy shall
be sufficient if made in accordance with such reasonable rules and regulations
as may be prescribed by the Trustee or in such manner as shall be satisfactory
to the Trustee. The ownership of Securities shall be proved by the Security
Register or by a certificate of the Security Registrar. The Trustee may require
such additional proof of any matter referred to in this Section as it shall deem
necessary.
The record of any Securityholders' meeting shall be proved in the
manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
Prior to due presentment for registration of transfer of any Security,
the Company, the Trustee, any Authenticating Agent, any paying agent, any
transfer agent and any Security Registrar may deem the Person in whose name such
Security shall be registered upon the Security Register to be, and may treat him
as, the absolute owner of such Security (whether or not such Security shall be
overdue) for the purpose of receiving payment of or on account of the principal
of and premium, if any, and (subject to Section 2.06) interest on such Security
and for all other purposes; and neither the Company nor the Trustee nor any
Authenticating Agent nor any paying agent nor any transfer agent nor any
Security Registrar shall be affected by any notice to the contrary. All such
payments so made to any holder for the time being or upon his order shall be
valid, and, to the extent of the sum or sums so paid, effectual to satisfy and
discharge the liability for moneys payable upon any such Security.
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding.
In determining whether the holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Company, except
for the Securities owned by or on behalf of Investors Capital Trust, or any
other obligor on the Securities or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company, except for the Securities owned by or on behalf of Investors Capital
Trust, or any other obligor on the Securities shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; provided that
-------- ----
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, consent or waiver, only Securities which the
Trustee actually knows are so owned shall be so disre-
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garded. Securities so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 7.04 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Securities and that the pledgee is not the Company or any such other
obligor or person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor.
In the case of a dispute as to such right, any decision by the Trustee taken
upon the advice of counsel shall be full protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 7.01, of the taking of any action by the holders of the
percentage in aggregate principal amount of the Securities specified in this
Indenture in connection with such action, any holder of a Security (or any
Security issued in whole or in part in exchange or substitution therefor),
subject to Section 7.01, the serial number of which is shown by the evidence to
be included in the Securities the holders of which have consented to such action
may, by filing written notice with the Trustee at its principal office and upon
proof of holding as provided in Section 7.02, revoke such action so far as
concerns such Security (or so far as concerns the principal amount represented
by any exchanged or substituted Security). Except as aforesaid any such action
taken by the holder of any Security shall be conclusive and binding upon such
holder and upon all future holders and owners of such Security, and of any
Security issued in exchange or substitution therefor, irrespective of whether or
not any notation in regard thereto is made upon such Security or any Security
issued in exchange or substitution therefor.
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings.
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article VIII for any of the following
purposes:
(a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to consent to the waiving of
any default hereunder and its consequences, or to take any other
action authorized to be taken by Securityholders pursuant to any
of the provisions of Article V;
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(b) to remove the Trustee and nominate a successor trustee pursuant to
the provisions of Article VI;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.02;
or
(d) to take any other action authorized to be taken by or on behalf
of the holders of any specified aggregate principal amount of
such Securities under any other provision of this Indenture or
under applicable law.
SECTION 8.02. Call of Meetings by Trustee.
The Trustee may at any time call a meeting of Securityholders to take
any action specified in Section 8.01, to be held at such time and at such place
in the Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of the Securityholders, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed to holders of Securities at their
addresses as they shall appear on the Securities Register. Such notice shall be
mailed not less than 20 nor more than 180 days prior to the date fixed for the
meeting.
SECTION 8.03. Call of Meetings by Company or Securityholders.
In case at any time the Company pursuant to a resolution of the Board
of Directors, or the holders of at least 10% in aggregate principal amount of
the Securities then outstanding, shall have requested the Trustee to call a
meeting of Securityholders, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have mailed the notice of such meeting within 20 days after receipt of such
request, then the Company or such Securityholders may determine the time and the
place in said Borough of Manhattan for such meeting and may call such meeting to
take any action authorized in Section 8.01, by mailing notice thereof as
provided in Section 8.02.
SECTION 8.04. Qualifications for Voting.
To be entitled to vote at any meeting of Securityholders a Person
shall be (a) a holder of one or more Securities or (b) a Person appointed by an
instrument in writing as proxy by a holder of one or more Securities. The only
Persons who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the Persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee
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and its counsel and any representatives of the Company and its counsel.
SECTION 8.05. Regulations.
Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Securityholders, in regard to proof of the holding of Securities and of the
appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 8.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote of the meeting.
Subject to the provisions of Section 8.04, at any meeting each holder
of Securities or proxy therefor shall be entitled to one vote for each $1,000
principal amount of Securities held or represented by him; provided, however,
-------- -------
that no vote shall be cast or counted at any meeting in respect of any Security
challenged as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Securities held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Securityholders. Any
meeting of Securityholders duly called pursuant to the provisions of Section
8.02 or 8.03 may be adjourned from time to time by a majority of those present,
whether or not constituting a quorum, and the meeting may be held as so
adjourned without further notice.
The Persons entitled to vote a majority in principal amount of the
outstanding Securities shall constitute a quorum for a meeting of Holders of
Securities; provided, however, that if any action is to be taken at such meeting
with respect to a consent, waiver, request, demand, notice, authorization,
direction or other action which may be given by the holders of not less than a
specified percentage in principal amount of the outstanding Securities, the
Persons holding or representing such specified percentage in principal amount of
the outstanding Securities will constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of holders of Securities, be dissolved. In any other
case the meeting may be ad-
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journed for a period of not less than 10 days as determined by the chairman of
the meeting prior to the adjournment of such meeting. In the absence of a
quorum at any such adjourned meeting, such adjourned meeting may be further
adjourned for a period of not less than 10 days as determined by the chairman of
the meeting prior to the adjournment of such adjourned meeting. Notice of the
reconvening of any adjourned meeting shall be given as provided in Section 8.02,
except that such notice need be given only once not less than five days prior to
the date on which the meeting is scheduled to be reconvened. Notice of the
reconvening of an adjourned meeting shall state expressly the percentage, as
provided above, of the principal amount of the outstanding Securities which
shall constitute a quorum.
Except as limited by the first proviso to the first paragraph of
Section 9.02, any resolution presented to a meeting or adjourned meeting duly
reconvened at which a quorum is present as aforesaid may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
outstanding Securities; provided, however, that, except as limited by the first
proviso to the first paragraph of Section 9.02, any resolution with respect to
any consent, waiver, request, demand, notice, authorization, direction or other
action which this Indenture expressly provides may be given by the holders of
not less than a specified percentage in principal amount of the outstanding
Securities may be adopted at a meeting or an adjourned meeting duly reconvened
and at which a quorum is present as aforesaid only by the affirmative vote of
the holders of not less than such specified percentage in principal amount of
the outstanding Securities.
Any resolution passed or decision taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities whether or not present or represented at the meeting.
SECTION 8.06. Voting.
The vote upon any resolution submitted to any meeting of holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of such holders or of their representatives by proxy and the serial
number or numbers of the Securities held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
triplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowl-
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edge of the facts setting forth a copy of the notice of the meeting and showing
that said notice was mailed as provided in Section 8.02. The record shall show
the serial numbers of the Securities voting in favor of or against any
resolution. The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one of the duplicates shall
be delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
The holders of the Series A Capital Securities and the Series B Capital
Securities shall vote for all purposes as a single class.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Securityholders.
The Company and the Trustee may from time to time and at any time
amend this Indenture, without the consent of the Securityholders, for one or
more of the following purposes:
(a) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the
Company pursuant to Article X hereof;
(b) to add to the covenants of the Company such further covenants,
restrictions or conditions for the protection of the
Securityholders as the Board of Directors and the Trustee shall
consider to be for the protection of the Securityholders, and to
make the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions or
conditions a default or an Event of Default permitting the
enforcement of all or any of the remedies provided in this
Indenture as herein set forth; provided, however, that in respect
-------- -------
of any such additional covenant, restriction or condition such
amendment may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available
to the Trustee upon such default;
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(c) to provide for the issuance under this Indenture of Securities in
coupon form (including Securities registrable as to principal
only) and to provide for exchangeability of such Securities with
the Securities issued hereunder in fully registered form and to
make all appropriate changes for such purpose;
(d) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained
herein or in any supplemental indenture, or to make such other
provisions in regard to matters or questions arising under this
Indenture; provided that any such action shall not materially
-------- ----
adversely affect the interests of the holders of the Securities;
(e) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities;
(f) to make provision for transfer procedures, certification, book-
entry provisions, the form of restricted securities legends, if
any, to be placed on Securities, minimum denominations and all
other matters required pursuant to Section 2.07 or otherwise
necessary, desirable or appropriate in connection with the
issuance of Securities to holders of Capital Securities in the
event of a distribution of Securities by Investors Capital Trust
following a Dissolution Event;
(g) to qualify or maintain qualification of this Indenture under the
Trust Indenture Act of 1939; or
(h) to make any change that does not adversely affect the rights of
any Securityholder in any material respect.
The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture to effect such amendment, to make any
further appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer and assignment of any property
thereunder, but the Trustee shall not be obligated to, but may in its
discretion, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any amendment to this Indenture authorized by the provisions of this
Section 9.01 may be executed by the Company
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and the Trustee without the consent of the holders of any of the Securities at
the time outstanding, notwithstanding any of the provisions of Section 9.02.
SECTION 9.02. With Consent of Securityholders.
With the consent (evidenced as provided in Section 7.01) of the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding, the Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time amend this Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the holders of the Securities; provided, however, that no such amendment shall
-------- -------
without the consent of the holders of each Security then outstanding and
affected thereby (i) extend the Maturity Date of any Security, or reduce the
rate or extend the time of payment of interest thereon (except as contemplated
by Article XVI), or reduce the principal amount thereof, or reduce any amount
payable on redemption thereof, or make the principal thereof or any interest or
premium thereon payable in any coin or currency other than that provided in the
Securities, or impair or affect the right of any Securityholder to institute
suit for payment thereof, or (ii) reduce the aforesaid percentage of Securities
the holders of which are required to consent to any such amendment to this
Indenture, provided, however, that if the Securities are held by Investors
-------- -------
Capital Trust, such amendment shall not be effective until the holders of a
majority in liquidation amount of Trust Securities shall have consented to such
amendment; provided, further, that if the consent of the holder of each
-------- -------
outstanding Security is required, such amendment shall not be effective until
each holder of the Trust Securities shall have consented to such amendment.
Upon the request of the Company accompanied by a copy of a resolution
of the Board of Directors certified by its Secretary or Assistant Secretary
authorizing the execution of any supplemental indenture affecting such
amendment, and upon the filing with the Trustee of evidence of the consent of
Securityholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, prepared by the
Company, setting forth in general terms the substance of such supplemental
indenture, to the Securityholders as their names and addresses appear upon the
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Security Register. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under
this Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
SECTION 9.03. Compliance with Trust Indenture Act of 1939; Effect of
Supplemental Indentures.
Any supplemental indenture executed pursuant to the provisions of this
Article IX shall comply with the Trust Indenture Act of 1939. Upon the execution
of any supplemental indenture pursuant to the provisions of this Article IX,
this Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.04. Notation on Securities.
Securities authenticated and delivered after the execution of any
supplemental indenture affecting such series pursuant to the provisions of this
Article IX may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustee shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed by the
Company, authenticated by the Trustee or the Authenticating Agent and delivered
in exchange for the Securities then outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be
Furnished Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, may
receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant hereto complies with
the requirements of this Article IX.
The Trustee may receive an Opinion of Counsel as conclusive evidence
that any supplemental indenture executed pursuant to this Article is authorized
or permitted by, and
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conforms to, the terms of this Article and that it is proper for the Trustee
under the provisions of this Article to join in the execution thereof.
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of the Company with or into any other Person
(whether or not affiliated with the Company, as the case may be), or successive
consolidations or mergers in which the Company, or its successor or successors,
as the case may be, shall be a party or parties, or shall prevent any sale,
conveyance, transfer or lease of the property of the Company, or its successor
or successors, as the case may be, as an entirety, or substantially as an
entirety, to any other Person (whether or not affiliated with the Company, or
its successor or successors, as the case may be) authorized to acquire and
operate the same; provided, that (a) the Company is the surviving Person, or the
--------
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, conveyance, transfer or lease of property is
made is a Person organized and existing under the laws of the United States or
any State thereof or the District of Columbia, and (b) upon any such
consolidation, merger, sale, conveyance, transfer or lease, the due and punctual
payment of the principal of (and premium, if any) and interest on the Securities
according to their tenor and the due and punctual performance and observance of
all the covenants and conditions of this Indenture to be kept or performed by
the Company shall be expressly assumed, by supplemental indenture (which shall
conform to the provisions of the Trust Indenture Act of 1939, as then in effect)
satisfactory in form to the Trustee executed and delivered to the Trustee by the
Person formed by such consolidation, or into which the Company, shall have been
merged, or by the Person which shall have acquired such property, as the case
may be, (c) after giving effect to such consolidation, merger, sale, conveyance,
transfer or lease, no Default or Event of Default shall have occurred and be
continuing and (d) such consolidation, merger, sale, conveyance, transfer or
lease does not cause the Securities to be downgraded by a nationally recognized
statistical rating organization.
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SECTION 10.02. Successor Corporation to be Substituted for Company.
In case of any such consolidation, merger, conveyance or transfer and
upon the assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the due and punctual payment of the principal of and premium, if any, and
interest on all of the Securities and the due and punctual performance and
observance of all of the covenants and conditions of this Indenture to be
performed or observed by the Company, such successor Person shall succeed to and
be substituted for the Company, with the same effect as if it had been named
herein as the party of the first part, and the Company thereupon shall be
relieved of any further liability or obligation hereunder or upon the
Securities. Such successor Person thereupon may cause to be signed, and may
issue either in its own name or in the name of Investors Financial Services
Corp., any or all of the Securities issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee or the
Authenticating Agent; and, upon the order of such successor Person instead of
the Company and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate
and deliver any Securities which previously shall have been signed and delivered
by the officers of the Company to the Trustee or the Authenticating Agent for
authentication, and any Securities which such successor Person thereafter shall
cause to be signed and delivered to the Trustee or the Authenticating Agent for
that purpose. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Indentures had been issued at the date of the execution hereof.
SECTION 10.03. Opinion of Counsel to be Given Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, may
receive an Opinion of Counsel as conclusive evidence that any consolidation,
merger, sale, conveyance, transfer or lease, and any assumption, permitted or
required by the terms of this Article X complies with the provisions of this
Article X.
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture.
When (a) the Company shall deliver to the Trustee for cancellation all
Securities theretofore authenticated (other than
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any Securities which shall have been destroyed, lost or stolen and which shall
have been replaced or paid as provided in Section 2.08) and not theretofore
cancelled, or (b) all the Securities not theretofore cancelled or delivered to
the Trustee for cancellation shall have become due and payable, or are by their
terms to become due and payable within one year or are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption, and the Company shall deposit with the
Trustee, in trust, funds sufficient to pay on the Maturity Date or upon
redemption all of the indebtedness on the Securities (other than any Securities
which shall have been destroyed, lost or stolen and which shall have been
replaced as provided in Section 2.08) not theretofore cancelled or delivered to
the Trustee for cancellation, including principal and premium, if any, and
interest due or to become due to the Maturity Date or redemption date, as the
case may be, but excluding, however, the amount of any moneys for the payment of
principal of or premium, if any, or interest on the Securities (1) theretofore
repaid to the Company in accordance with the provisions of Section 11.04, or (2)
paid to any State or to the District of Columbia pursuant to its unclaimed
property or similar laws, and if in either case the Company shall also pay or
cause to be paid all other sums payable hereunder by the Company, then this
Indenture shall cease to be of further effect except for the provisions of
Sections 2.02, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof, which
shall survive until such Securities shall mature and be paid. Thereafter,
Sections 6.06, 6.10 and 11.04 shall survive, and the Trustee, on demand of the
Company accompanied by any Officers' Certificate and an Opinion of Counsel to
the effect that all conditions to the satisfaction and discharge of this
Indenture have been satisfied and at the cost and expense of the Company, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture, the Company, however, hereby agreeing to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred by the Trustee
in connection with this Indenture or the Securities.
SECTION 11.02. Deposited Moneys and U.S. Government Obligations to be
Held in Trust by Trustee.
Subject to the provisions of Section 11.04, all moneys and U.S.
Government Obligations deposited with the Trustee pursuant to Sections 11.01 or
11.05 shall be held in trust and applied by it to the payment, either directly
or through any paying agent (including the Company if acting as its own paying
agent), to the holders of the particular Securities for the payment of which
such moneys or U.S. Government Obligations have been deposited with the Trustee,
of all sums due and to become due thereon for principal, premium, if any, and
interest.
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The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 11.05 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the holders of outstanding Securities.
SECTION 11.03. Paying Agent to Repay Moneys Held.
Upon the satisfaction and discharge of this Indenture all moneys then
held by any paying agent of the Securities (other than the Trustee) shall, upon
written demand of the Company, be repaid to it or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability with
respect to such moneys.
SECTION 11.04. Return of Unclaimed Moneys.
Any moneys deposited with or paid to the Trustee or any paying agent
for payment of the principal of or premium, if any, or interest on Securities
and not applied but remaining unclaimed by the holders of Securities for two
years after the date upon which the principal of or premium, if any, or interest
on such Securities, as the case may be, shall have become due and payable,
shall be repaid to the Company by the Trustee or such paying agent on Company
Request; and the holder of any of the Securities shall thereafter look only to
the Company for any payment which such holder may be entitled to collect and all
liability of the Trustee or such paying agent with respect to such moneys shall
thereupon cease.
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S. Government
Obligations.
The Company shall be deemed to have been Discharged (as defined below)
from its obligations with respect to the Securities on the 91st day after the
conditions set forth below have been satisfied:
(1) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee or the Defeasance Agent (as defined
below) as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the holders of the
Securities (i) money in an amount, or (ii) U.S. Government
Obligations which through the payment of interest and principal
in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money
in an amount, or (iii) a combination of (i) and (ii), sufficient,
in the opinion (with respect to (ii) and (iii)) of a
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nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee and the Defeasance Agent, if any, to pay and discharge
each installment of principal of and interest and premium, if
any, on the outstanding Securities on the dates such installments
of principal, interest or premium are due;
(2) if the Securities are then listed on any national securities
exchange, the Company shall have delivered to the Trustee and
the Defeasance Agent, if any, an Opinion of Counsel to the effect
that the exercise of the option under this Section 11.05 would
not cause such Securities to be delisted from such exchange;
(3) no Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such
deposit; and
(4) the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Opinion of Counsel to the effect
that holders of the Securities will not recognize income, gain
or loss for United States federal income tax purposes as a result
of the exercise of the option under this Section 11.05 and will
be subject to United States federal income tax on the same amount
and in the same manner and at the same times as would have been
the case if such option had not been exercised, and such opinion
shall be based on a statute so providing or be accompanied by a
private letter ruling to that effect received from the United
States Internal Revenue Service or a revenue ruling pertaining to
a comparable form of transaction to that effect published by the
United States Internal Revenue Service; and
(5) the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Officers' Certificate and an Opinion
of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Securities and to have satisfied all the obligations under this Indenture
relating to the Securities (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), except (A) the rights
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of holders of Securities to receive, from the trust fund described in clause
(1) above, payment of the principal of and the interest and premium, if any, on
the Securities when such payments are due; (B) the Company's obligations with
respect to the Securities under Sections 2.02, 2.07, 2.08, 3.02, 3.04, 6.10 and
11.04; and (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder.
