<PAGE>
As filed with the Securities and Exchange Commission on August 20, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INVESTORS FINANCIAL SERVICES CORP.
(Exact Name of Registrant as Specified in Its Charter)
------------------------------
<TABLE>
<S> <C>
DELAWARE 04-3279817
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
</TABLE>
200 CLARENDON STREET, BOSTON, MA 02116
(617) 330-6700
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
JOHN E. HENRY, ESQ.
GENERAL COUNSEL AND SECRETARY
INVESTORS FINANCIAL SERVICES CORP.
P.O. BOX 9130
BOSTON, MA 02117-9130
(617) 330-6700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
STEVEN C. BROWNE, ESQ. MICHAEL T. KOHLER, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP BROWN & WOOD LLP
125 High Street One World Trade Center
High Street Tower New York, New York 10048
Boston, Massachusetts 02110 (212) 839-5300
(617) 248-7000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SHARES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 440,000 shares $67.0625 $29,507,500 $8,704.72
Preferred Stock Purchase
Rights(3)..................... -- -- -- --
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(2) Pursuant to Rule 457(c) of the Securities Act of 1933, the registration fee
has been calculated based upon the average of the high and low prices per
share of the Common Stock of Investors Financial Services Corp. (the
"Company") on the Nasdaq National Market on August 19, 1998.
(3) Pursuant to the Company's Rights Agreement, one right to purchase a unit of
preferred stock of the Company (each a "Preferred Stock Purchase Right" or
"Right") is deemed to be delivered with each share of Common Stock issued by
the Company. The Rights currently are not separately transferable apart from
the Common Stock, nor are they exercisable until the occurrence of certain
events. Accordingly, no independent value has been attributed to the Rights.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 20, 1998
PROSPECTUS
400,000 SHARES
INVESTORS FINANCIAL SERVICES CORP.
COMMON STOCK
All of the 400,000 shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), of Investors Financial Services Corp., a Delaware
corporation (the "Company"), offered hereby are being offered by the Company.
The Company expects to use the net proceeds of this offering together with
internal resources to fund the Company's acquisition of the domestic
institutional trust and custody business of BankBoston, N.A.
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "IFIN." On August 19, 1998, the last reported sale price for
the Common Stock of the Company on the Nasdaq National Market was $66.25 per
share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $300,956.
(3) The Company has granted to the Underwriter a 30-day option to purchase up to
an aggregate of 40,000 additional shares of Common Stock, on the same terms
and conditions as set forth above, solely to cover over-allotments, if any.
See "Underwriting." If all such shares are purchased, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively.
The shares of Common Stock to be distributed to the public are offered by
the Underwriter, subject to prior sale, when, as and if received and accepted by
the Underwriter, subject to approval of certain legal matters by counsel for the
Underwriter and certain other conditions. The Underwriter reserves the right to
withdraw or cancel such offer and to reject orders in whole or in part. It is
expected that delivery of the certificates for the shares of Common Stock will
be made against payment thereon in New York, New York on or about September ,
1998.
------------------------
KEEFE, BRUYETTE & WOODS, INC.
----------------
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND STABILIZING TRANSACTIONS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located at
Seven World Trade Center, New York, New York 10048, and at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock
of the Company is traded on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the National Association of Securities Dealers, Inc., located at 1801
K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information regarding the Company and the Common Stock offered hereby, reference
is hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any agreement or other document filed as an exhibit to the Registration
Statement are necessarily summaries of such documents, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement for a more complete description of the matters involved.
The Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof
may be obtained from such office upon payment of the prescribed fees. In
addition, the Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The Company will provide without charge to each person to whom a Prospectus
is delivered, on the written or oral request of any such person, a copy of any
or all of the documents incorporated by reference herein (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into such documents). Requests for such copies should be directed to Investor
Relations, Investors Financial Services Corp., P.O. Box 9130, Boston,
Massachusetts 02117-9130 (telephone: (617) 330-6032).
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated in this Prospectus by reference (File No.
0-26996):
1. The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998.
3. The Company's Current Reports on Form 8-K filed with the Commission on July
20, 1998 and August 19, 1998. The Company's Current Report on Form 8-K filed
with the Commission on August 19, 1998 includes the Company's restated
Consolidated Financial Statements as of December 31, 1997 and 1996, and for
the fiscal years ended December 31, 1997 and 1996, the two months ended
December 31, 1995 and the fiscal year ended October 31, 1995, restated to
reflect the acquisition of AMT Capital Services, Inc. and AMT Capital
Advisers, Inc. See "Recent and Pending Acquisitions-- AMT Capital
Acquisition."
4. The description of the Company's Common Stock, par value $.01 per share,
contained in the section entitled "Description of Registrant's Securities to
be Registered" contained in the Company's Registration Statement on Form 8-A
filed under the Exchange Act with the Commission on October 14, 1995, and
incorporating by reference the information contained in the Company's
Registration Statement on Form S-1 (File No. 33-95980), including any
amendment or report filed for the purpose of updating such description.
5. The description of the Preferred Stock Purchase Rights which accompany each
share of the Company's Common Stock contained in the Company's Registration
Statement on Form 8-A filed under the Exchange Act with the Commission on
October 14, 1995, and incorporating by reference the information contained
in the Company's Registration Statement on Form S-1 (File No. 33-95980),
including any amendment or report filed for the purpose of updating such
description.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
of the Shares, shall be deemed to be incorporated by reference in this
Prospectus and made a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein or in any Prospectus Supplement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
4
<PAGE>
THE COMPANY
Investors Financial Services Corp. (the "Company"), based in Boston,
Massachusetts, provides a broad range of asset administration services for the
financial services industry through its wholly-owned subsidiaries, Investors
Bank & Trust Company-Registered Trademark- and Investors Capital Services, Inc.
The Company provides 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 $164 billion at
June 30, 1998, including assets managed by 59 mutual fund complexes and
insurance companies and approximately $12 billion of foreign assets. The Company
also engages in private banking transactions, including secured lending and
deposit accounts.
The Company's principal offices are located at 200 Clarendon Street, Boston,
Massachusetts 02116, and the Company's telephone number is (617) 330-6700.
RECENT AND PENDING ACQUISITIONS
BANKBOSTON DOMESTIC INSTITUTIONAL TRUST AND CUSTODY ACQUISITION
On July 17, 1998, Investors Bank & Trust Company ("Investors Bank"), a
wholly-owned subsidiary of the Company, entered into a Purchase and Sale
Agreement (the "Agreement") with BankBoston, N.A. ("BankBoston") pursuant to
which Investors Bank has agreed to purchase (the "BankBoston Acquisition") from
BankBoston substantially all of the assets and certain liabilities of BankBoston
solely relating to BankBoston's domestic institutional trust and custody
business (the "Business").
The Business currently provides master trust and custody services to
endowments, pension funds, municipalities, mutual funds and other financial
institutions, primarily in New England. As of June 30, 1998, the Business
serviced approximately $45 billion in assets held in over 3,000 accounts by
almost 600 clients. The primary focus of the Business is small to midsize
custody accounts ranging in size from $5 million to $500 million in assets.
The aggregate purchase price (the "Purchase Price") to be paid by Investors
Bank for the Business is approximately $50 million plus the amount of accounts
receivable of the Business at the time of the closing of the BankBoston
Acquisition (the "Closing"). A deposit of $1 million was made by Investors Bank
upon the signing of the Agreement and may be retained by BankBoston if Investors
Bank fails to close the BankBoston Acquisition after receipt of necessary
regulatory approvals. An additional $43 million plus the amount of accounts
receivable of the Business at the time of the Closing will be paid at the
Closing. At the one year anniversary of the Closing, Investors Bank will pay up
to an additional $6 million to BankBoston based upon the level of client
retention.
The BankBoston Acquisition is expected to be accounted for as a purchase.
While Investors Bank is able to fund the transaction from internal resources,
the Company intends to use the proceeds of this offering to partially fund the
transaction. The Company expects the BankBoston Acquisition to be accretive to
earnings per share after the successful integration of staff, systems and
facilities in 1999. See "Risk Factors -- Difficulty of Integrating
Acquisitions."
The Closing is subject to customary closing conditions, the expiration or
early termination of the applicable waiting period under the Hart-Scott Rodino
Antitrust Improvements Act of 1976 and the approval of the Commissioner of Banks
of the Commonwealth of Massachusetts. Subject to the satisfaction of the
foregoing conditions, Investors Bank expects the Closing to occur on or about
September 30, 1998.
The Company believes that its knowledge and experience in the custody
business, as well as its core strategy of providing superior client service,
will be an excellent fit for the clients of the Business. The
5
<PAGE>
Company currently provides to its clients all of the services that BankBoston
provides to the clients of the Business. In addition, the Company's focus on
custody and related services allows it to dedicate its resources to providing
state-of-the-art technology solutions and highly trained and experienced
professionals to the Business.
The Company believes that it will benefit from the added depth and diversity
in its client base as a result of the BankBoston Acquisition. The Company also
believes that the BankBoston Acquisition will provide potential cross-selling
opportunities for the provision of additional, value-added services such as
securities lending, foreign exchange and cash management. In addition, the
Company believes that it will ultimately recognize certain operating
efficiencies from the complementary nature of the Business in relation to the
Company's own services. See "Risk Factors -- Difficulty of Integrating
Acquisitions."