"Defeasance Agent" means another financial institution which is
eligible to act as Trustee hereunder and which assumes all of the obligations of
the Trustee necessary to enable the Trustee to act under this Article. In the
event such a Defeasance Agent is appointed pursuant to this Section, the
following conditions shall apply:
(1) The Trustee shall have approval rights over the document
appointing such Defeasance Agent and the document setting forth
such Defeasance Agent's rights and responsibilities;
(2) The Defeasance Agent shall provide verification to the Trustee
acknowledging receipt of sufficient money and/or U. S. Government
Obligations to meet the applicable conditions set forth in this
Section 11.05.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or
interest on any Security, or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in this Indenture, or in any Security, or because of the creation of
any indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor Person to the Company, either directly or through
the Company or any successor Person to the Company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that all such liability is
hereby expressly waived and released as a condition of, and as a consideration
for, the execution of this Indenture and the issue of the Securities.
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors.
All the covenants, stipulations, promises and agreements in this
Indenture contained by the Company shall bind its successors and assigns whether
so expressed or not.
SECTION 13.02. Official Acts by Successor Corporation.
Any act or proceeding by any provision of this Indenture authorized
or required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
like board, committee or officer of any corporation that shall at the time be
the lawful sole successor of the Company.
SECTION 13.03. Surrender of Company Powers.
The Company by instrument in writing executed by authority of a
majority of its Board of Directors and delivered to the Trustee may surrender
any of the powers reserved to the Company, and thereupon such power so
surrendered shall terminate both as to the Company, as the case may be, and as
to any successor Person.
SECTION 13.04. Addresses for Notices, etc.
Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders of
Securities on the Company may be given or served by being deposited postage
prepaid by registered or certified mail in a post office letter box addressed
(until another address is filed by the Company with the Trustee for the purpose)
to the Company, 89 South Street, P.O. Box 1537, Boston, MA 02205-1537,
Attention: General Counsel. Any notice, direction, request or demand by any
Securityholder to or upon the Trustee shall be deemed to have been sufficiently
given or made, for all purposes, if given or made in writing at the office of
the Trustee, The Bank of New York, 101 Barclay Street, New York, NY 10286,
Attention: Corporate Trust Trustee Administration (unless another address is
provided by the Trustee to the Company for the purpose).
Any notice or communication to a Holder shall be mailed by first class
mail to his or her address shown on the register kept by the Registrar. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
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SECTION 13.05. Governing Law.
This Indenture and each Security shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be governed
by and construed in accordance with the laws of said State, without regard to
conflicts of laws principles thereof.
SECTION 13.06. Evidence of Compliance with Conditions Precedent.
Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that in the opinion of
the signers all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture (except pursuant to Section 3.05) shall include
(1) a statement that the person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (3) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
SECTION 13.07. Business Days.
In any case where the date of payment of principal of or premium, if
any, or interest on the Securities will not be a Business Day, the payment of
such principal of or premium, if any, or interest on the Securities need not be
made on such date but may be made on the next succeeding Business Day, with the
same force and effect as if made on the date of payment and no interest shall
accrue for the period from and after such date.
SECTION 13.08. Trust Indenture Act of 1939 to Control.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939, such imposed duties shall
control.
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SECTION 13.09. Table of Contents, Headings, etc.
The table of contents and the titles and headings of the articles and
sections of this Indenture have been inserted for convenience of reference only,
are not to be considered a part hereof, and shall in no way modify or restrict
any of the terms or provisions hereof.
SECTION 13.10. Execution in Counterparts.
This Indenture 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.
SECTION 13.11. Separability.
In case any one or more of the provisions contained in this Indenture
or in the Securities shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Securities,
but this Indenture and the Securities shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 13.12. Assignment.
The Company will have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
--------
assignment, the Company will remain primarily liable for all its obligations.
Subject to the foregoing, the Indenture is binding upon and inures to the
benefit of the parties thereto and their respective successors and assigns.
This Indenture may not otherwise be assigned by the parties hereto.
SECTION 13.13. Acknowledgement of Rights.
The Company acknowledges that, with respect to any Securities held by
Investors Capital Trust or a trustee of such trust, if the Property Trustee of
such Trust fails to enforce its rights under this Indenture as the holder of the
Securities held as the assets of Investors Capital Trust, any holder of Capital
Securities may, to the fullest extent permitted by applicable law, institute
legal proceedings directly against the Company to enforce such Property
Trustee's rights under this Indenture without first instituting any legal
proceedings against such Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
principal of or premium, if any, or interest on the
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Securities when due, the Company acknowledges that a holder of Capital
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or premium, if any, or interest on the
Securities having a principal amount equal to the aggregate liquidation amount
of the Capital Securities of such holder on or after the respective due date
specified in the Securities.
ARTICLE XIV
REDEMPTION OF SECURITIES -- MANDATORY AND
OPTIONAL SINKING FUND
SECTION 14.01. Special Event Redemption.
If a Special Event has occurred and is continuing then,
notwithstanding Section 14.02(a) but subject to Section 14.02(b), the Company
shall have the right at any time prior to the Initial Optional Redemption Date,
upon (i) not less than 45 days written notice to the Trustee, which notice shall
be accompanied by an Officers' Certificate certifying that a Special Event
entitling the Company to redeem the Securities pursuant to this Section, has
occurred and (ii) not less than 30 days nor more than 60 days written notice to
the Securityholders, to redeem the Securities, in whole (but not in part),
within 90 days following the occurrence of such Special Event at the Special
Event Redemption Price. Following a Special Event, the Company shall take such
action as is necessary to promptly determine the Special Event Redemption Price,
including without limitation the appointment by the Company of a Quotation
Agent. The Special Event Redemption Price shall be paid prior to 12:00 noon,
New York time, on the date of such redemption or such earlier time as the
Company determines, provided that the Company shall deposit with the Trustee an
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amount sufficient to pay the Special Event Redemption Price by 10:00 a.m., New
York time, on the date such Special Event Prepayment Price is to be paid. The
Company shall provide the Trustee with written notice of the Special Event
Redemption Price promptly after the calculation thereof, which notice shall
include any calculation made by the Quotation Agent in connection with the
determination of the Special Event Redemption Price.
SECTION 14.02. Optional Redemption by Company.
(a) Subject to the provisions of this Article XIV, the Company shall
have the right to redeem the Securities, in whole or in part, from time to time,
on or after Initial Optional Redemption Date at the optional redemption prices
set forth below (expressed as percentages of principal) plus accrued and unpaid
interest thereon (including Additional Interest and Compounded Interest, if any)
to the applicable date of redemption (the "Op-
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tional Redemption Price"): if redeemed during the 12-month period beginning
February 1 of the years indicated below:
Year Percentage
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2007 104.8850%
2008 104.3965%
2009 103.9080%
2010 103.4195%
2011 102.9310%
2012 102.4425%
2013 101.9540%
2014 101.4655%
2015 100.9770%
2016 100.4885%
2017 and thereafter 100.0000%
If the Securities are only partially redeemed pursuant to this Section
14.02, the Securities will be redeemed by lot or by any other method utilized by
the Trustee; provided, that if at the time of redemption the Securities are
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registered as a Global Security, the Depositary shall determine, in accordance
with its procedures, the principal amount of such Securities held for the
account of its participants to be redeemed. The Optional Redemption Price
shall be paid prior to 12:00 noon, New York time, on the date of such redemption
or at such earlier time as the Company determines, provided that the Company
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shall deposit with the Trustee an amount sufficient to pay the Optional
Redemption Price by 10:00 a.m., New York time, on the date such Optional
Redemption Price is to be paid.
(b) Any redemption of Securities pursuant to Section 14.01 or Section
14.02 shall be subject to the receipt by the Company of any required regulatory
approval, including the prior approval of the Federal Reserve Board if then
required under applicable capital guidelines or policies of the Federal Reserve
Board.
SECTION 14.03. No Sinking Fund.
The Securities are not entitled to the benefit of any sinking fund.
SECTION 14.04. Notice of Redemption; Selection of Securities.
In case the Company shall desire to exercise the right to redeem all,
or, as the case may be, any part of the Securities in accordance with their
terms, it shall fix a date for redemption and shall mail a notice of such
redemption at least 30 and
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not more than 60 days prior to the date fixed for redemption to the holders of
Securities so to be redeemed as a whole or in part at their last addresses as
the same appear on the Security Register. Such mailing shall be by first class
mail. The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice. In any case, failure to give such notice by mail or any defect in the
notice to the holder of any Security designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Security.
Each such notice of redemption shall specify the CUSIP number of the
Securities to be redeemed, the date fixed for redemption, the redemption price
at which the Securities are to be redeemed (or the method by which such
redemption price is to be calculated), the place or places of payment, that
payment will be made upon presentation and surrender of the Securities, that
interest accrued to the date fixed for redemption will be paid as specified in
said notice, and that on and after said date interest thereon or on the
portions thereof to be redeemed will cease to accrue. If less than all the
Securities are to be redeemed the notice of redemption shall specify the numbers
of the Securities to be redeemed. In case any Security is to be redeemed in
part only, the notice of redemption shall state the portion of the principal
amount thereof to be redeemed and shall state that on and after the date fixed
for redemption, upon surrender of such Security, a new Security or Securities in
principal amount equal to the unredeemed portion thereof will be issued.
By 10:00 a.m. New York time on the redemption date specified in the
notice of redemption given as provided in this Section, the Company will deposit
with the Trustee or with one or more paying agents an amount of money sufficient
to redeem on the redemption date all the Securities so called for redemption at
the appropriate Redemption Price, together with accrued interest to the date
fixed for redemption.
The Company will give the Trustee notice not less than 45 days prior
to the redemption date as to the aggregate principal amount of Securities to be
redeemed and the Trustee shall select, in such manner as in its sole discretion
it shall deem appropriate and fair, the Securities or portions thereof (in
integral multiples of $1,000, except as otherwise set forth in the applicable
form of Security) to be redeemed.
SECTION 14.05. Payment of Securities Called for Redemption.
If notice of redemption has been given as provided in Section 14.04,
the Securities or portions of Securities with respect to which such notice has
been given shall become due and
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payable on the date and at the place or places stated in such notice at the
applicable Redemption Price, together with interest accrued to the date fixed
for redemption (subject to the rights of holders of Securities on the close of
business on a regular record date in respect of an Interest Payment Date
occurring on or prior to the redemption date), and on and after said date
(unless the Company shall default in the payment of such Securities at the
Redemption Price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue. On presentation and surrender of such Securities at a place of payment
specified in said notice, the said Securities or the specified portions thereof
shall be paid and redeemed by the Company at the applicable Redemption Price,
together with interest accrued thereon to the date fixed for redemption (subject
to the rights of holders of Securities on the close of business on a regular
record date in respect of an Interest Payment Date occurring on or prior to the
redemption date).
Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
SECTION 14.06. Conditional Right to Advance Maturity.
If a Tax Event occurs, then the Company will have the right in lieu of
terminating Investors Capital Trust, to advance the Maturity Date of the
Securities to the minimum extent required, but not to a date earlier than
twenty years from the Issue Date, if (i) in the written opinion of counsel
experienced in such matters delivered to the Company, after advancing the
Maturity Date, interest payable on the Securities shall be deductible for
federal income tax purposes and (ii) the Company has obtained the prior approval
of the Federal Reserve Board if then required under applicable capital
guidelines or policies of the Federal Reserve Board, (the action referred to
above being referred to herein as a "Tax Event Maturity Advancement").
If a Tax Event occurs and in the written opinion of counsel to the
Company experienced in such matters, there would in all cases, after effecting a
Tax Event Maturity Advancement, be more than an insubstantial risk that an
Adverse Tax Consequence would continue to exist, a Special Event shall be
deemed to have occurred and the Securities shall then be subject to prepayment
in accordance with the provisions of Section 14.01. The circumstances under
which the Company has the right to prepay the Securities in connection with a
Tax Event is referred to herein as a "Conditional Tax Redemption Event".
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ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate.
The Company covenants and agrees, and each holder of Securities issued
hereunder likewise covenants and agrees, that the Securities shall be issued
subject to the provisions of this Article XV; and each holder of a Security,
whether upon original issue or upon transfer or assignment thereof, accepts and
agrees to be bound by such provisions.
The payment by the Company of the principal of, premium, if any, and
interest on all Securities issued hereunder shall, to the extent and in the
manner hereinafter set forth, be subordinated and junior in right of payment to
the prior payment in full of all amounts with respect to Senior Indebtedness,
whether outstanding at the date of this Indenture or thereafter incurred.
No provision of this Article XV shall prevent the occurrence of any
Default or Event of Default hereunder.
SECTION 15.02. Default on Senior Indebtedness.
In the event and during the continuation of any default by the Company
in the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness, or in the event that the maturity of any Senior
Indebtedness has been accelerated because of a default, then, in either case, no
payment shall be made by the Company with respect to the principal (including
redemption payments) of or premium, if any, or interest on the Securities.
In the event of the acceleration of the maturity of the Securities,
then no payment shall be made by the Company with respect to the principal
(including redemption payments) of or premium, if any, or interest on the
Securities until the holders of all Senior Indebtedness outstanding at the time
of such acceleration shall receive payment in full of all amounts due in respect
of such Senior Indebtedness (including any amounts due upon acceleration).
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraphs of this Section 15.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests
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may appear, but only to the extent that the holders of the Senior Indebtedness
(or their representative or representatives or a trustee) notify the Trustee in
writing, within 90 days of such payment of the amounts then due and owing on
such Senior Indebtedness and only the amounts specified in such notice to the
Trustee shall be paid to the holders of such Senior Indebtedness.
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior Indebtedness
of the Company shall first be paid in full, or payment thereof provided for in
money in accordance with its terms, before any payment is made by the Company on
account of the principal (and premium, if any) or interest on the Securities;
and upon any such dissolution or winding-up or liquidation or reorganization,
any payment by the Company, or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the
Securityholders or the Trustee would be entitled to receive from the Company,
except for the provisions of this Article XV, shall be paid by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Securityholders or by the Trustee
under this Indenture if received by them or it, directly to the holders of
Senior Indebtedness of the Company (pro rata to such holders on the basis of the
--- ----
respective amounts of Senior Indebtedness held by such holders, as calculated by
the Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay such Senior Indebtedness in full, in
money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Securityholders or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness is paid in full, or provision is made for
such payment in money in accordance with its terms, such payment or distribution
shall be held in trust for the benefit of and shall be paid over or delivered to
the holders of such Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been
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issued, as their respective interests may appear, as calculated by the Company,
for application to the payment of all Senior Indebtedness remaining unpaid to
the extent necessary to pay all amounts in respect of such Senior Indebtedness
in full in money in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the benefit of the holders of such
Senior Indebtedness.
For purposes of this Article XV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XV with respect
to the Securities to the payment of Senior Indebtedness that may at the time be
outstanding, provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment, and
(ii) the rights of the holders of such Senior Indebtedness are not, without the
consent of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the sale,
conveyance, transfer or lease of its property as an entirety, or substantially
as an entirety, to another Person upon the terms and conditions provided for in
Article X of this Indenture shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 15.03 if such
other Person shall, as a part of such consolidation, merger, sale, conveyance,
transfer or lease, comply with the conditions stated in Article X of this
Indenture.
SECTION 15.04. Subrogation.
Subject to the payment in full of all amounts due in respect of Senior
Indebtedness, the rights of the Securityholders shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of (and premium,
if any) and interest on the Securities shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the holders of
such Senior Indebtedness of any cash, property or securities to which the
Securityholders or the Trustee would be entitled except for the provisions of
this Article XV, and no payment over pursuant to the provisions of this Article
XV to or for the benefit of the holders of such Senior Indebtedness by
Securityholders or the Trustee, shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Securities, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the
76
<PAGE>
provisions of this Article XV are and are intended solely for the purposes of
defining the relative rights of the holders of the Securities, on the one hand,
and the holders of such Senior Indebtedness on the other hand.
Nothing contained in this Article XV or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness of the Company, and the
holders of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Securities the principal of (and
premium, if any) and interest on the Securities as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Securities and creditors
of the Company, as the case may be, other than the holders of Senior
Indebtedness of the Company, as the case may be, nor shall anything herein or
therein prevent the Trustee or the holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article XV of the holders
of such Senior Indebtedness in respect of cash, property or securities of the
Company, as the case may be, received upon the exercise of any such remedy.
SECTION 15.05. Trustee to Effectuate Subordination.
Each Securityholder by such Securityholder's acceptance thereof
authorizes and directs the Trustee on such Securityholder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article XV and appoints the Trustee such Securityholder's
attorney-in-fact for any and all such purposes.
SECTION 15.06. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article XV. Notwithstanding the provisions
of this Article XV or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article XV, unless and until a
Responsible Officer of the Trustee assigned to its Principal Office shall have
received written notice thereof from the Company or a holder or holders of
Senior Indebtedness or from any trustee therefor; and before the receipt of any
such written notice, the Trustee, subject to the provisions of Article VI of
this Indenture, shall be entitled in all respects to assume that no such facts
exist;
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<PAGE>
provided, however, that if the Trustee shall not have received the notice
- -------- -------
provided for in this Section 15.06 at least two Business Days prior to the date
(i) upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (or premium, if
any) or interest on any Security), or (ii) moneys and/or U.S. Government
Obligations are deposited in trust pursuant to Article XI then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power
and authority to receive such money and U.S. Government Obligations and to apply
the same to the purposes for which they were received, and shall not be affected
by any notice to the contrary that may be received by it within two Business
Days prior to such date.
The Trustee, subject to the provisions of Article VI of this
Indenture, shall be entitled to conclusively rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness of the Company (or a trustee or representative on behalf of such
holder) to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder or
holders. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of such
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article XV, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of such Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article XV, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
Upon any payment or distribution of assets of the Company referred to
in this Article XV, the Trustee and the Securityholders shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, liquidating trustee, custodian,
receiver, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the
Securityholders, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XV.
78
<PAGE>
SECTION 15.07. Rights of the Trustee; Holders of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XV in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other holder of Senior Indebtedness,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article XV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Article VI of this Indenture, the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall pay over or deliver to
Securityholders, the Company or any other Person money or assets to which any
holder of Senior Indebtedness shall be entitled by virtue of this Article XV or
otherwise.
Nothing in this Article XV shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Securityholders, without
incurring responsibility to the Securityholders and without impairing or
releasing the subordination provided in this Article XV or the obligations
hereunder of the holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, such
Senior Indebtedness, or otherwise amend or supplement in any manner such Senior
Indebtedness or any instrument evidencing the same or any agreement under which
such Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged,
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<PAGE>
mortgaged or otherwise securing such Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of such Senior Indebtedness; and
(iv) exercise or refrain from exercising any rights against the Company and any
other Person.
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. Extension of Interest Payment Period.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time and from time to time during the term
of the Securities, to defer payments of interest by extending the interest
payment period of such Securities for a period not exceeding 10 consecutive
semiannual periods, including the first such semiannual period during such
extension period (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided that no
-------- ----
Extended Interest Payment Period shall end on a date other than an Interest
Payment Date or extend beyond the Maturity Date. To the extent permitted by
applicable law, interest, the payment of which has been deferred because of the
extension of the interest payment period pursuant to this Section 16.01, will
bear interest thereon at the Coupon Rate compounded semiannually for each
semiannual period of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the Company
shall pay all interest accrued and unpaid on the Securities, including any
Additional Interest and Compounded Interest (together, "Deferred Interest") that
shall be payable to the holders of the Securities in whose names the Securities
are registered in the Security Register on the first record date preceding the
end of the Extended Interest Payment Period. Before the termination of any
Extended Interest Payment Period, the Company may further defer payments of
interest by further extending such period, provided that such period, together
--------
with all such previous and further extensions within such Extended Interest
Payment Period, shall not exceed 10 consecutive semiannual periods, including
the first such semiannual period during such Extended Interest Payment Period,
or extend beyond the Maturity Date. Upon the termination of any Extended
Interest Payment Period and the payment of all Deferred Interest then due, the
Company may commence a new Extended Interest Payment Period, subject to the
foregoing requirements. No interest shall be due and payable during an Extended
Interest Payment Period, except at the end thereof, but the Company may prepay
at any time all or any portion of the interest accrued during an Extended
Interest Payment Period.
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<PAGE>
SECTION 16.02. Notice of Extension.
(a) If the Property Trustee is the only registered holder of the
Securities at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Administrative Trustees, the
Property Trustee and the Trustee of its selection of such Extended Interest
Payment Period five Business Days before the earlier of (i) the next succeeding
date on which Distributions on the Trust Securities issued by Investors Capital
Trust are payable, or (ii) the date Investors Capital Trust is required to give
notice of the record date, or the date such Distributions are payable, to any
national securities exchange or to holders of the Capital Securities issued by
Investors Capital Trust, but in any event at least five Business Days before
such record date.
(b) If the Property Trustee is not the only holder of the Securities
at the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Securities and the Trustee written notice of its
selection of such Extended Interest Payment Period at least 10 Business Days
before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the
date the Company is required to give notice of the record or payment date of
such interest payment to any national securities exchange.
(c) The semiannual period in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 16.02 shall be counted as one of the 10
semiannual periods permitted in the maximum Extended Interest Payment Period
permitted under Section 16.01.
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<PAGE>
THE BANK OF NEW YORK hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers thereunto duly authorized, as of
the day and year first above written.
INVESTORS FINANCIAL SERVICES CORP.
By /s/ Karen C. Keenan
----------------------------
Name: Karen C. Keenan
Title: Chief Finanical Officer
THE BANK OF NEW YORK,
as Trustee
By /s/ Mary Jane Morrissey
----------------------------
Name: MARY JANE MORRISSEY
Title: VICE PRESIDENT
<PAGE>
EXHIBIT A
---------
(FORM OF FACE OF SECURITY)
[IF THE SECURITY IS A GLOBAL SECURITY, INSERT: - THIS SECURITY IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND
IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS
SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY
A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
"AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS
SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN
A-1
<PAGE>
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D),
(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS
AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, AND (ii) PURSUANT TO
CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON
THE REVERSE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE
COMPANY. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.
A-2
<PAGE>
No. CUSIP No. ______________
INVESTORS FINANCIAL SERVICES CORP.
9.7% SERIES __ JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE February 1, 2027
Investors Financial Services Corp., a Delaware corporation (the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
______________ or registered assigns, the principal sum of _____________ Dollars
on February 1, 2027, or an such earlier date as the Company shall determine
pursuant to Section 14.06 of the Indenture (the "Maturity Date"), unless
previously redeemed, and to pay interest on the outstanding principal amount
hereof from January 31, 1997, or from the most recent interest payment date
(each such date, an "Interest Payment Date") to which interest has been paid or
duly provided for, semiannually (subject to deferral as set forth herein) in
arrears on February 1 and August 1 of each year, commencing August 1, 1997 at
the rate of 9.7% per annum until the principal hereof shall have become due and
payable, and at the same rate per annum on any overdue principal and premium, if
any, and (without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
same rate per annum compounded semiannually. The amount of interest payable on
any Interest Payment Date shall be computed on the basis of a 360-day year of
twelve 30-day months and, for any period less than a full calendar month, the
number of days elapsed in such month. In the event that any date on which the
principal of (or premium, if any) or interest on this Security is payable is not
a Business Day, then the payment payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), with the same force and effect as if made on such
date. Pursuant to the Registration Rights Agreement, in certain limited
circumstances the Company will be required to pay Liquidated Damages (as defined
in the Registration Rights Agreement) with respect to this Security.
The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities, as defined in said Indenture) is registered at the close of business
on the regular record date for such interest installment, which shall be the
date fifteen days prior to the relevant Interest Payment Date. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the holders on such regular record date and may be paid
to the Person in whose name this Security (or one or more Predecessor
Securities)
A-3
<PAGE>
is registered at the close of business on a special record date to be fixed by
the Trustee for the payment of such defaulted interest, notice whereof shall be
given to the holders of Securities not less than 10 days prior to such special
record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture.
The principal of (and premium, if any) and interest on this Security
shall be payable at the office or agency of the Trustee maintained for that
purpose or at the office of a paying agent or paying agents as the Company may
designate from time to time in any coin or currency of the United States of
America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that, payment of interest may be made at the
-------- -------
option of the Company by (i) check mailed to the holder at such address as shall
appear in the Security Register or (ii) by transfer to an account maintained by
the Person entitled thereto, provided that proper written transfer instructions
have been received by the relevant record date; provided that if this Security
is in global form, the interest hereon shall be made in immediately available
funds. Notwithstanding the foregoing, so long as the Holder of this Security is
the Property Trustee, the payment of the principal of (and premium, if any) and
interest on this Security will be made at such place and to such account as may
be designated by the Property Trustee.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of the Senior Indebted ness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his or her attorney-in-
fact for any and all such purposes. Each holder hereof, by his or her acceptance
hereof, hereby waives all notice of the acceptance of the subordination
provisions contained herein and in the Indenture by each holder of Senior
Indebtedness, whether now outstanding or hereafter incurred, and waives reliance
by each such holder upon said provisions.
This Security shall not be entitled to any benefit under the Indenture
hereinafter referred to, or be valid or become obligatory for any purpose until
the Certificate of Authentication hereon shall have been signed by or on behalf
of the Trustee.
A-4
<PAGE>
The provisions of this Security are continued on the reverse side
hereof and such provisions shall for all purposes have the same effect as though
fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
INVESTORS FINANCIAL SERVICES CORP.
By: ____________________________
Name:
Title
Attest:
By: _______________________
Name:
Title:
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated ______________
THE BANK OF NEW YORK,
as Trustee
By____________________
Authorized Signatory
A-5
<PAGE>
(FORM OF REVERSE OF SECURITY)
This Security is one of the Securities of the Company (herein
sometimes referred to as the "Securities"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture, dated as of January
31, 1997 (the "Indenture"), duly executed and delivered between the Company and
The Bank of New York, as Trustee (the "Trustee"), to which Indenture reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Securities.
Upon the occurrence and continuation of a Special Event, the Company
shall have the right at any time, within 90 days following the occurrence of a
Special Event, prior to February 1, 2007 (the "Initial Optional Redemption
Date"), to redeem this Security in whole (but not in part) at the Special Event
Redemption Price. "Special Event Redemption Price" shall mean, with respect to
any redemption of the Securities following a Special Event, an amount in cash
equal to the greater of (i) 100% of the principal amount to be redeemed or (ii)
the sum, as determined by a Quotation Agent, of the present values of the
principal amount and premium payable with respect to an Optional Redemption (as
defined below) on the Initial Optional Redemption Date, together with scheduled
payments of interest on the Securities from the redemption date to and including
the Initial Optional Redemption Date, discounted to the redemption date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Adjusted Treasury Rate, plus, in each case, any accrued and unpaid interest
thereon, including Compounded Interest and Additional Interest, if any, to the
date of such redemption.
In addition, the Company shall have the right to redeem this Security,
in whole or in part, at any time on or after the Initial Optional Redemption
Date (an "Optional Redemption"), at the Optional Redemption Price as set forth
below (expressed as percentages of principal to be redeemed) plus accrued and
unpaid interest thereon (including Additional Interest and Compounded Interest,
if any) to the applicable date of redemption: if redeemed during the 12-month
period beginning February 1 of the years indicated below:
Year Percentage
---- ----------
2007 104.8850%
2008 104.3965%
2009 103.9080%
2010 103.4195%
2011 102.9310%
2012 102.4425%
2013 101.9540%
2014 101.4655%
A-6
<PAGE>
2015 100.9770%
2016 100.4885%
2017 and thereafter 1 00.0000%
The Optional Redemption Price or the Special Event Redemption Price,
as the case requires, shall be paid prior to 12:00 noon, New York time, on the
date of such redemption or at such earlier time as the Company determines,
provided, that the Company shall deposit with the Trustee an amount sufficient
to pay the applicable Redemption Price by 10:00 a.m., New York City time, on the
date such Redemption Price is to be paid. Any redemption pursuant to this
paragraph will be made upon not less than 30 days nor more than 60 days notice.
If the Securities are only partially redeemed by the Company pursuant to an
Optional Redemption, the Securities will be redeemed pro rata or by lot or by
--- ----
any other method utilized by the Trustee; provided that if, at the time of
--------
redemption, the Securities are registered as a Global Security, the Depositary
shall determine in accordance with its procedures the principal amount of such
Securities held for the account of its participants to be redeemed.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in the
name of the holder hereof upon the cancellation hereof.
Notwithstanding the foregoing, any redemption of Securities by the
Company shall be subject to the receipt by the Company of any required
regulatory approval, including the prior approval of the Federal Reserve Board
if then required under applicable capital guidelines or policies of the Federal
Reserve Board.
If a Tax Event occurs, then the Company will have the right in lieu of
terminating Investors Capital Trust, to advance the Maturity Date of this
Security to the minimum extent required, but not to a date earlier than twenty
years from January 31, 1997 (the "Issue Date"); provided that (i) in the written
opinion of counsel experienced in such matters delivered to the Company, after
advancing the Maturity Date, interest payable on the Securities shall be
deductible for federal income tax purposes and (ii) the Company has obtained the
prior approval of the Federal Reserve Board if then required under applicable
capital guidelines or policies of the Federal Reserve Board.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Securities may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
A-7
<PAGE>
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the Securities at the time outstanding, as defined in the Indenture,
to execute supplemental indentures for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of modifying in any manner the rights of the holders of the Securities;
provided, however, that no such supplemental indenture shall, without the
- -------- -------
consent of each holder of Securities then outstanding and affected thereby, (i)
extend the Maturity Date of any Securities, or reduce the principal amount
thereof, or reduce any amount payable on redemption thereof, or reduce the rate
or extend the time of payment of interest thereon (subject to Article XVI of the
Indenture), or make the principal of, or interest or premium on, the Securities
payable in any coin or currency other than U.S. dollars, or impair or affect the
right of any holder of Securities to institute suit for the payment thereof, or
(ii) reduce the aforesaid percentage of Securities, the holders of which are
required to consent to any such supplemental indenture. The Indenture also
contains provisions permitting the holders of a majority in aggregate principal
amount of the Securities at the time outstanding, on behalf of all of the
holders of the Securities, to waive any past default in the performance of any
of the covenants contained in the Indenture, or established pursuant to the
Indenture, and its consequences, except a default in the payment of the
principal of or premium, if any, or interest on any of the Securities or a
default in respect of any covenant or provision under which the Indenture cannot
be modified or amended without the consent of each holder of Securities then
outstanding. Any such consent or waiver by the holder of this Security (unless
revoked as provided in the Indenture) shall be conclusive and binding upon such
Holder and upon all future holders and owners of this Security and of any
Security issued in exchange herefor or in place hereof (whether by registration
of transfer or otherwise), irrespective of whether or not any notation of such
consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the time and place and at the rate and in the money
herein prescribed.
The Company shall have the right, at any time and from time to time
during the term of the Securities, to defer payments of interest by extending
the interest payment period of such Securities for a period not exceeding 10
consecutive semiannual periods, including the first such semiannual period
during such extension period, and not to extend beyond the Maturity Date of the
Securities (an "Extended Interest Payment Period"), at the
A-8
<PAGE>
end of which period the Company shall pay all interest then accrued and unpaid
(together with interest thereon at the rate specified for the Securities to the
extent that payment of such interest is enforceable under applicable law).
Before the termination of any such Extended Interest Payment Period, the
Company may further defer payments of interest by further extending such
Extended Interest Payment Period, provided that such Extended Interest Payment
--------
Period, together with all such previous and further extensions within such
Extended Interest Payment Period, shall not exceed 10 consecutive semiannual
periods, including the first semiannual period during such Extended Interest
Payment Period, shall not end on any date other than an Interest Payment Date or
extend beyond the Maturity Date of the Securities. Upon the termination of any
such Extended Interest Payment Period and the payment of all accrued and unpaid
interest and any additional amounts then due, the Company may commence a new
Extended Interest Payment Period, subject to the foregoing requirements.
The Company has agreed that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in right of
payment to the Securities or (iii) make any guarantee payments with respect to
any guarantee by the Company of any securities or any Subsidiary of the Company
(including Other Guarantees) if such guarantee ranks pari passu or junior in
right of payment to the Securities (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock of the Company; (b) any declaration of a dividend in connection
with the implementation of a stockholder's rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto; (c) payments under the Capital Securities Guarantee;
(d) as a direct result of, and only to the extent required in order to avoid the
issuance of fractional shares of capital stock following a reclassification of
the Company's capital stock or the exchange or the conversion of one class or
series of the Company's capital stock for another class or series of the
Company's capital stock; (e) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the exchange or conversion of such
capital stock or the security being exchanged or converted and (f) purchases of
Common Stock related to the issuance of Common Stock or rights under any of the
Company's benefit plans for its directors, officers or employees or any of the
Company's dividend reinvestment plans) if at such time (i) an Event of Default
shall have occurred and be continuing, (ii) there shall have occurred any event
of which the Company has actual knowledge that (a) is, or with the giving of
notice or the lapse of time, or both, would
A-9
<PAGE>
be, an Event of Default and (b) in respect of which the Company shall not have
taken reasonable steps to cure, (iii) if such Securities are held by Investors
Capital Trust, the Company shall be in default with respect to its payment
obligations under the Capital Securities Guarantee or (iv) the Company shall
have given notice of its election of the exercise of its right to extend the
interest payment period and any such extension shall be continuing.
The Securities are issuable only in registered form without coupons in
minimum denominations of $100,000.00 and any integral multiple of $1,000.00
above $100,000.00. As provided in the Indenture and subject to the transfer
restrictions limitations as may be contained herein and therein from time to
time, this Security is transferable by the holder hereof on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company in the City and State of New
York accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company and the Security Registrar duly executed by the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of authorized denominations and for the same aggregate
principal amount and series will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this
Security, the Company, the Trustee, any authenticating agent, any paying agent,
any transfer agent and the registrar may deem and treat the holder hereof as the
absolute owner hereof (whether or not this Security shall be overdue and
notwithstanding any notice of ownership or writing hereon made by anyone other
than the Security Registrar) for the purpose of receiving payment of or on
account of the principal hereof and premium, if any, and (subject to the
Indenture) interest due hereon and for all other purposes, and neither the
Company nor the Trustee nor any authenticating agent nor any paying agent nor
any transfer agent nor any registrar shall be affected by any notice to the
contrary.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Security, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture, against
any incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor Person, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the
A-10
<PAGE>
consideration for the issuance hereof, expressly waived and released.
All terms used in this Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PROVISIONS THEREOF.
A-11
<PAGE>
EXHIBIT 10.22
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated January 31, 1997
among
INVESTORS FINANCIAL SERVICES CORP.
INVESTORS CAPITAL TRUST I
and
KEEFE, BRUYETTE & WOODS, INC.
as the Initial Purchaser
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
---------
entered into as of January 31, 1997 among INVESTORS FINANCIAL SERVICES CORP., a
Delaware corporation (the "Company"), INVESTORS CAPITAL TRUST I, a business
-------
trust formed under the laws of the State of Delaware (the "Trust"), and KEEFE,
-----
BRUYETTE & WOODS, INC. (the "Initial Purchaser").
-----------------
This Agreement is made pursuant to the Purchase Agreement dated
January 30, 1997 (the "Purchase Agreement"), among the Company, as issuer of
------------------
the Series A 9.77% Junior Subordinated Deferrable Interest Debentures due
February 1, 2027 (the "Subordinated Debentures"), the Trust and the Initial
------------------------
Purchaser, which provides for among other things, the sale by the Trust to the
Initial Purchaser of 25,000 of the Trust's Series A 9.77% Capital Securities,
liquidation amount $1,000 per Capital Security (the "Capital Securities") the
------------------
proceeds of which will be used by the Trust to purchase Subordinated Debentures.
The Capital Securities, together with the Subordinated Debentures and the
Company's guarantee of the Capital Securities (the "Capital Securities
------------------
Guarantee") are collectively referred to as the "Securities". In order to
- ---------
induce the Initial Purchaser to enter into the Purchase Agreement, the Company
and the Trust have agreed to provide to the Initial Purchaser and their direct
and indirect transferees the registration rights set forth in this Agreement.
The execution and delivery of this Agreement is a condition to the closing under
the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
-----------
capitalized defined terms shall have the following meanings:
"Advice" shall have the meaning set forth in the last paragraph of Section
------
3 hereof.