In connection with the BankBoston Acquisition, on July 17, 1998 Investors
Bank and BankBoston also entered into an Outsourcing Agreement (the "Outsourcing
Agreement"). Pursuant to the Outsourcing Agreement, effective upon the Closing,
the Company will act as custodian for three BankBoston asset management related
businesses comprising approximately $25 billion in assets: domestic private
banking, institutional asset management and international private banking. The
Company will provide transaction processing and asset safekeeping and servicing
to the clients of those businesses.
AMT CAPITAL ACQUISITION
On May 29, 1998, the Company acquired (the "AMT Acquisition") all of the
outstanding share capital of AMT Capital Services, Inc. and AMT Capital
Advisers, Inc. (collectively, "AMT Capital"), pursuant to an Agreement and Plan
of Merger dated as of May 12, 1998 (the "Merger Agreement"), by and among the
Company, Investors Acquisition Sub I, Inc., Investors Acquisition Sub II, Inc.,
AMT Capital and certain stockholders of AMT Capital (the "Former AMT Capital
Stockholders") in exchange for 194,006 shares of the Company's Common Stock. Of
the 194,006 shares of Common Stock issued to the Former AMT Capital
Stockholders, 18,938 shares are being held in escrow by First Chicago Trust
Company of New York as escrow agent pursuant to an Escrow Agreement dated as of
May 29, 1998 among the Company, the Former AMT Capital Stockholders and the
escrow agent (the "Escrow Agreement") to cover any reimbursable claims relating
to the AMT Acquisition and to be held until the earlier of (i) February 28, 1999
or (ii) the Company's first public announcement of earnings following completion
by the Company's independent auditors of the first full-year audit of the
Company's financial statements following May 29, 1998. In accordance with the
terms of a registration rights agreement between the Company and the Former AMT
Stockholders, the remaining 175,068 shares acquired by the Former AMT Capital
Stockholders pursuant to the AMT Acquisition were registered on a Registration
Statement on Form S-3 (File No. 333-58031), declared effective on July 9, 1998,
and may be sold to the public by the Former AMT Capital Stockholders. The AMT
Acquisition has been accounted for under the "pooling-of-interests" method and
was structured as a tax-free reorganization under the Internal Revenue Code.
AMT Capital is a New York-based firm recognized for providing fund
administration services to global and domestic institutional investment
management firms. The AMT Acquisition is intended to enhance the Company's
offerings to institutional investment managers who outsource the administration
of pooled investment products. Additionally, the Company believes that the
combination of the substantial expertise at both the Company and AMT Capital
should further strengthen the Company's strategic product development
capabilities in support of clients worldwide. Upon the consummation of the AMT
Acquisition, the AMT Capital companies were renamed Investors Capital Services,
Inc. and Investors Capital Advisers, Inc., respectively.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK, INCLUDING THE RISKS DESCRIBED BELOW. IN ADDITION TO OTHER INFORMATION
PRESENTED IN THIS PROSPECTUS AND THE INFORMATION INCORPORATED IN THIS PROSPECTUS
BY REFERENCE, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK
OFFERED HEREBY. CERTAIN STATEMENTS SET FORTH IN THIS PROSPECTUS AND THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS (STATEMENTS WHICH ARE OTHER THAN HISTORICAL FACT) WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. NO ASSURANCE CAN BE
GIVEN THAT THE FUTURE RESULTS COVERED BY THE FORWARD-LOOKING STATEMENTS WILL BE
ACHIEVED. THESE STATEMENTS, BY THEIR NATURE, INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND THE COMPANY'S
ACTUAL FUTURE RESULTS MAY DIFFER MATERIALLY FROM THOSE STATED IN ANY SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DESCRIBED IN THE FOLLOWING RISK FACTORS AND IN THE
OTHER RISK FACTORS DESCRIBED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
DIFFICULTY OF INTEGRATING ACQUISITIONS
The closing of the BankBoston Acquisition is expected to be completed on or
about September 30, 1998, subject to certain conditions set forth in the
Purchase Agreement. See "Recent and Pending Acquisitions -- BankBoston Domestic
Institutional Trust and Custody Acquisition." The acquisition of AMT Capital was
consummated on May 29, 1998. AMT Capital currently operates as two wholly-owned
subsidiaries of the Company, Investors Capital Services, Inc. and Investors
Capital Advisers, Inc. The Company has limited experience in integrating
acquired companies, businesses, assets or technologies into its operations. The
Company may from time to time pursue the acquisition of other companies,
businesses, assets, products or technologies and may issue shares of its Common
Stock in connection therewith. There can be no assurance that the assets,
services, technologies, key personnel and businesses of the Business, AMT
Capital or any other acquired businesses or companies will be successfully
integrated into the Company's business or service offerings, or that such
integration and the corresponding diversion of the attention of management will
not adversely affect the Company's business, financial condition or results of
operations. There can be no assurance that any acquired companies, businesses,
assets, services or technologies, including the Business and AMT Capital, will
contribute significantly to the Company's revenues, or that the revenues from
acquired businesses will not be adversely affected by the integration process or
other factors. If the Company is not successful in the integration of such
acquired businesses, including the Business and AMT Capital, anticipated
efficiencies may not be realized and there could be an adverse impact on the
financial results of the Company.