"Applicable Period" shall have the meaning set forth in Section 3(t)
-----------------
hereof.
"Business Day" means any day other than a Saturday, a Sunday, or a day on
------------
which banking institutions in the City of New York or in Boston, Massachusetts
are authorized or required by law or executive order to close.
1
<PAGE>
"Closing Time" shall mean the Closing Time as defined in the Purchase
------------
Agreement.
"Company" shall have the meaning set forth in the preamble to this
-------
Agreement and also includes the Company's successors and permitted assigns.
"Declaration" or "Declaration of Trust" shall mean the Amended and Restated
----------- --------------------
Declaration of Trust, dated as of January 31, 1997, by the trustees named
therein and the Company as sponsor.
"Depositary" shall mean The Depository Trust Company, or any other
----------
depositary appointed by the Trust; provided, however, that such depositary must
-------- -------
have an address in the Borough of Manhattan, in The City of New York.
"Distribution" shall have the same meaning assigned to it in the
------------
Declaration.
"Effectiveness Period" shall have the meaning set forth in Section 2(a)
--------------------
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Exchange Offer" shall mean the offer by the Company and the Trust to the
--------------
Holders to exchange all of the Registrable Securities (other than Private
Exchange Securities) for a like principal amount of Exchange Securities pursuant
to Section 2(b) hereof.
"Exchange Offer Registration" shall mean a registration under the
---------------------------
Securities Act effected pursuant to Section 2(b) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement, in
each case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2(b) hereof.
---------------
"Exchange Securities" shall mean (i) with respect to the Subordinated
-------------------
Debentures, the Series B 9.77% Junior Subordinated Deferrable Interest
Debentures due February 1, 2027 (the "Exchange Debentures") containing terms
-------------------
identical to the Subordinated Debentures (except that they will not contain
terms with respect to the transfer restrictions under the Securities Act and
will not provide for any increase in the interest rate thereon), (ii) with
respect to the Capital Securities, the Trust's Series B 9.77% Capital
Securities, liquidation amount $1,000 per Capital Security (the
2
<PAGE>
"Exchange Capital Securities") which will have terms identical to the Capital
---------------------------
Securities (except they will not contain terms with respect to transfer
restrictions under the Securities Act and will not provide for any increase in
the Distribution rate thereon) and (iii) with respect to the Capital Securities
Guarantee, the Company's guarantee (the "Exchange Capital Securities Guarantee")
-------------------------------------
of the Exchange Capital Securities which will have terms identical to the
Capital Securities Guarantee.
"Holder" shall mean the Initial Purchaser, for so long as it owns any
------
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture or Declaration of Trust.
"Indenture" shall mean the Indenture relating to the Subordinated
---------
Debentures and the Exchange Debentures dated as of January 31, 1997 among the
Company, as issuer, and The Bank of New York, as trustee, as the same may be
amended from time to time in accordance with the terms thereof.
"Initial Purchaser" shall have the meaning set forth in the preamble to
-----------------
this Agreement.
"Inspectors" shall have the meaning set forth in Section 3(n) hereof.
----------
"Issue Date" shall mean January 31, 1997.
----------
"Liquidated Damages" shall have the meaning set forth in Section 2(e)
------------------
hereof.
"Majority Holders" shall mean the Holders of a majority of the aggregate
----------------
liquidation amount of outstanding Capital Securities.
"Participating Broker-Dealer" shall have the meaning set forth in Section
---------------------------
3(t) hereof.
"Person" shall mean an individual, partnership, corporation, trust or
------
unincorporated organization, limited liability company, or a government or
agency or political subdivision thereof.
"Private Exchange" shall have the meaning set forth in Section 2(b) hereof.
----------------
"Private Exchange Securities" shall have the meaning set forth in Section
---------------------------
2(b) hereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the
3
<PAGE>
terms of the offering of any portion of the Registrable Securities covered by a
Shelf Registration Statement, and by all other amendments and supplements to a
prospectus, including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble to
------------------
this Agreement.
"Records" shall have the meaning set forth in Section 3(n) hereof.
-------
"Registrable Securities" shall mean the Securities and, if issued, the
----------------------
Private Exchange Securities; provided, however, that Securities or Private
-------- -------
Exchange Securities, as the case may be, shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such Securities or
Private Exchange Securities for the exchange or resale thereof, as the case may
be, shall have been declared effective under the Securities Act and such
Securities or Private Exchange Securities, as the case may be, shall have been
disposed of pursuant to such Registration Statement, (ii) such Securities or
Private Exchange Securities, as the case may be, shall have become eligible for
sale to the public pursuant to Rule 144(k) (or any similar provision then in
force, but not Rule 144A) under the Securities Act, (iii) such Securities or
Private Exchange Securities, as the case may be, shall have ceased to be
outstanding or (iv) with respect to the Securities, such Securities have been
exchanged for Exchange Securities upon consummation of the Exchange Offer and
are thereafter freely tradeable by the holder thereof (other than an affiliate
of the Company).
"Registration Expenses" shall mean any and all expenses incident to
---------------------
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees, including, if applicable, the
----
fees and expenses of any "qualified independent underwriter" (and its counsel)
that is required to be retained by any Holder of Registrable Securities in
accordance with the rules and regulations of the NASD, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Exchange Securities or Registrable Securities) and compliance with the rules of
the NASD, (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing any Registration
Statement, any Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency fees,
4
<PAGE>
(v) the fees and disbursements of counsel for the Company and of the independent
certified public accountants of the Company, including the expenses of any "cold
comfort" letters required by or incident to such performance and compliance,
(vi) the fees and expenses of the Trustee, and any exchange agent or custodian,
(vii) all fees and expenses incurred in connection with the listing, if any, of
any of the Registrable Securities on any securities exchange or exchanges, and
(viii) the reasonable fees and expenses of any special experts retained by the
Company in connection with any Registration Statement.
"Registration Statement" shall mean any registration statement of the
----------------------
Company and the Trust which covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Rule 144(k) Period" shall mean the period of three years (or such shorter
------------------
period as may hereafter be referred to in Rule 144(k) under the Securities Act
(or similar successor rule)) commencing on the Issue Date.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities" shall have the meaning set forth in the preamble to this
----------
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended from
--------------
time to time.
"Shelf Registration" shall mean a registration effected pursuant to Section
------------------
2(a) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement
----------------------------
of the Company and the Trust pursuant to the provisions of Section 2(a) hereof
which covers all of the Registrable Securities or all of the Private Exchange
Securities, as the case may be, on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"TIA" shall have the meaning set forth in Section 3(l) hereof.
---
"Trustees" shall mean any and all trustees with respect to (i) the Capital
--------
Securities under the Declaration, (ii) the Subordinated Debentures under the
Indenture and (iii) the Capital Securities Guarantee.
5
<PAGE>
2. Registration Under the Securities Act.
-------------------------------------
(a) Shelf Registration. The Company and the Trust shall, at their
------------------
cost, use their best efforts to (i) cause to be filed with the SEC within 150
days after the Issue Date a Shelf Registration Statement providing for the sale
by the Holders of all of the Registrable Securities, (ii) cause such Shelf
Registration Statement to be declared effective under the Securities Act within
180 days of the Issue Date and (iii) keep such Shelf Registration Statement
continuously effective for the Rule 144(k) Period (subject to extension
pursuant to the last paragraph of Section 3 hereof) or for such shorter period
which will terminate when all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement or cease to be outstanding (the "Effectiveness Period").
--------------------
No Holder of Registrable Securities shall be entitled to include any
of its Registrable Securities in any Shelf Registration pursuant to this
Agreement unless and until such Holder agrees in writing to be bound by all of
the provisions of this Agreement applicable to such Holder and furnishes to the
Company and the Trust in writing, within 15 days after receipt of a request
therefor, such information as the Company and the Trust may, after conferring
with counsel with regard to information relating to Holders that would be
required by the SEC to be included in such Shelf Registration Statement or
Prospectus included therein, reasonably request for inclusion in any Shelf
Registration Statement or Prospectus included therein. Each Holder as to which
any Shelf Registration is being effected agrees to furnish to the Company and
the Trust all information with respect to such Holder necessary to make the
information previously furnished to the Company by such Holder not materially
misleading.
The Company and the Trust shall not permit any securities other than
Registrable Securities to be included in the Shelf Registration (but may conduct
other shelf registrations and include other securities therein). The Company and
the Trust will, in the event a Shelf Registration Statement is declared
effective, provide to each Holder a reasonable number of copies of the
Prospectus which is a part of the Shelf Registration Statement, notify each such
Holder when the Shelf Registration has become effective and use its best efforts
to take certain other appropriate actions as are then required to permit certain
unrestricted resales of the Registrable Securities. The Company and the Trust
further agree, if necessary, to supplement or amend the Shelf Registration
Statement, if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration Statement
or by the Securities Act or by any other rules and regulations thereunder for
shelf registrations, and the Company and the Trust agree to furnish to the
Holders of Registrable Securities copies of any such supplement or amendment
promptly after its being used or filed with the SEC.
6
<PAGE>
(b) Exchange Offer. In lieu of its obligations under Section 2(a),
--------------
the Company and the Trust have the option to (i) cause to be filed with the SEC
within 150 days after the Issue Date an Exchange Offer Registration Statement on
an appropriate form under the Securities Act covering the Exchange Offer, (ii)
use their best efforts to cause such Exchange Offer Registration Statement to be
declared effective under the Securities Act by the SEC not later than the date
which is 180 days after the Issue Date, and (iii) keep such Exchange Offer
Registration Statement effective for not less than 30 calendar days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the Holders. In addition, in the event that the Company has filed a
Shelf Registration Statement in accordance with the provisions of Section 2(a)
in lieu of conducting an Exchange Offer in accordance with the foregoing
sentence, the Company may, if permitted in accordance with then applicable
regulations and the then current interpretations of the staff of the Commission,
elect to conduct an Exchange Offer in accordance with the terms set forth
herein, other than with respect to the specific timing requirements set forth in
the foregoing sentence. In the event the Company consummates an Exchange Offer
subsequent to the filing and effectiveness of a Shelf Registration Statement,
the Company's obligations to maintain such a Shelf Registration shall terminate
except for Private Exchange Securities (as defined below). Upon the
effectiveness of the Exchange Offer Registration Statement, the Company and the
Trust shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for a like principal amount of Exchange Debentures or a
like liquidation amount of Exchange Capital Securities, together with the
Exchange Guarantee, as applicable (assuming that such Holder (i) is not an
affiliate of the Company or the Trust within the meaning of Rule 405 under the
Securities Act, (ii) is not a broker-dealer tendering Registrable Securities
acquired directly from the Company for its own account, (iii) acquires the
Exchange Securities in the ordinary course of such Holder's business, and (iv)
has no arrangements or understandings with any Person to participate in the
Exchange Offer for the purpose of distributing the Exchange Securities) to
transfer such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and under state securities
or blue sky laws.
In connection with the Exchange Offer, the Company and the Trust
shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period of not less
than 30 days after the date notice thereof is mailed to
7
<PAGE>
the Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
---------------
(iii) utilize the services of the Depositary for the Exchange Offer;
(iv) permit Holders to withdraw tendered Securities at any time prior to
the close of business, New York time, on the last Business Day of the Exchange
Period, by sending to the institution specified in the notice, a telegram,
telex, facsimile transmission or letter setting forth the name of such Holder,
the principal amount of Securities delivered for exchange, and a statement that
such Holder is withdrawing his election to have such Securities exchanged;
(v) notify each Holder that any Security not tendered by such Holder in
the Exchange Offer will remain outstanding and continue to accrue interest or
accumulate distributions, as the case may be, but will not retain any rights
under this Agreement (except in the case of the Initial Purchaser and
Participating Broker-Dealers as provided herein); and
(vi) otherwise comply in all respects with all applicable laws relating to
the Exchange Offer.
If the Initial Purchaser determines upon advice of its outside
counsel that it is not eligible to participate in the Exchange Offer with
respect to the exchange of Securities constituting any portion of an unsold
allotment in the initial distribution as soon as practicable upon receipt by the
Company and the Trust of a written request from the Initial Purchaser, the
Company and the Trust, as applicable, shall issue and deliver to such Initial
Purchaser in exchange (the "Private Exchange") for the Securities held by the
----------------
Initial Purchaser, a like liquidation amount of Capital Securities of the Trust,
together with the Exchange Guarantee, or a like principal amount of the
Subordinated Debentures of the Company, as applicable, that are identical
(except that such securities may bear a customary legend with respect to
restrictions on transfer pursuant to the Securities Act) to the Exchange
Securities (the "Private Exchange Securities") and which are issued pursuant to
---------------------------
the Indenture, the Declaration or the Guarantee (which provides that the
Exchange Securities will not be subject to the transfer restrictions set forth
in the Indenture or the Declaration, as applicable, and that the Exchange
Securities, the Private Exchange Securities and the Securities will vote and
consent together on all matters as one class and that neither the Exchange
Securities, the Private Exchange Securities nor the Securities will have the
right to vote or consent as a separate class on any matter). The Private
Exchange Securities shall be of the same series as the Exchange Securities and
the Company and the Trust will seek to cause the CUSIP Service Bureau to issue
the same
8
<PAGE>
CUSIP Numbers for the Private Exchange Securities as for the Exchange Securities
issued pursuant to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer and, if
applicable, the Private Exchange, the Company and the Trust, as the case
requires, shall:
(i) accept for exchange all Securities or portions thereof tendered and
not validly withdrawn pursuant to the Exchange Offer or the Private Exchange;
(ii) deliver, or cause to be delivered, to the applicable Trustee for
cancellation all Securities or portions thereof so accepted for exchange by the
Company; and
(iii) issue, and cause the applicable Trustee under the Indenture, the
Declaration or the Guarantee, as applicable, to promptly authenticate and
deliver to each Holder, new Exchange Securities or Private Exchange Securities,
as applicable, equal in principal amount to the principal amount of the
Subordinated Debentures or equal in liquidation amount to the liquidation amount
to the Capital Securities (together with the guarantee thereof) as are
surrendered by such Holder.
Distributions on each Exchange Capital Security and interest on each
Exchange Debenture and Private Exchange Security issued pursuant to the
Registered Exchange Offer and in the Private Exchange will accrue from the last
date on which a Distribution or interest was paid on the Capital Security or the
Subordinated Debenture surrendered in exchange therefore or, if no Distribution
or interest has been paid on such Capital Security or Subordinated Debenture,
from the Issue Date. To the extent not prohibited by any law or applicable
interpretation of the staff of the SEC, the Company and the Trust shall use
their best efforts to complete the Exchange Offer, if commenced, as provided
above, and shall comply with the applicable requirements of the Securities Act,
the Exchange Act and other applicable laws in connection with the Exchange
Offer. The Exchange Offer shall not be subject to any conditions, other than (i)
that the Exchange Offer or the making of any exchange by a Holder does not
violate applicable law or any applicable interpretation of the staff of the SEC;
(ii) due tendering of the Registrable Securities in accordance with the Exchange
Offer; (iii) that each Holder of Registrable Securities to be exchanged in the
Exchange Offer shall make the customary representations set forth in the next
sentence of this paragraph and (iv) that no action or proceeding shall have been
instituted or threatened in any court or by or before any governmental agency
with respect to the Exchange Offer which, in the Company's judgment, could
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer. Each Holder of Registrable Securities who wishes to exchange
such Registrable Securities for Exchange Securities in the Exchange Offer will
be
9
<PAGE>
required to make certain customary representations in connection therewith,
including, in the case of any Holder of Capital Securities, representations that
(i) it is not an affiliate of the Trust or the Company, (ii) the Exchange
Securities to be received by it were acquired in the ordinary course of its
business, (iii) at the time of the Exchange Offer, it has no arrangement with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Capital Securities and (iv) such other
representations as may be reasonably necessary under applicable rules and
regulations to render the use of Form S-4 or other appropriate form under the
Securities Act available. The Company and the Trust shall inform the Initial
Purchaser, after consultation with the Trustee, of the names and addresses of
the Holders to whom the Exchange Offer is made, and the Initial Purchaser shall
have the right to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this
Section 2(b), the provisions of this Agreement shall continue to apply, mutatis
-------
mutandis, solely with respect to Registrable Securities that are Private
- --------
Exchange Securities and Exchange Securities held by Participating
Broker-Dealers, and the Company and the Trust shall have no further obligation
to register the Registrable Securities (other than Private Exchange Securities)
pursuant to Section 2(a) of this Agreement.
(c) Expenses. The Company shall pay all Registration Expenses in
--------
connection with the registration pursuant to Section 2(a) or 2(b) hereof and
will reimburse the Initial Purchaser for the reasonable fees and disbursements
of Brown & Wood LLP, counsel for the Initial Purchaser, incurred in connection
with the Exchange Offer and, if applicable, the Private Exchange Offer, and
either Brown & Wood LLP or any one other counsel designated in writing by the
Majority Holders to act as counsel for the Holders of the Registrable Securities
in connection with a Shelf Registration Statement, which other counsel shall be
reasonably satisfactory to the Company. Except as provided herein, each Holder
shall pay all expenses of its counsel, underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to the Shelf Registration Statement and the
Exchange Offer, if any; provided, however that the Company shall pay any
transfer taxes with respect to any Exchange Offer.
(d) Effective Registration Statement. A Shelf Registration
--------------------------------
Statement pursuant to Section 2(a) hereof or an Exchange Offer Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; provided, however,
-------- -------
that if, after it has been declared effective, the offering of Registrable
Securities pursuant to a Shelf Registration Statement is interfered with by any
stop
10
<PAGE>
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have been effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume. The Company and the Trust will be deemed not to have used their best
efforts to cause the Shelf Registration Statement or the Exchange Offer
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if either of them voluntarily take any action that
would result in any such registration Statement not being declared effective or
in the Holders of Registrable Securities covered thereby not being able to
exchange or offer and sell such Registrable Securities during that period unless
such action is required by applicable law.
(e) Liquidated Damages. In the event that (i) neither the Shelf
------------------
Registration Statement nor an Exchange Offer Registration Statement is filed
with the SEC on or prior to the 150th day after the Issue Date then commencing
on the day after the applicable required filing date, additional interest shall
accrue on the principal amount of the Subordinated Debentures, and additional
Distributions shall accumulate on the liquidation amount of the Capital
Securities, each at a rate of 0.25% per annum; or
(ii) neither the Shelf Registration Statement nor an Exchange Offer
Registration Statement is declared effective by the SEC on or prior to the 30th
day after the applicable required filing date, then, commencing on the 31st day
after the applicable required filing date, additional interest shall accrue on
the principal amount of the Subordinated Debentures, and additional
distributions shall accumulate on the liquidation amount of the Capital
Securities each at a rate of 0.25% per annum; or
(iii) (A) the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective at any time prior to
the expiration of the Rule 144(k) Period (other than (a) after such time as all
Capital Securities have been disposed of thereunder or otherwise cease to be
Registrable Securities or (b) if the Company effects an Exchange Offer and
is no longer obligated to maintain the effectiveness of the Shelf Registration
Statement) or (B) if applicable, the Trust has not exchanged Exchange Capital
Securities for all Capital Securities or the Company has not exchanged Exchange
Guarantees or Exchange Subordinated Debentures for all Guarantees or
Subordinated Debentures validly tendered, in accordance with the terms of the
Exchange Offer on or prior to the 45th day after the date on which the Exchange
Offer Registration Statement was declared effective, then additional interest
shall accrue on the principal amount of Subordinated Debentures, and additional
distributions shall accumulate on the liquidation amount of the Capital
Securities, each at a rate of 0.25% per annum commencing on (x) the day the
Shelf Registration Statement ceases to be effective in the case of
11
<PAGE>
(A) above, or (y) the 45th day after such effective date in the case of (B)
above;
provided, however, that neither the additional interest rate on the Subordinated
Debentures, nor the additional distribution rate on the liquidation amount of
the Capital Securities, may exceed in the aggregate 0.25% per annum; provided,
further, however, that (1) upon the filing of the Shelf Registration Statement
or an Exchange Offer Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the Shelf Registration Statement or an Exchange
Offer Registration Statement (in the case of clause (ii) above), or (3) upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(A) above) or upon the exchange of
Exchange Capital Securities, Exchange Guarantees and Exchange Subordinated
Debentures for all Capital Securities, Guarantees and Subordinated Debentures
tendered (in the case of clause (iii)(B) above), additional interest on the
Subordinated Debentures, and additional distributions on the liquidation amount
of the Capital Securities as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue or accumulate, as the case
may be.
Any amounts of additional interest and additional Distributions due
pursuant to Section 2(e)(i), (ii) or (iii) above ("Liquidated Damages") will be
payable in cash on the next succeeding February 1 or August 1 , as the case may
be, to holders on the relevant record dates for the payment of interest and
Distributions pursuant to the Indenture and the Declaration, respectively.
(f) Specific Enforcement. Without limiting the remedies
--------------------
available to the Holders, the Company and the Trust acknowledge that any failure
by the Company or the Trust to comply with its obligations under Section 2(a)
and Section 2(b) hereof may result in material irreparable injury to the Holders
for which there is no adequate remedy at law, that it would not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, any Holder may obtain such relief as may be required to specifically
enforce the Company's and the Trust's obligations under Section 2(a) and Section
2(b) hereof.
3. Registration Procedures. In connection with the obligations of
-----------------------
the Company and the Trust with respect to the Registration Statements pursuant
to Sections 2(a) and 2(b) hereof, the Company and the Trust shall use their best
efforts to:
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof
within the relevant time period specified in Section 2 hereof on the
appropriate form under the Securities ties Act, which form (i) shall be
selected by the Company and the Trust, (ii) shall, in the case of a Shelf
Registration, be
12
<PAGE>
available for the sale of the Registrable Securities by the selling Holders
thereof and (iii) shall comply as to form in all material respects with the
requirements of the applicable form and include or incorporate by reference
all financial statements required by the SEC to be filed therewith; and use
its best efforts to cause such Registration Statement to become effective
and remain effective in accordance with Section 2 hereof; provided,
--------
however, that if (1) such filing is pursuant to Section 2(a), or (2) a
-------
Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2(b) is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities, at least five days before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company and the
Trust shall furnish to the Holders of the Registrable Securities and each
such Participating Broker-Dealer, as the case may be, covered by such
Registration Statement, their counsel and the managing underwriters, if
any, copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to be
filed. The Company and the Trust shall not file any Registration Statement
or Prospectus or any amendments or supplements thereto if the Majority
Holders or such Participating Broker-Dealer, as the case may be, their
counsel or the managing underwriters, if any, shall reasonably object in
writing prior to such filing; provided, however, that each of the time
-------- -------
periods set forth in clauses (i) and (ii) of Section 2(e) hereof shall
automatically be extended by the number of days, if any, which elapse from
and including (x) the date on which the Majority Holders or any
Participating Broker-Dealer (or their counsel or any managing underwriter)
shall have exercised their rights under this Agreement to object to the
filing of the Shelf Registration Statement or the Exchange Offer
Registration Statement or any supplements or amendments thereto until (y)
the date on which any such objection is withdrawn;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
Effectiveness Period or the Applicable Period, as the case may be; and
cause each Prospectus to be supplemented, if so determined by the Company
or the Trust or requested by the SEC, by any required prospectus supplement
and as so supplemented to be filed pursuant to Rule 424 (or any similar
provision then in force) under the Securities Act, and comply with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations promulgated thereunder applicable to it with respect to the
disposition of all securities covered by each Registration Statement during
the Effective ness Period or the Applicable Period, as the case may be, in
accordance with the intended method or methods of distribution
13
<PAGE>
by the selling Holders thereof described in this Agreement (including sales
by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities included in the Shelf Registration Statement, at
least five business days prior to filing, that a Shelf Registration
Statement with respect to the Registrable Securities is being filed and
advising such Holder that the distribution of Registrable Securities will
be made in accordance with the method selected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Securities included in the Shelf
Registration Statement and to each underwriter of an underwritten offering
of Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) consent to the use of
the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities included in the Shelf
Registration Statement in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;
(d) in the case of a Shelf Registration, use its best efforts to
register or qualify the Registrable Securities under all applicable state
securities or "blue sky" laws of such jurisdictions by the time the
applicable Registration Statement is declared effective by the SEC as any
Holder of Registrable Securities covered by a Registration Statement and
each underwriter of an underwritten offering of Registrable Securities
shall reasonably request in writing in advance of such date of
effectiveness, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder and underwriter to
consummate the disposition in each such jurisdiction of such Registrable
Securities owned by such Holder; provided, however, that the Company and
-------- -------
the Trust shall not be required to (i) qualify as a foreign corporation or
as a dealer in securities in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(d), (ii) file any general
consent to service of process in any jurisdiction where it would not
otherwise be subject to such service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not then so subject;
(e) in the case of (1) a Shelf Registration or (2) Participating
Broker-Dealers from whom the Company or the Trust has received prior
written notice that they will be utilizing the Prospectus contained in the
Exchange Offer Registration Statement as provided in Section 3(t) hereof,
are
14
<PAGE>
seeking to sell Exchange Securities and are required to deliver
Prospectuses, notify each Holder of Registrable Securities, or such
Participating Broker-Dealers, as the case may be, their counsel and the
managing underwriters, if any, promptly and promptly confirm such notice in
writing, if requested, (i) when a Registration Statement has become
effective and when any post-effective amendments and supplements thereto
become effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement or
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the qualification of the Registrable Securities
or the Exchange Securities to be offered or sold by any Participating
Broker-Dealer in any jurisdiction described in paragraph 3(d) hereof or the
initiation of any proceedings for that purpose, (iv) in the case of a Shelf
Registration, if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company and the Trust contained in
any purchase agreement, securities sales agreement or other similar
agreement entered into in connection with that particular Shelf
Registration, if any cease to be true and correct in all material respects,
and (v) of the happening of any event or the failure of any event to occur
or the discovery of any facts or otherwise, during the Effectiveness Period
which makes any statement made in such Registration Statement or the
related Prospectus untrue in any material respect or which causes such
Registration Statement or Prospectus to omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and (vi) the Company and the
Trust's reasonable determination that a post-effective amendment to the
Registration Statement would be necessary;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities included within the coverage of such Shelf
Registration Statement, without charge, at least one conformed copy of each
Registration Statement relating to such Shelf Registration and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates represent-
15
<PAGE>
ing Registrable Securities to be sold and not bearing any restrictive
legends and in such denominations (consistent with the provisions of the
Indenture and the Declaration) and registered in such names as the selling
Holders or the underwriters may reasonably request at least two Business
Days prior to the closing of any sale of Registrable Securities pursuant to
such Shelf Registration Statement;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance contemplated by
Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, use its best
efforts to prepare a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and to notify each Holder to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an
event, and each Holder hereby agrees to suspend use of the Prospectus until
the Company has amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) [Intentionally Omitted]
(k) obtain a CUSIP number for all Exchange Capital Securities and the
Capital Securities (and if the Trust has made a distribution of the
Subordinated Debentures to the Holders of the Capital Securities, the
Subordinated Debentures or the Exchange Subordinated Debentures) as the
case may be, not later than the effective date of a Registration Statement,
and provide the Trustee with printed certificates for the Exchange
Securities or the Registrable Securities, as the case may be, in a form
eligible for deposit with the Depositary;
(l) cause the Indenture, the Declaration, the Guarantee and the
Exchange Guarantee to be qualified under the Trust Indenture Act of 1939
(the "TIA") in connection with the registration of the Exchange Securities
---
or Registrable Securities, as the case may be, and effect such changes to
such documents as may be required for them to be so qualified in accordance
with the terms of the TIA and execute, and use its best efforts to cause
the relevant trustee to execute, all documents as may be required to effect
such changes, and all other forms and documents required to be filed with
the SEC to enable such documents to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) as are custom-
16
<PAGE>
ary in underwritten offerings and take all such other appropriate actions
as are reasonably requested in order to expedite or facilitate the
registration or the disposition of such Registrable Securities, and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, if
requested by (x) the Initial Purchaser, in the case where an Initial
Purchaser holds Securities acquired by it as part of its initial
distribution and (y) other Holders of Securities covered thereby: (i) make
such representations and warranties to Holders of such Registrable
Securities and the underwriters (if any), with respect to the business of
the Trust, the Company and its subsidiaries as then conducted and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings, and
confirm the same if and when requested; (ii) obtain opinions of counsel to
the Company and the Trust and updates thereof (which may be in the form of
a reliance letter) in form and substance reasonably satisfactory to the
managing underwriters (if any) and the Holders of a majority in principal
amount of the Registrable Securities being sold, addressed to each selling
Holder and the underwriters (if any) covering the matters customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such underwriters (it being
agreed that the matters to be covered by such opinion may be subject to
customary qualifications and exceptions); (iii) obtain "cold comfort"
letters and updates thereof in form and substance reasonably satisfactory
to the managing underwriters from the independent certified public
accountants of the Company and the Trust (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company
and the Trust or of any business acquired by the Company and the Trust for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to each of the
underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by
such underwriters in accordance with Statement on Auditing Standards No.
72; and (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable than
those set forth in Section 4 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal
amount of Registrable Securities covered by such Registration Statement
and the managing underwriters or agents) with respect to all parties to be
indemnified pursuant to said Section (including, without limitation, such
underwriters and selling Holders). The above
17
<PAGE>
shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder;
(n) if (1) a Shelf Registration is filed pursuant to Section 2(a) or
(2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2(b) is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, make reasonably available
for inspection by any selling Holder of such Registrable Securities being
sold, or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Registrable
Securities, if any, and any attorney, accountant or other agent retained by
any such selling Holder or each such Participating Broker-Dealer, as the
case may be, or underwriter (collectively, the "Inspectors"), at the
-----------
offices where normally kept, during reasonable business hours, all
financial and other records, pertinent corporate documents and properties
of the Trust, the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
-------
applicable due diligence responsibilities, and cause the officers,
directors and employees of the Trust, the Company and its subsidiaries to
supply all relevant information in each case reasonably requested by any
such Inspector in connection with such Registration Statement provided,
--------
however, that the foregoing inspection and information gathering shall be
-------
coordinated on behalf of the Purchaser by you and on behalf of the other
parties, by one counsel designated by you and on behalf of such other
parties as described in Section 2(c) hereof. Records which the Company and
the Trust determine, in good faith, to be confidential and any records
which it notifies the Inspectors are confidential shall not be disclosed
by the Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a material misstatement or omission in such Registration
Statement, (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or is
necessary in connection with any action, suit or proceeding or (iii) the
information in such Records has been made generally available to the
public. Each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree in writing that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Trust or the Company unless and until
such is made generally available to the public. Each selling Holder of
such Registrable Securities and each such Participating Broker-Dealer will
be required to further agree in writing that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Company and
18
<PAGE>
allow the Company at its expense to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(o) comply with all applicable rules and regulations of the SEC so
long as any provision of this Agreement shall be applicable and make
generally available to its securityholders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no
later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods;
(p) upon consummation of an Exchange Offer or a Private Exchange, if
requested by a Trustee, obtain an opinion of counsel to the Company
addressed to the Trustee for the benefit of all Holders of Registrable
Securities participating in the Exchange Offer or the Private Exchange, as
the case may be, and which includes an opinion that (i) the Company and the
Trust, as the case requires, has duly authorized, executed and delivered
the Exchange Securities and Private Exchange Securities, and (ii) each of
the Exchange Securities or the Private Exchange Securities, as the case may
be, constitute a legal, valid and binding obligation of the Company or the
Trust, as the case requires, enforceable against the Company or the Trust,
as the case requires, in accordance with its respective terms (in each
case, with customary exceptions);
(q) if an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Securities by Holders to the Company or
the Trust, as applicable (or to such other Person as directed by the
Company or the Trust, respectively), in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be, the
Company or the Trust, as applicable, shall mark, or cause to be marked, on
such Registrable Securities delivered by such Holders that such Registrable
Securities are being cancelled in exchange for the Exchange Securities or
the Private Exchange Securities, as the case may be; in no event shall
such Registrable Securities be marked as paid or otherwise satisfied;
(r) cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable
19
<PAGE>
Securities and their respective counsel in connection with any filings
required to be made with the NASD;
(s) use its best efforts to take all other steps as are reasonably
necessary to effect the registration of the Registrable Securities covered
by a Registration Statement contemplated hereby;
(t) (A) in the case of an Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," which section shall be reasonably acceptable to the
Initial Purchaser or another representative of the Participating Broker-
Dealers, and which shall contain a summary statement of the positions taken
or policies made by the staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer (a "Participating Broker-Dealer")
---------------------------
that holds Registrable Securities acquired for its own account as a result
of market-making activities or other trading activities and that will be
the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Securities to be received by such broker-dealer in the Exchange
Offer, whether such positions or policies have been publicly disseminated
by the staff of the SEC or such positions or policies, in the reasonable
judgment of the Initial Purchaser or such other representative, represent
the prevailing views of the staff of the SEC, including a statement that
any such broker-dealer who receives Exchange Securities for Registrable
Securities pursuant to the Exchange Offer may be deemed a statutory
underwriter and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Securities,
(ii) furnish to each Participating Broker-Dealer who has delivered to the
Company the notice referred to in Section 3(e), without charge, as many
copies of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or
supplement thereto, as such Participating Broker-Dealer may reasonably
request (each of the Company and the Trust hereby consents to the use of
the Prospectus forming part of the Exchange Offer Registration Statement or
any amendment or supplement thereto by any Person subject to the prospectus
delivery requirements of the Securities Act, including all Participating
Broker-Dealers, in connection with the sale or transfer of the Exchange
Securities covered by the Prospectus or any amendment or supplement
thereto), (iii) use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the Prospectus
contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of
the Securities Act for such period of time as such Persons must comply with
such requirements under the Securities Act and applicable rules and
regulations in
20
<PAGE>
order to resell the Exchange Securities; provided, however, that such
-------- -------
period shall not be required to exceed 90 days (or such longer period if
extended pursuant to the last sentence of Section 3 hereof) (the
"Applicable Period"), and (iv) include in the transmittal letter or similar
------------------
documentation to be executed by an exchange offeree in order to participate
in the Exchange Offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of Exchange Securities received in respect of such Registrable
Securities pursuant to the Exchange Offer";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer
will not be deemed to admit that it is an underwriter within the meaning of
the Securities Act; and
(B) in the case of any Exchange Offer Registration Statement, the
Company and the Trust agree to deliver to the Initial Purchaser or to
another representative of the Participating Broker-Dealers, if requested
by the Initial Purchaser or such other representative of the Participating
Broker-Dealers, on behalf of the Participating Broker-Dealers upon
consummation of the Exchange Offer (i) an opinion of counsel in form and
substance reasonably satisfactory to the Initial Purchaser or such other
representative of the Participating Broker-Dealers, covering the matters
customarily covered in opinions requested in connection with Exchange Offer
Registration Statements and such other matters as may be reasonably
requested (it being agreed that the matters to be covered by such opinion
may be subject to customary qualifications and exceptions), (ii) an
officers' certificate containing certifications substantially similar to
those set forth in Section 5(f) of the Purchase Agreement and such
additional certifications as are customarily delivered in a public
offering of debt securities and (iii) as well as upon the effectiveness of
the Exchange Offer Registration Statement, a comfort letter, in each case,
in customary form if permitted by Statement on Auditing Standards No. 72.
The Company or the Trust may require each seller of Registrable
Securities as to which any registration is being effected to furnish to the
Company or the Trust, as applicable, such information regarding such seller as
may be required by the
21
<PAGE>
staff of the SEC to be included in a Registration Statement. The Company or the
Trust may exclude from such registration the Registrable Securities of any
seller who fails to furnish such information within a reasonable time after
receiving such request. The Company shall have no obligation to register under
the Securities Act the Registrable Securities of a seller who so fails to
furnish such information.
In the case of (1) a Shelf Registration Statement or (2) Participating
Broker-Dealers who have notified the Company and the Trust that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(t) hereof, are seeking to sell Exchange Securities and
are required to deliver Prospectuses each Holder agrees that, upon receipt of
any notice (the "Notice") from the Company or the Trust of the happening of any
------
event of the kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi)
hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to a Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
3(i) hereof or until it is advised in writing (the "Advice") by the Company and
------
the Trust that the use of the applicable Prospectus may be resumed, and, if so
directed by the Company and the Trust, such Holder will deliver to the Company
or the Trust (at the Company's or the Trust's expense, as the case requires) all
copies in such Holder's possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
or Exchange Securities, as the case may be, current at the time of receipt of
such notice. If the Company or the Trust shall give any such notice to suspend
the disposition of Registrable Securities or Exchange Securities, as the case
may be, pursuant to a Registration Statement, the Company and the Trust shall
use their best efforts to file and have declared effective (if an amendment) as
soon as practicable an amendment or supplement to the Registration Statement
provided, however, that the Company and the Trust may delay the filing of an
amendment or supplement to the Registration Statement in good faith and for a
valid corporate purpose for a period not to exceed 120 days, such right to be
exercisable only once in any 365 day period; provided, further, however, that
the Company and the Trust shall provide each Holder with written notice of their
intention to effect such delay and written notice of the date on which such
supplement, post-effective amendment or other document has been filed with the
SEC or declared effective, as the case may be. The Company and the Trust shall
extend the period during which such Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days in the period from
and including the date of the giving of the Notice to and including the date
when the Company and the Trust shall have made available to the Holders (x)
copies of the supplemented or amended Prospectus necessary to resume such
dispositions or (y) the Advice.
22
<PAGE>
4. Indemnification and Contribution. (a) In connection with any
--------------------------------
Registration Statement, the Company and the Trust shall, jointly and severally,
indemnify and hold harmless the Initial Purchaser, each Holder, each underwriter
who participates in an offering of the Registrable Securities, each
Participating Broker-Dealer, each Person, if any, who controls any of such
parties within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act and each of their respective directors, officers, employees and
agents, as follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto), covering
Registrable Securities or Exchange Securities, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any court or governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the prior written consent of
the Company; and
(iii) from and against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by such
Holder, such Participating Broker-Dealer, or any underwriter (except to the
extent otherwise expressly provided in Section 4(c) hereof)), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any court or governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) of this Section 4(b);
provided, however, that (i) this indemnity does not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or
23
<PAGE>
omission made in reliance upon and in conformity with written information
furnished in writing to the Company or the Trust by such Holder, such
Participating Broker-Dealer or any underwriter with respect to such Holder,
Participating Broker-Dealer or any underwriter, as the case may be, expressly
for use in the Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto) and (ii) with respect to any
preliminary prospectus, this indemnity shall not inure to the benefit of any
Person claiming indemnity hereunder ("Indemnified Person") from whom the person
asserting any such losses, claims, damages or liabilities purchased Registrable
Securities, or any Person controlling such Indemnified Person, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Indemnified Person to such person, if such is required by law, at or prior
to the written confirmation of the sale of such shares to such person and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability. Any amounts advanced by the
Company or the Trust to an indemnified party pursuant to this Section 4 as a
result of such losses shall be returned to the Company or the Trust if it shall
be finally determined by such a court in a judgment not subject to appeal or
final review that such indemnified party was not entitled to indemnification by
the Company or the Trust.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Trust, any underwriter and the other selling
Holders and each of their respective directors, officers (including each officer
of the Company and the Trust who signed the Registration Statement), employees
and agents and each Person, if any, who controls the Company, the Trust, any
underwriter or any other selling Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
loss, liability, claim, damage and expense whatsoever described in the indemnity
contained in Section 4(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company or the Trust by such selling Holder with
respect to such Holder expressly for use in the Registration Statement (or any
amendment thereto), or any such Prospectus (or any amendment or supplement
thereto); provided, however, that, in the case of the Shelf Registration
-------- -------
Statement, no such Holder shall be liable for any claims hereunder in excess of
the amount of net proceeds received by such Holder from the sale of Registrable
Securities pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in
24
<PAGE>
respect of which indemnity may be sought hereunder, enclosing a copy of all
papers properly served on such indemnified party, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have under this Section 4, except to the extent that it is
materially prejudiced by such failure. An indemnifying party may participate at
its own expense in the defense of such action. If an indemnifying party so
elects within a reasonable time after receipt of such notice, an indemnifying
party, severally or jointly with any other indemnifying parties receiving such
notice, may assume the defense of such action with counsel chosen by it and
reasonably acceptable to the indemnified parties defendant in such action,
provided, however, that if (i) representation of such indemnified party by the
- -------- -------
same counsel would present a conflict of interest or (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and any such indemnified party
reasonably determines that there may be legal defenses available to such
indemnified party which are different from or in addition to those available to
such indemnifying party, then in the case of clauses (i) and (ii) of this
Section 4(c) such indemnifying party and counsel for each indemnifying party or
parties shall not be entitled to assume such defense. If an indemnifying party
is not entitled to assume the defense of such action as a result of the proviso
to the preceding sentence, counsel for such indemnifying party and counsel for
each indemnified party or parties shall be entitled to conduct the defense of
such indemnified party or parties. If an indemnifying party assumes the defense
of such action, in accordance with and as permitted by the provisions of this
paragraph, such indemnifying parties shall not be liable for any fees and
expenses of counsel for the indemnified parties incurred thereafter in
connection with such action. In no event shall the indemnifying parties be
liable for the fees and expenses of more than one counsel (in addition to local
counsel), separate from its own counsel, for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional written release in form and substance satisfactory to
the indemnified parties of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
25
<PAGE>
(d) Notwithstanding the last sentence of Section 4(c), if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for reasonable fees and expenses of counsel pursuant to
Section 4(a)(iii) above, such indemnifying party agrees that it shall be liable
for any settlement effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement; provided that an indemnifying party shall not be liable for any such
settlement effected without its consent if such indemnifying party, prior to the
date of such settlement, (1) reimburses such indemnified party in accordance
with such request for the amount of such fees and expenses of counsel as the
indemnifying party believes in good faith to be reasonable and (2) provides
written notice to the indemnified party that the indemnifying party disputes in
good faith the reasonableness of the unpaid balance of such fees and expenses.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is judicially determined to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, the Trust, and
the Holders shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, the Trust, and the Holders, as incurred; provided that
--------
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
that was not guilty of such fraudulent misrepresentation. As between the
Company, the Trust, and the Holders, such parties shall contribute to such
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect the relative fault of the Company and Trust, on the one
hand, and the Holders, on the other hand, with respect to the statements or
omissions which resulted in such loss, liability, claim, damage or expense, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative fault of the Company and the Trust, on the one
hand, and of the Holders, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Trust, on the one hand, or
by or on behalf of the Holders, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Trust and the Holders of the Registrable
Securities agree that it would not
26
<PAGE>
be just and equitable if contribution pursuant to this Section 4 were to be
determined by pro rata allocation or by any other method of allocation that does
not take into account the relevant equitable considerations. For purposes of
this Section 4, each affiliate of a Holder, and each director, officer,
employee, agent and Person, if any, who controls a Holder or such affiliate
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Holder, and each
director of each of the Company or the Trust, each officer of each of the
Company or the Trust who signed the Registration Statement, and each Person, if
any, who controls each of the Company and the Trust within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as each of the Company or the Trust.
5. Participation in Underwritten Registrations. No Holder may
-------------------------------------------
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents reasonably required under the terms of such underwriting
arrangements.
6. Selection of Underwriters. The Holders of Registrable
-------------------------
Securities covered by the Shelf Registration Statement who desire to do so may
sell the securities covered by such Shelf Registration in an underwritten
offering. In any such underwritten offering, the underwriter or underwriters
and manager or managers that will administer the offering will be selected by
the Holders of a majority in aggregate principal amount of the Registrable
Securities included in such offering; provided, however, that such underwriters
-------- -------
and managers must be reasonably satisfactory to the Company and the Trust. Any
such underwriter(s) shall enter into a customary underwriting agreement with
customary indemnification of the Company and the Trust.
7. Miscellaneous.
-------------
(a) Rule 144 and Rule 144A. For so long as the Company or the Trust
----------------------
is subject to the reporting requirements of Section 13 or 15 of the Exchange Act
and any Registrable Securities remain outstanding, the Company and the Trust, as
the case may be, will use its best efforts to file the reports required to be
filed by it under the Securities Act and Section 13(a) or 15(d) of the Exchange
Act and the rules and regulations adopted by the SEC thereunder, that if it
ceases to be so required to file such reports, it will, upon the request of any
Holder of Registrable Securities (a) make publicly available such information as
is necessary to permit sales of their securities pursuant to Rule 144 under the
Securities Act, (b) deliver such information to a prospective purchaser as is
27
<PAGE>
necessary to permit sales of their securities pursuant to Rule 144A under the
Securities Act and it will take such further action as any Holder of Registrable
Securities may reasonably request, and (c) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Holder to sell its Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
from time to time, (ii) Rule 144A under the Securities Act, as such rule may be
amended from time to time, or (iii) any similar rules or regulations hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company and the Trusts will deliver to such Holder a written statement as to
whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Company or the Trust has not
--------------------------
entered into nor will the Company or the Trust on or after the date of this
Agreement enter into any agreement which is inconsistent with the rights granted
to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's or the Trust's other issued and
outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Trust has obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure; provided no amendment, modification or
--------
supplement or waiver or consent to the departure with respect to the provisions
of Section 4 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities. Notwithstanding the foregoing sentence, (i) this Agreement may be
amended, without the consent of any Holder of Registrable Securities, by
written agreement signed by the Company, the Trust and the Initial Purchaser, to
cure any ambiguity, correct or supplement any provision of this Agreement that
may be inconsistent with any other provision of this Agreement or to make any
other provisions with respect to matters or questions arising under this
Agreement which shall not be inconsistent with other provisions of this
Agreement, (ii) this Agreement may be amended, modified or supplemented, and
waivers and consents to departures from the provisions hereof may be given, by
written agreement signed by the Company, the Trust and the Initial Purchaser to
the extent that any such amendment, modification, supplement, waiver or consent
is, in their reasonable judgment, necessary or appropriate to comply with
applicable law (including any interpretation of the Staff of the SEC) or any
28
<PAGE>
change therein and (iii) to the extent any provision of this Agreement relates
to the Initial Purchaser, such provision may be amended, modified or
supplemented, and waivers or consents to departures from such provisions may be
given, by written agreement signed by the Initial Purchaser, the Company and the
Trust.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company or the Trust by means of a notice given in accordance with the
provisions of this Section 7(d), which address initially is, with respect to the
Initial Purchaser, the address set forth in the Purchase Agreement; and (ii) if
to the Company or the Trust, initially at the Company's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 7(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchaser, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
-------- -------
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Purchase Agreement or
the Indenture. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. The Initial Purchaser shall be a third
-----------------------
party beneficiary of the agreements made hereunder between the Company and the
Trust, on the one hand, and the Holders, on the other hand, and shall have the
right to enforce such agreements directly to the extent it deems such
enforcement
29
<PAGE>
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
-------------
IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICT OF LAW. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Securities Held by the Company, the Trust or its Affiliates.
-----------------------------------------------------------
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company, the Trust or its affiliates (as such term is defined in Rule 405 under
the Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
30
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INVESTORS FINANCIAL SERVICES CORP.
By: /s/ Karen C. Keenan
----------------------------------
Name: Karen C. Keenan
Title: Chief Financial Officer
INVESTORS CAPITAL TRUST I
By: INVESTORS FINANCIAL SERVICES
CORP.
By: /s/ John E. Henry
----------------------------------
Name: John E. Henry
Title: General Counsel & Secretary
<PAGE>
Confirmed and accepted as of
the date first above
written:
By: KEEFE, BRUYETTE, & WOODS, INC.
as the Initial Purchaser
By: /s/Emmett J. Daly
----------------------------
Name: Emmett J. Daly
Title: SVP
32
<PAGE>
EXHIBIT 10.23
====================================
COMMON SECURITIES GUARANTEE AGREEMENT
Investors Financial Services Corp.
Dated as of January 31, 1997
====================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS AND INTERPRETATION
<S> <C> <C>
SECTION 1.1. Definitions Interpretation.................................... 2
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee................................................... 3
SECTION 2.2. Waiver of Notice and Demand................................. 3
SECTION 2.3. Obligations Not Affected.................................... 3
SECTION 2.4. Rights of Holders........................................... 4
SECTION 2.5. Guarantee of Payment........................................ 5
SECTION 2.6. Subrogation................................................. 5
SECTION 2.7. Independent Obligations..................................... 5
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions.................................... 5
SECTION 3.2. Ranking....................................................... 6
ARTICLE IV
TERMINATION
SECTION 4.1. Termination................................................... 7
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns...................................... 7
SECTION 5.2. Amendments.................................................. 7
SECTION 5.3. Notices..................................................... 7
SECTION 5.4. Benefit..................................................... 8
SECTION 5.5. Governing Law............................................... 8
</TABLE>
<PAGE>
COMMON SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Common Securities Guarantee"), dated as
of January 31, 1997, is executed and delivered by Investors Financial Services
Corp., a Delaware corporation (the "Guarantor"), for the benefit of the Holders
(as defined herein) from time to time of the Common Securities (as defined
herein) of Investors Capital Trust I, a Delaware business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of January 31, 1997, among the Trustees of the
Issuer named therein, the Guarantor, as sponsor, and the holders from time to
time of undivided beneficial interests in the assets of the Issuer, the Issuer
is issuing on the date hereof 774 common securities designated the 9.77% Common
Securities (the "Common Securities"), having an aggregate stated liquidation
amount of $774,000;
WHEREAS, as incentive for the Holders to purchase the Common
Securities, the Guarantor desires to irrevocably and unconditionally agree, to
the extent set forth in this Common Securities Guarantee, to pay to the Holders
of the Common Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Series A Capital Securities Guarantee") for the benefit of the
holders of the Series A Capital Securities (as defined in the Declaration) and
upon consummation of the Exchange Offer, if any, (as defined in the Declaration)
will execute and deliver a guarantee agreement (the "Series B Capital Securities
Guarantee") for the benefit of the holders of the Series B Capital Securities
(as defined in the Declaration), each in substantially identical terms to this
Common Securities Guarantee, except that if an Event of Default (as defined in
the Declaration) has occurred and is continuing, the rights of Holders of the
Common Securities to receive Guarantee Payments under this Common Securities
Guarantee are subordinated to the rights of holders of Capital Securities to
receive Guarantee Payments under the Series A Capital Securities Guarantee and
the Series B Capital Securities Guarantee, if any, as the case may be.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Common Securities, which purchase the Guarantor hereby acknowledges shall
benefit the Guarantor, the Guarantor executes and delivers this Common
Securities Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions Interpretation
--------------------------
In this Common Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Common Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) Terms defined in the Declaration as at the date of execution of
this Common Securities Guarantee have the same meaning when used in this
Common Securities Guarantee unless otherwise defined in this Common
Securities Guarantee;
(c) a term defined anywhere in this Common Securities Guarantee has
the same meaning throughout;
(d) all references to "the Common Securities Guarantee" or "this
Common Securities Guarantee" are to this Common Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Common Securities Guarantee to Articles and
Sections are to Articles and Sections of this Common Securities Guarantee
unless otherwise specified; and
(f) a reference to the singular includes the plural and vice versa.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Common Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions that are
required to be paid on such Common Securities to the extent the Issuer has funds
on hand legally available therefor at such time, (ii) the redemption price,
including all accrued and unpaid Distributions to the date of redemption (the
"Redemption Price") to the extent the Issuer has funds on hand legally available
therefor at such time, with respect to any Common Securities called for
redemption by the Issuer, and (iii) upon a voluntary or involuntary termination
and liquidation of the Issuer (other than in connection with the
distribution of Debentures to the Holders in exchange for Common Securities as
provided in the Declaration), the lesser of (a) the aggregate of the liquidation
amount and all accumulated and unpaid Distributions on the Common Securities to
the date of payment, to the extent the Issuer has funds on hand legally
available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the
2
<PAGE>
Issuer (in either case, the "Liquidation Distribution"). If an Event of Default
has occurred and is continuing, no Guarantee Payments with respect to the Common
Securities shall be made until holders of Capital Securities shall be paid in
full the Guarantee Payments to which they are entitled under the Series A
Capital Securities Guarantee and the Series B Capital Securities Guarantee, if
any.
"Holder" means any holder, as registered on the books and records of
the Issuer, of any Common Securities.
"Other Guarantees" means all guarantees to be issued by the Guarantor
with respect to common securities (if any) similar to the Common Securities
issued by other trusts to be established by the Guarantor (if any), in each case
similar to the Issuer.
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee
---------
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Issuer), as and when due, regardless of any defense, right of set-
off or counterclaim which the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.
SECTION 2.2. Waiver of Notice and Demand
---------------------------
The Guarantor hereby waives notice of acceptance of this Common
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 2.3. Obligations Not Affected
------------------------
The obligations, covenants, agreements and duties of the Guarantor
under this Common Securities Guarantee shall in no way be affected or impaired
by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of
3
<PAGE>
any express or implied agreement, covenant, term or condition relating to
the Common Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution
or any other sums payable under the terms of the Common Securities or the
extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Common Securities (other than an
extension of time for payment of Distributions, Redemption Price,
Liquidation Distribution or other sum payable that results from the
extension of any interest payment period on the Debentures permitted by the
Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Common
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Issuer
or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the Common
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the
intent of this Section 2.3 that the obligations of the Guarantor with
respect to the Guarantee Payments shall be absolute and unconditional under
any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent
of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 2.4. Rights of Holders
-----------------
The Guarantor expressly acknowledges that any Holder may institute a
legal proceeding directly against the Guarantor to enforce its rights under this
Common Securities Guarantee,
4
<PAGE>
without first instituting a legal proceeding against the Issuer or any other
Person.
SECTION 2.5. Guarantee of Payment
--------------------
This Common Securities Guarantee creates a guarantee of payment and
not of collection.
SECTION 2.6. Subrogation
-----------
The Guarantor shall be subrogated to all (if any) rights of the
Holders against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Common Securities Guarantee; provided, however, that the
-------- -------
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Common Securities Guarantee, if, at the time
of any such payment, any amounts are due and unpaid under this Common Securities
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
SECTION 2.7. Independent Obligations
-----------------------
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Common
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Common
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 2.3 hereof.
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions
--------------------------
So long as any Common Securities remain outstanding, the Guarantor
will not (i) declare or pay any dividends or distribution on, or redeem,
purchase, acquire or make a liquidation payment with respect to any of the
Guarantor's capital stock (which includes common stock and preferred stock) or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Guarantor (including Other
Debentures) that rank pari passu with or junior in right of payment to the
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Guarantor of the debt securities of any subsidiary of the Guarantor
(including
5
<PAGE>
under Other Guarantees) if such guarantee ranks pari passu or junior in right of
payment to the Debentures (other than (a) dividends or distributions in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
common stock of the Guarantor, (b) any declaration of a dividend in connection
with the implementation of a stockholder's rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Capital Securities Guarantee,
(d) as a result of a reclassification of the Guarantor's capital stock or the
exchange or the conversion of one class or series of the Guarantor's capital
stock for another class or series of the Guarantor's capital stock, (e) the
purchase of fractional interests in shares of the Guarantor's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, and (f) purchases of common stock related
to the issuance of common stock or rights under any of the Guarantor's benefit
plans for its directors, officers or employees or any of the Guarantor's
dividend reinvestment plans) if at such time (i) there shall have occurred any
event of which the Guarantor has actual knowledge that (a) is, or with the
giving of notice or the lapse of time, or both, would be, an Event of Default
and (b) in respect of which the Guarantor shall not have taken reasonable steps
to cure, (ii) if such Debentures are held by the Property Trustee, the Guarantor
shall be in default with respect to its payment of any obligations under the
Capital Securities Guarantee or (iii) the Guarantor shall have given notice of
its election of the exercise of its right to extend the interest payment period
pursuant to Section 16.01 of the Indenture and any such extension shall be
continuing.
SECTION 3.2. Ranking
-------
This Common Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right
of payment to Senior Indebtedness (as defined in the Indenture), to the same
extent and in the same manner that the Debentures are subordinated to Senior
Indebtedness pursuant to the Indenture, it being understood that the terms of
Article XV of the Indenture shall apply to the obligations of the Guarantor
under this Common Securities Guarantee as if (x) such Article XV were set forth
herein in full and (y) such obligations were substituted for the term
"Securities" appearing in such Article XV, (ii) pari passu with the Debentures
and with the most senior preferred or preference stock now or hereafter issued
by the Guarantor and with any Other Guarantee and any guarantee now or hereafter
entered into by the Guarantor in respect of any preferred or preference stock of
any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common
stock.
6
<PAGE>
ARTICLE IV
TERMINATION
SECTION 4.1. Termination
-----------
This Common Securities Guarantee shall terminate (i) upon full payment
of the Redemption Price of all Common Securities, (ii) upon the distribution of
the Debentures to all the Holders or (iii) upon full payment of the amounts
payable in accordance with the Declaration upon liquidation of the Issuer.
Notwithstanding the foregoing, this Common Securities Guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
Holder must restore payment of any sums paid under the Common Securities or
under this Common Securities Guarantee.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns
----------------------
All guarantees and agreements contained in this Common Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
then outstanding.
SECTION 5.2. Amendments
----------
Except with respect to any changes which do not adversely affect the
rights of Holders (in which case no consent of Holders will be required), this
Common Securities Guarantee may only be amended with the prior approval of the
Holders of at least a majority in liquidation amount of all the outstanding
Common Securities. The provisions of Section 12.2 of the Declaration with
respect to meetings of Holders apply to the giving of such approval.
SECTION 5.3. Notices
-------
All notices provided for in this Common Securities Guarantee shall be
in writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) if given to the Issuer, in care of the Administrative Trustee at
the Issuer's mailing address set forth below (or such other address as the
Issuer may give notice of to the Holders):
7
<PAGE>
Investors Capital Trust I
c/o Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: General Counsel
Telecopy: (617) 330-6033
(b) if given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to
the Holders):
Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: General Counsel
Telecopy: (617) 330-6033
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 5.4. Benefit
-------
This Common Securities Guarantee is solely for the benefit of the
Holders of the Common Securities and is not separately transferable from the
Common Securities.
SECTION 5.5. Governing Law
-------------
THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.
8
<PAGE>
THIS COMMON SECURITIES GUARANTEE is executed as of the day and year
first above written.
INVESTORS FINANCIAL SERVICES CORP.
By: /s/ Karen C. Keenan
----------------------------------
Name: /s/ Karen C. Keenan
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.24
====================================
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
Investors Financial Services Corp.
Dated as of January 31, 1997
====================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS AND INTERPRETATION
<S> <C>
SECTION 1.1 Definitions and Interpretation............................ 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.......................... 6
SECTION 2.2 Lists of Holders of Securities............................ 6
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee....... 7
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee.. 7
SECTION 2.5 Evidence of Compliance with Conditions Precedent.......... 7
SECTION 2.6 Events of Default; Waiver................................. 7
SECTION 2.7 Event of Default; Notice.................................. 8
SECTION 2.8 Conflicting Interests..................................... 8
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities
Guarantee Trustee......................................... 8
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee.... 11
SECTION 3.3. Not Responsible for Recitals or Issuance of
Series A Capital Securities Guarantee..................... 13
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility......... 13
SECTION 4.2 Appointment, Removal and Resignation of Capital
Securities Guarantee Trustee.............................. 14
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee................................................. 15
SECTION 5.2 Waiver of Notice and Demand............................... 15
SECTION 5.3 Obligations Not Affected.................................. 15
SECTION 5.4 Rights of Holders......................................... 17
SECTION 5.5 Guarantee of Payment...................................... 17
SECTION 5.6 Subrogation............................................... 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.7 Independent Obligations................................... 18
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions................................ 18
SECTION 6.2 Ranking................................................... 19
ARTICLE VII
TERMINATION
SECTION 7.1 Termination............................................... 19
ARTICLE VIII
SECTION 8.1 Compensation and Expenses of Capital Securities
Guarantee Trustee......................................... 20
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation............................................... 21
SECTION 9.2 Indemnification........................................... 21
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns.................................... 22
SECTION 10.2 Amendments................................................ 22
SECTION 10.3 Notices................................................... 22
SECTION 10.4 Exchange Offer............................................ 23
SECTION 10.5 Benefit................................................... 23
SECTION 10.6 Governing Law............................................. 24
</TABLE>
ii
<PAGE>
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Series A Capital Securities
Guarantee"), dated as of January 31, 1997, is executed and delivered by
Investors Financial Services Corp., a Delaware corporation (the "Guarantor"),
and The Bank of New York, a New York banking corporation, as trustee (the
"Capital Securities Guarantee Trustee"), for the benefit of the Holders (as
defined herein) from time to time of the Series A Capital Securities (as defined
herein) of Investors Capital Trust I, a Delaware statutory business trust (the
"Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of January 31, 1997, among the trustees of the
Issuer, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 25,000 capital securities, having an aggregate
liquidation amount of $25,000,000, such capital securities being designated the
9.77% Series A Capital Securities (collectively the "Series A Capital
Securities") and, in connection with an Exchange Offer, if any, (as defined in
the Declaration) has agreed to execute and deliver the Series B Capital
Securities Guarantee (as defined in the Declaration) for the benefit of holders
of the Series B Capital Securities (as defined in the Declaration).
WHEREAS, as incentive for the Holders to purchase the Series A Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Series A Capital Securities Guarantee, to pay to
the Holders the Guarantee Payments (as defined below). The Guarantor agrees to
make certain other payments on the terms and conditions set forth herein.
WHEREAS, the Guarantor is executing and delivering a guarantee
agreement (the "Common Securities Guarantee"), with substantially identical
terms to this Series A Capital Securities Guarantee, for the benefit of the
holders of the Common Securities (as defined herein), except that if an Event
of Default (as defined in the Declaration) has occurred and is continuing, the
rights of holders of the Common Securities to receive Guarantee Payments under
the Common Securities Guarantee are subordinated, to the extent and in the
manner set forth in the Common Securities Guarantee, to the rights of holders
of Series A Capital Securities and the Series B Capital Securities, if any, to
receive Guarantee Payments under this Series A Capital Securities Guarantee and
the Series B Capital Securities Guarantee, if any, as the case may be.
NOW, THEREFORE, in consideration of the purchase by each Holder, which
purchase the Guarantor hereby acknowledges
<PAGE>
shall benefit the Guarantor, the Guarantor executes and delivers this Series A
Capital Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
------------------------------
In this Series A Capital Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Series A Capital Securities
Guarantee but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;
(b) Terms defined in the Declaration as at the date of execution of
this Series A Capital Securities Guarantee have the same meaning
when used in this Series A Capital Securities Guarantee unless
otherwise defined in this Series A Capital Securities Guarantee;
(c) a term defined anywhere in this Series A Capital Securities
Guarantee has the same meaning throughout;
(d) all references to "the Series A Capital Securities Guarantee" or
"this Series A Capital Securities Guarantee" are to this Series A
Capital Securities Guarantee as modified, supplemented or amended
from time to time;
(e) all references in this Series A Capital Securities Guarantee to
Articles and Sections are to Articles and Sections of this Series
A Capital Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Series A Capital Securities Guarantee, unless
otherwise defined in this Series A Capital Securities Guarantee
or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405
---------
under the Securities Act of 1933, as amended, or any successor rule thereunder.
2
<PAGE>
"Business Day" means any day other than a Saturday or a Sunday, or a
------------
day on which banking institutions in The City of New York or Boston,
Massachusetts are authorized or required by law or executive order to close.
"Capital Securities Guarantee Trustee" means The Bank of New York, a
------------------------------------
New York banking corporation, until a Successor Capital Securities Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Series A Capital Securities Guarantee and thereafter means each
such Successor Capital Securities Guarantee Trustee.
"Common Securities" means the securities representing common undivided
-----------------
beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Capital Securities
----------------------
Guarantee Trustee at which the corporate trust business of the Capital
Securities Guarantee Trustee shall, at any particular time, be principally
administered, which office at the date of execution of this Agreement is located
at 101 Barclay Street, 21st Floor West, New York, New York 10286.
"Covered Person" means any Holder or beneficial owner of Series A
--------------
Capital Securities.
"Debentures" means the series of subordinated debt securities of the
----------
Guarantor designated the 9.77% Series A Junior Subordinated Deferrable Interest
Debentures due February 1, 2027 held by the Property Trustee (as defined in the
Declaration) of the Issuer.
"Event of Default" means a default by the Guarantor on any of its
----------------
payment or other obligations under this Series A Capital Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
------------------
without duplication, with respect to the Series A Capital Securities, to the
extent not paid or made by the Issuer: (i) any accumulated and unpaid
Distributions (as defined in the Declaration) that are required to be paid on
such Series A Capital Securities to the extent the Issuer has funds on hand
legally available therefor at such time, (ii) the redemption price, including
all accumulated and unpaid Distributions to the date of redemption (the
"Redemption Price") to the extent the Issuer has funds on hand legally available
therefor at such time, with respect to any Series A Capital Securities called
for redemption by the Issuer, and (iii) upon a voluntary or involuntary
termination and liquidation of the Issuer (other than in connection with the
distribution of Debentures to the Holders in exchange for Series A Capital
Securities as provided in the Declaration), the lesser of (a) the aggregate of
the liquidation amount and all
3
<PAGE>
accumulated and unpaid Distributions on the Series A Capital Securities to the
date of payment, to the extent the Issuer has funds on hand legally available
therefor, and (b) the amount of assets of the Issuer remaining available for
distribution to Holders in liquidation of the Issuer. If an Event of Default
has occurred and is continuing, no Guarantee Payments under the Common
Securities Guarantee with respect to the Common Securities or any guarantee
payment under any Other Common Securities Guarantees shall be made until the
Holders shall be paid in full the Guarantee Payments to which they are entitled
under this Series A Capital Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and records
------
of the Issuer, of any Series A Capital Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Series A Capital
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Capital Securities Guarantee Trustee,
------------------
any Affiliate of the Capital Securities Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees, representatives,
nominees, custodians or agents of the Capital Securities Guarantee Trustee.
"Indenture" means the Indenture dated as of January 31, 1997, among
---------
the Guarantor (the "Debenture Issuer") and The Bank of New York, as trustee,
pursuant to which the Debentures are to be issued to the Property Trustee of the
Issuer.
"Majority in liquidation amount of the Series A Capital Securities"
-----------------------------------------------------------------
means, except as provided by the Trust Indenture Act, a vote by Holder(s) of
more than 50% of the aggregate liquidation amount (including the stated amount
that would be paid on redemption, liquidation or otherwise, plus accumulated
and unpaid Distributions to the date upon which the voting percentages are
determined) of all Series A Capital Securities.
"Officers' Certificate" means, with respect to any person, a
---------------------
certificate signed by the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President, the Comptroller, the Secretary or an
Assistant Secretary of the Guarantor. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this Series A
Capital Securities Guarantee (other than pursuant to Section 314(a)(4) of the
Trust Indenture Act) shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
4
<PAGE>
(b) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(c) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Other Common Securities Guarantees" shall have the same meaning as
----------------------------------
"Other Guarantees" in the Common Securities Guarantee.
"Other Debentures" means all junior subordinated debentures issued by
----------------
the Guarantor from time to time and sold to trusts to be established by the
Guarantor (if any), in each case similar to the Issuer.
"Other Guarantees" means all guarantees to be issued by the Guarantor
----------------
with respect to capital securities (if any) similar to the Series A Capital
Securities issued by other trusts to be established by the Guarantor (if any),
in each case similar to the Issuer.
"Person" means a legal person, including any individual, corporation,
------
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated as of January 31, 1997, by and among the Guarantor, the Issuer
and the Initial Purchaser named therein as such agreement may be amended,
modified or supplemented from time to time.
"Responsible Officer" means, with respect to the Capital Securities
-------------------
Guarantee Trustee, any officer within the Corporate Trust Office of the Capital
Securities Guarantee Trustee, including any vice president, any assistant vice
president, any assistant secretary, any assistant treasurer, any trust officer,
any senior trust officer or other officer in the Corporate Trust Office of the
Capital Securities Guarantee Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Successor Capital Securities Guarantee Trustee" means a successor
----------------------------------------------
Capital Securities Guarantee Trustee possessing the
5
<PAGE>
qualifications to act as Capital Securities Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
-------------------
amended.
"Trust Securities" means the Common Securities and the Series A
----------------
Capital Securities and Series B Capital Securities, if any, collectively.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
--------------------------------
(a) This Series A Capital Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part of this
Series A Capital Securities Guarantee and shall, to the extent applicable, be
governed by such provisions; and
(b) if and to the extent that any provision of this Series A Capital
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 Lists of Holders of Securities
------------------------------
(a) The Guarantor shall provide the Capital Securities Guarantee
Trustee (unless the Capital Securities Guarantee Trustee is otherwise the
registrar of the Capital Securities) with a list, in such form as the Capital
Securities Guarantee Trustee may reasonably require, of the names and addresses
of the Holders ("List of Holders") as of such date, (i) within one Business Day
after December 15 and June 15 of each year, and (ii) at any other time within 30
days of receipt by the Guarantor of a written request for a List of Holders as
of a date no more than 14 days before such List of Holders is given to the
Capital Securities Guarantee Trustee provided, that the Guarantor shall not be
--------
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders given to the Capital Securities
Guarantee Trustee by the Guarantor. The Capital Securities Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.
(b) The Capital Securities Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
6
<PAGE>
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee
---------------------------------------------------
Within 60 days after May 15 of each year, commencing May 15, 1997, the
Capital Securities Guarantee Trustee shall provide to the Holders such reports
as are required by Section 313(a) of the Trust Indenture Act, if any, in the
form and in the manner provided by Section 313 of the Trust Indenture Act. The
Capital Securities Guarantee Trustee shall also comply with the other
requirements of Section 313 of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee
--------------------------------------------------------
The Guarantor shall provide to the Capital Securities Guarantee
Trustee such documents, reports and information as required by Section 314 (if
any) and the compliance certificate required by Section 314 of the Trust
Indenture Act in the form, in the manner and at the times required by Section
314 of the Trust Indenture Act provided that such compliance certificate shall
be delivered on or before 120 days after the end of each fiscal year of the
Guarantor. Delivery of such reports, information and documents to the Capital
Securities Guarantee Trustee is for informational purposes only and the Capital
Securities Guarantee Trustee's receipt of such shall not constitute constructive
notice of any information contained therein or determinable from information
contained therein, including the Guarantor's compliance with any of its
covenants hereunder (as to which the Capital Securities Guarantee Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent
------------------------------------------------
The Guarantor shall provide to the Capital Securities Guarantee
Trustee such evidence of compliance with any conditions precedent, if any,
provided for in this Series A Capital Securities Guarantee that relate to any
of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
-------------------------
The Holders of a Majority in liquidation amount of Series A Capital
Securities may, by vote, on behalf of all the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Series A Capital Securities
Guarantee, but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.
7
<PAGE>
SECTION 2.7 Event of Default; Notice
------------------------
(a) The Capital Securities Guarantee Trustee shall, within 90 days
after the occurrence of a default with respect to this Capital Securities
Guarantee, mail by first class postage prepaid, to all Holders, notices of all
defaults actually known to a Responsible Officer of the Capital Securities
Guarantee Trustee, unless such defaults have been cured before the giving of
such notice, provided, that, except in the case of default in the payment of any
Guarantee Payment, the Capital Securities Guarantee Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee, or a trust committee of directors and/or Responsible
Officers of the Capital Securities Guarantee Trustee in good faith determines
that the withholding of such notice is in the interests of the holders of the
Series A Capital Securities.
(b) The Capital Securities Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default unless the Capital Securities Guarantee
Trustee shall have received written notice from the Guarantor or a Holder, or a
Responsible Officer of the Capital Securities Guarantee Trustee charged with the
administration of the Declaration shall have obtained actual knowledge, of such
Event of Default.
(c) Within ten Business Days after the occurrence of any Event of
Default actually known to the Capital Securities Guarantee Trustee, the Capital
Securities Guarantee Trustee shall transmit notice of such Event of Default to
the Holders of the Series A Capital Securities, unless such Event of Default
shall have been cured or waived.
SECTION 2.8 Conflicting Interests
---------------------
The Declaration shall be deemed to be specifically described in this
Series A Capital Securities Guarantee for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee
-------------------------------------------------------------
(a) This Series A Capital Securities Guarantee shall be held by the
Capital Securities Guarantee Trustee for the benefit of the Holders, and the
Capital Securities Guarantee Trustee shall not transfer this Series A Capital
Securities Guarantee to any Person except a Holder exercising his or her rights
pursuant
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to Section 5.4(b) or to a Successor Capital Securities Guarantee Trustee on
acceptance by such Successor Capital Securities Guarantee Trustee of its
appointment to act as Successor Capital Securities Guarantee Trustee. The
right, title and interest of the Capital Securities Guarantee Trustee shall
automatically vest in any Successor Capital Securities Guarantee Trustee, and
such vesting and succession of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Capital Securities Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Capital Securities Guarantee Trustee has occurred and is continuing, the
Capital Securities Guarantee Trustee shall enforce this Series A Capital
Securities Guarantee for the benefit of the Holders.
(c) The Capital Securities Guarantee Trustee, before the occurrence
of any Event of Default and after the curing of all Events of Default that may
have occurred, shall undertake to perform only such duties as are specifically
set forth in this Series A Capital Securities Guarantee, and no implied
covenants shall be read into this Series A Capital Securities Guarantee against
the Capital Securities Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) and is
actually known to a Responsible Officer of the Capital Securities Guarantee
Trustee, the Capital Securities Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Series A Capital Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Series A Capital Securities Guarantee shall
be construed to relieve the Capital Securities Guarantee Trustee from liability
for its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Capital Securities
Guarantee Trustee shall be determined solely by the express provisions
of this Series A Capital Securities Guarantee, and the Capital
Securities Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Series A Capital Securities Guarantee, and no implied
covenants or obligations shall be read into this Series A Capital
Securities
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Guarantee against the Capital Securities Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Capital
Securities Guarantee Trustee, the Capital Securities Guarantee Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Capital Securities Guarantee Trustee and
conforming to the requirements of this Series A Capital Securities
Guarantee; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to
the Capital Securities Guarantee Trustee, the Capital Securities
Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Series A Capital Securities Guarantee;
(ii) the Capital Securities Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of the
Capital Securities Guarantee Trustee, unless it shall be proved that the
Capital Securities Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(iii) the Capital Securities Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of a Majority in
liquidation amount of the Series A Capital Securities relating to the time,
method and place of conducting any proceeding for any remedy available to
the Capital Securities Guarantee Trustee, or exercising any trust or power
conferred upon the Capital Securities Guarantee Trustee under this Series
A Capital Securities Guarantee; and
(iv) no provision of this Series A Capital Securities Guarantee shall
require the Capital Securities Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the performance of
any of its duties or in the exercise of any of its rights or powers, if
the Capital Securities Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Series A Capital Securities Guarantee
or indemnity, reasonably satisfactory to the Capital Securities Guarantee
Trustee, against such risk or liability is not reasonably assured to it.
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SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee
------------------------------------------------------
(a) Subject to the provisions of Section 3.1:
(i) The Capital Securities Guarantee Trustee may conclusively
rely, and shall be fully protected in acting or refraining from acting,
upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed, sent or presented by the proper party or
parties.
(ii) Any direction or act of the Guarantor contemplated by this
Series A Capital Securities Guarantee may be sufficiently evidenced by an
Officers' Certificate.
(iii) Whenever, in the administration of this Series A Capital
Securities Guarantee, the Capital Securities Guarantee Trustee shall deem
it desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Capital Securities
Guarantee Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor.
(iv) The Capital Securities Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof).
(v) The Capital Securities Guarantee Trustee may consult with
counsel of its selection, and the advice or opinion of such counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion.
Such counsel may be counsel to the Guarantor or any of its Affiliates and
may include any of its employees. The Capital Securities Guarantee
Trustee shall have the right at any time to seek instructions concerning
the administration of this Series A Capital Securities Guarantee from any
court of competent jurisdiction.
(vi) The Capital Securities Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Series A Capital Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Capital Securities
Guaran-
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tee Trustee such security and indemnity, reasonably satisfactory to the
Capital Securities Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the Capital
Securities Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Capital Securities Guarantee Trustee; provided that, nothing contained in
this Section 3.2(a)(vi) shall be taken to relieve the Capital Securities
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Series A
Capital Securities Guarantee.
(vii) The Capital Securities Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Capital Securities
Guarantee Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit.
(viii) The Capital Securities Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents, nominees, custodians or attorneys, and
the Capital Securities Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder.
(ix) Any action taken by the Capital Securities Guarantee Trustee
or its agents hereunder shall bind the Holders, and the signature of the
Capital Securities Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action. No third party shall
be required to inquire as to the authority of the Capital Securities
Guarantee Trustee to so act or as to its compliance with any of the terms
and provisions of this Series A Capital Securities Guarantee, both of which
shall be conclusively evidenced by the Capital Securities Guarantee
Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Series A Capital
Securities Guarantee the Capital Securities Guarantee Trustee shall deem
it desirable to receive instructions with respect to enforcing any remedy
or right or taking any other action hereunder, the Capital Securities
Guarantee Trustee (i) may request instructions from the Holders of a
Majority in liquidation amount of the Series A Capital Securities, (ii) may
refrain from enforcing such remedy or
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right or taking such other action until such instructions are received, and
(iii) shall be protected in conclusively relying on or acting in accordance
with such instructions.
(xi) The Capital Securities Guarantee Trustee shall not be liable
for any action taken, suffered, or omitted to be taken by it in good faith,
without negligence, and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Series
A Capital Securities Guarantee.
(b) No provision of this Series A Capital Securities Guarantee
shall be deemed to impose any duty or obligation on the Capital Securities
Guarantee Trustee to perform any act or acts or exercise any right, power, duty
or obligation conferred or imposed on it in any jurisdiction in which it shall
be illegal, or in which the Capital Securities Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Capital Securities Guarantee
Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A Capital
------------------------------------------------------------
Securities Guarantee
--------------------
The recitals contained in this Series A Capital Securities Guarantee
shall be taken as the statements of the Guarantor, and the Capital Securities
Guarantee Trustee does not assume any responsibility for their correctness. The
Capital Securities Guarantee Trustee makes no representation as to the validity
or sufficiency of this Series A Capital Securities Guarantee.
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility
-------------------------------------------------
(a) There shall at all times be a Capital Securities Guarantee
Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee under
the Trust Indenture Act, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least 50 million
U.S. dollars
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($50,000,000), and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority referred to above,
then, for the purposes of this Section 4.1(a)(ii), the combined capital
and surplus of such corporation shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Capital Securities Guarantee Trustee shall
cease to be eligible to so act under Section 4.1(a), the Capital Securities
Guarantee Trustee shall immediately resign in the manner and with the effect
set out in Section 4.2(c).
(c) If the Capital Securities Guarantee Trustee has or shall
acquire any "conflicting interest" within the meaning of Section 310(b) of the
Trust Indenture Act, the Capital Securities Guarantee Trustee and Guarantor
shall in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act, subject to the penultimate paragraph thereof.
SECTION 4.2 Appointment, Removal and Resignation of Capital Securities
----------------------------------------------------------
Guarantee Trustee
-----------------
(a) Subject to Section 4.2(b), the Capital Securities Guarantee
Trustee may be appointed or removed without cause at any time by the Guarantor
except during an Event of Default.
(b) The Capital Securities Guarantee Trustee shall not be removed
in accordance with Section 4.2(a) until a Successor Capital Securities Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Capital Securities Guarantee Trustee and
delivered to the Guarantor.
(c) The Capital Securities Guarantee Trustee shall hold office
until a Successor Capital Securities Guarantee Trustee shall have been appointed
or until its removal or resignation. The Capital Securities Guarantee Trustee
may resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Capital Securities Guarantee Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Capital Securities Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Capital Securities Guarantee Trustee and delivered to the Guarantor and the
resigning Capital Securities Guarantee Trustee.
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(d) If no Successor Capital Securities Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section 4.2 within
60 days after delivery of an instrument of removal or resignation, the Capital
Securities Guarantee Trustee resigning or being removed may petition any court
of competent jurisdiction for appointment of a Successor Capital Securities
Guarantee Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper, appoint a Successor Capital Securities Guarantee
Trustee.
(e) No Capital Securities Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Capital Securities Guarantee Trustee.
(f) Upon termination of this Series A Capital Securities Guarantee
or removal or resignation of the Capital Securities Guarantee Trustee pursuant
to this Section 4.2, the Guarantor shall pay to the Capital Securities Guarantee
Trustee all amounts due to the Capital Securities Guarantee Trustee accrued to
the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
---------
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Issuer), as and when due, regardless of any defense, right of set-
off or counterclaim that the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
---------------------------
The Guarantor hereby waives notice of acceptance of this Series A
Capital Securities Guarantee and of any liability to which it applies or may
apply, presentment, demand for payment, any right to require a proceeding first
against the Issuer or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
SECTION 5.3 Obligations Not Affected
------------------------
The obligations, covenants, agreements and duties of the Guarantor
under this Series A Capital Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
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(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Series A Capital Securities to be
performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or
any portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Series A Capital Securities or the
extension of time for the performance of any other obligation under, arising out
of, or in connection with, the Series A Capital Securities (other than an
extension of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Series A Capital
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Issuer or any of the
assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the Series A
Capital Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred;
(g) the consummation of the Exchange Offer, if any; or
(h) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.3 that the obligations of the Guarantor with
respect to the Guarantee Payments shall be absolute and unconditional under any
and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
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SECTION 5.4 Rights of Holders
-----------------
(a) The Holders of a Majority in liquidation amount of the Series A
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Capital Securities
Guarantee Trustee in respect of this Series A Capital Securities Guarantee or
exercising any trust or power conferred upon the Capital Securities Guarantee
Trustee under this Series A Capital Securities Guarantee provided, however,
-------- -------
that, subject to Section 3.1, the Capital Securities Guarantee Trustee shall
have the right to decline to follow any such direction if the Capital Securities
Guarantee Trustee shall determine that the action so directed would be unjustly
prejudicial to the holders not taking part in such direction or if the Capital
Securities Guarantee Trustee being advised by counsel determines that the action
or proceeding so directed may not lawfully be taken or if the Capital Securities
Guarantee Trustee in good faith by its board of directors or trustees, executive
committee, or a trust committee of directors or trustees and/or Responsible
Officers shall determine that the action or proceedings so directed would
involve the Capital Securities Guarantee Trustee in personal liability.
(b) If the Capital Securities Guarantee Trustee fails to enforce
such Series A Capital Securities Guarantee, any Holder may institute a legal
proceeding directly against the Guarantor to enforce the Capital Securities
Guarantee Trustee's rights under this Series A Capital Securities Guarantee,
without first instituting a legal proceeding against the Issuer, the Capital
Securities Guarantee Trustee or any other person or entity. The Guarantor waives
any right or remedy to require that any action be brought first against the
Issuer or any other person or entity before proceeding directly against the
Guarantor.
SECTION 5.5 Guarantee of Payment
--------------------
This Series A Capital Securities Guarantee creates a guarantee of
payment and not of collection.
SECTION 5.6 Subrogation
-----------
The Guarantor shall be subrogated to all (if any) rights of the
Holders against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Series A Capital Securities Guarantee; provided, however,
that the Guarantor shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any right that it may
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Series A Capital
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Series A Capital Securities Guarantee. If any amount shall
be
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paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.
SECTION 5.7 Independent Obligations
-----------------------
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Series A
Capital Securities, and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this Series
A Capital Securities Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
--------------------------
So long as any Capital Securities remain outstanding, the Guarantor
shall not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Guarantor's capital stock (which includes common and preferred stock) or (ii)
make any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem any debt securities of the Guarantor (including any Other
Debentures) that rank pari passu with or junior in right of payment to the
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Guarantor of any securities of any subsidiary of the Guarantor (including
Other Guarantees) if such guarantee ranks pari passu or junior in right of
payment to the Debentures (other than (a) dividends or distributions in shares
of, or options, warrants, rights to subscribe for or purchase shares of, common
stock of the Guarantor, (b) any declaration of a dividend in connection with the
implementation of a stockholder's rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Capital Securities Guarantee, (d) as a
direct result of, and only to the extent required in order to avoid the issuance
of fractional shares of capital stock following, a reclassification of the
Guarantor's capital stock or the exchange or the conversion of one class or
series of the Guarantor's capital stock for another class or series of the
Guarantor's capital stock, (e) the purchase of fractional interests in shares of
the Guarantor's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, and (f)
purchases of common stock related to the issuance of common stock or rights
under any of the Guarantor's benefit plans for its directors, officers or
employees or any of
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the Guarantor's dividend reinvestment plans) if at such time (i) an Event of
Default (as defined in the Indenture) shall have occurred and be continuing,
(ii) there shall have occurred any event of which the Guarantor has actual
knowledge that (a) is, or with the giving of notice or the lapse of time, or
both, would be an Event of Default (as defined in the Indenture) and (b) in
respect of which the Guarantor shall not have taken reasonable steps to cure,
(iii) if such Debentures are held by the Property Trustee, the Guarantor shall
be in default with respect to its payment of any obligations under this Series A
Capital Securities Guarantee or (iv) the Guarantor shall have given notice of
its election of the exercise of its right to extend the interest payment period
pursuant to Section 16.01 of the Indenture and any such extension shall be
continuing.
SECTION 6.2 Ranking
-------
This Series A Capital Securities Guarantee will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate and junior
in right of payment to Senior Indebtedness (as defined in the Indenture), to
the same extent and in the same manner that the Debentures are subordinated to
Senior Indebtedness pursuant to the Indenture, it being understood that the
terms of Article XV of the Indenture shall apply to the obligations of the
Guarantor under this Series A Capital Securities Guarantee as if (x) such
Article XV were set forth herein in full and (y) such obligations were
substituted for the term "Securities" appearing in such Article XV, (ii) pari
passu with the Debentures, the Other Debentures and with the most senior
preferred or preference stock now or hereafter issued by the Guarantor and with
any Other Guarantee (as defined herein) and any Other Common Securities
Guarantee and any guarantee now or hereafter entered into by the Guarantor in
respect of any preferred or preference stock of any Affiliate of the Guarantor,
and (iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
-----------
This Series A Capital Securities Guarantee shall terminate (i) upon
full payment of the Redemption Price (as defined in the Declaration) of all
Series A Capital Securities, (ii) upon liquidation of the Issuer, the full
payment of the amounts payable in accordance with the Declaration or the
distribution of the Debentures to the Holders of all of the Series A Capital
Securities or (iii) upon exchange of all the Series A Capital Securities for the
Series B Capital Securities in the Exchange Offer, if any, and the execution and
delivery of the Series B Capital Securities Guarantee, if any. Notwithstanding
the
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foregoing, this Series A Capital Securities Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid under the Series A Capital Securities or
under this Series A Capital Securities Guarantee.
ARTICLE VIII
COMPENSATION AND EXPENSES OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 8.1 Compensation and Expenses of Capital Securities
-----------------------------------------------
Guarantee Trustee
-----------------
The Guarantor covenants and agrees to pay to the Capital Securities
Guarantee Trustee from time to time, and the Capital Securities Guarantee
Trustee shall be entitled to, such compensation as shall be agreed to in writing
between the Guarantor and the Capital Securities Guarantee Trustee (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Guarantor will pay or reimburse the
Capital Securities Guarantee Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Capital Securities
Guarantee Trustee in accordance with any of the provisions of this Capital
Securities Guarantee (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Guarantor also covenants to indemnify each of the
Capital Securities Guarantee Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense including taxes (other than taxes based on the
income of the Capital Securities Guaran tee Trustee) incurred without negligence
or bad faith on the part of the Capital Securities Guarantee Trustee and arising
out of or in connection with the acceptance or administration of this guarantee,
including the costs and expenses of defending itself against any claim of
liability in the premises. The obligations of the Guarantor under this Article
VIII to compensate and indemnify the Capital Securities Guarantee Trustee and
to pay or reimburse the Capital Securities Guarantee Trustee for expenses,
disbursements and advances shall be secured by a lien prior to that of the
Series A Capital Securities upon all property and funds held or collected by the
Capital Securities Guarantee Trustee as such, except funds held in trust for the
benefit of the holders of particular Series A Capital Securities.
The provisions of this Article shall survive the termination of this
Capital Securities Guarantee.
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ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation
-----------
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this Series
A Capital Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Series A Capital Securities Guarantee or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts pertinent to the existence and amount of
assets from which Distributions to Holders might properly be paid.
SECTION 9.2 Indemnification
---------------
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any and all loss, liability,
damage, claim or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 9.2 shall survive the termination of this
Series A Capital Securities Guarantee.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns
----------------------
All guarantees and agreements contained in this Series A Capital
Securities Guarantee shall bind the successors, as signs, receivers, trustees
and representatives of the Guarantor and shall inure to the benefit of the
Holders then outstanding.
SECTION 10.2 Amendments
----------
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Series A Capital Securities Guarantee may only be amended with
the prior approval of the Holders of a Majority in liquidation amount of the
Securities (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined). The provisions of the Declaration
with respect to consents to amendments thereof (whether at a meeting or
otherwise) shall apply to the giving of such approval.
SECTION 10.3 Notices
-------
All notices provided for in this Series A Capital Securities Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:
(a) If given to the Issuer, in care of the Administrative Trustee
at the Issuer's mailing address set forth below (or such other address as the
Issuer may give notice of to the Holders and the Capital Securities Guarantee
Trustee):
Investors Capital Trust I
c/o Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: General Counsel
Telecopy: (617) 330-6033
(b) If given to the Capital Securities Guarantee Trustee, at the
Capital Securities Guarantee Trustee's mailing address set forth below (or such
other address as the Capital Securities Guarantee Trustee may give notice of to
the Holders and the Issuer):
22
<PAGE>
The Bank of New York
101 Barclay Street
21st Floor West New York, New York 10286
Attention: Corporate Trust Trustee Administration
Telecopy: (212) 815-5915
(c) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Series A Capital Securities and the Capital Securities
Guarantee Trustee):
Investors Financial Services Corp.
89 South Street
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: General Counsel
Telecopy: (617) 330-6033
(d) If given to any Holder of Series A Capital Securities, at the
address set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 10.4 Exchange Offer
--------------
In the event an Exchange Offer Registration Statement (as defined in
the Registration Rights Agreement) becomes effective and the Issuer issues any
Series B Capital Securities in the Exchange Offer, the Guarantor will enter into
a new capital securities guarantee agreement, in substantially the same form as
this Series A Capital Securities Guarantee, with respect to the Series B Capital
Securities.
SECTION 10.5 Benefit
-------
This Series A Capital Securities Guarantee is solely for the benefit
of the Holders and, subject to Section 3.1(a), is not separately transferable
from the Series A Capital Securities.
23
<PAGE>
SECTION 10.6 Governing Law
-------------
THIS SERIES A CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF IS DEEMED TO HAVE
AGREED TO BE BOUND BY THE PROVISIONS OF A REGIS TRATION RIGHTS AGREEMENT AMONG
INVESTORS CAPITAL TRUST I (THE "TRUST"), INVESTORS FINANCIAL SERVICES CORP. (THE
"SPONSOR") AND KEEFE, BRUYETTE & WOODS, INC. DATED JANUARY 31, 1997 (THE
"REGISTRATION RIGHTS AGREEMENT"). THE SPONSOR WILL PROVIDE A COPY OF THE
REGISTRATION RIGHTS AGREEMENT TO A HOLDER WITHOUT CHARGE UPON WRITTEN REQUEST TO
THE TRUST AT ITS PRINCIPAL PLACE OF BUSINESS.
24
<PAGE>
THIS SERIES A CAPITAL SECURITIES GUARANTEE is executed as of the day
and year first above written.
INVESTORS FINANCIAL SERVICES CORP.,
as Guarantor
/s/ Karen C. Keenan
By:-----------------------------------
Name: karen C Keenan
Title:Chief Financial Officer
THE BANK OF NEW YORK, as Capital
Securities Guarantee Trustee
/s/ Mary Jane Morrissey
By: ----------------------------------
Name: MARY JANE MORRISSEY
Title: VICE PRESIDENT
25
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
------------------------------
All subsidiaries do business under the respective names listed below.
1. Investors Bank & Trust Company
Massachusetts chartered trust company
2. Investors Safe Deposit Corp.
Massachusetts corporation
3. Investors Securities Corporation
Massachusetts securities corporation
4. IBT Fund Services (Canada) Inc.
incorporated in Canada
5. IBT Holdings (Ireland) Limited
organized in the Republic of Ireland
6. Investors Financial Services (Ireland) Limited
organized in the Republic of Ireland
7. Investors Trust & Custodial Services (Ireland) Limited
organized in the Republic of Ireland
8. Investors Fund Services (Ireland) Limited
organized in the Republic of Ireland
9. IBT Trust Company (Cayman) Ltd.
organized in the Cayman Islands
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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