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of growth which has placed,
and may continue to place, a strain on the Company's management, financial and
other resources. The Company's ability to manage the growth of its staff and
facilities effectively will require it to continue to improve its operational,
financial and other internal systems, and to train, motivate and manage its
employees. If the Company's management is unable to manage growth effectively
and new employees are unable to achieve anticipated performance levels, the
Company's results of operations could be adversely affected. Potential investors
should consider the risks, expenses and difficulties frequently encountered in
connection with the operation and development of an expanding business.
ABILITY TO ATTRACT AND RETAIN EMPLOYEES
The Company's business involves the delivery of professional services. The
Company's success will depend in large part upon its ability to attract, retain
and motivate highly skilled employees, particularly client managers and other
senior financial services personnel. Qualified senior financial services
personnel are in particularly great demand and are likely to remain a limited
resource for the foreseeable future.
7
<PAGE>
Although the Company expects to continue to attract sufficient numbers of highly
skilled employees and to retain existing senior financial services personnel,
client managers and other senior personnel for the foreseeable future, there can
be no assurance that the Company will be able to do so. The loss of a
significant number of the Company's senior personnel or the failure to attract
qualified employees to support the Company's growth could have a material
adverse impact on the Company, including its ability to retain clients.
FLUCTUATION IN STOCK MARKETS AND INTEREST RATES
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 the 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 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. Any unanticipated client terminations,
fluctuations in interest rates or declines in stock market values could result
in fluctuating quarterly and annual operating results and could have a material
adverse effect on the Company's results of operations.
INTELLECTUAL PROPERTY
The Company relies on certain intellectual property protections to preserve
its intellectual property rights. Any failure by the Company to properly protect
its intellectual property rights or any invalidation of the Company's
intellectual property rights or lengthy and expensive defense of those rights
could have a material adverse effect on the Company and its results of
operations. In addition, the Year 2000 issue discussed below may adversely
affect the Company's operations.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions to operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Company is heavily dependent
upon computer programs to conduct its business. The Company has determined that
it will be required to modify or upgrade portions of its software so that its
computer systems will properly utilize dates beyond December 31, 1999. The
Company plans to complete the Year 2000 project, including all internal testing,
by December 31, 1998. Currently, the Company is completing renovation of its
software code and has commenced the testing phase of the Year 2000 project. The
remaining cost to be incurred in 1998 for the Year 2000 project is estimated at
$753,000, which will be expensed as incurred over the remainder of the year, and
is being funded through operating cash flows. In addition, the Company has
budgeted up to an additional $400,000 for Year 2000 costs that may arise during
1999. These 1999 costs may include, but are not limited to, testing with third
parties who are not Year 2000 compliant prior to December 31, 1998 and software
renovation necessitated by internal and/or third-party testing during 1998 and
1999. These amounts are not expected to have a material effect on the Company's
results of operations. To date, the Company has incurred and expensed
approximately $847,000 related to the assessment of, and remediation efforts in
connection with, its Year 2000 project and the development of a remediation
plan. The Company presently believes that with modifications to, or upgrades of,
existing software the Year 2000 issue can be mitigated. However, if such
modifications and upgrades are not made or are not completed in a timely manner,
the Year 2000 issue could have a material impact on the operations of the
Company and on its relations with its clients. In addition, the Company may be
vulnerable to the failure of its significant suppliers and large customers to
remediate their own
8
<PAGE>
Year 2000 issue. There can be no assurance that the systems of the companies on
which the Company's systems rely will be timely remediated, or that the failure
to so remediate by another company, or a remediation that is incompatible with
the Company's systems, would not have a material adverse effect on the Company.
The Company is currently developing contingency plans to address any failure by
the Company or any third party to properly and/or completely renovate its
systems for Year 2000 compliance. The Company expects to complete these
contingency plans during the fourth quarter of 1998.
COMPETITION
The segment of the financial services industry in which the Company operates
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 and marketing resources than the Company.
As the large mutual fund complexes continue to grow and build in-house asset
administration service capabilities, they may no longer need to outsource these
services to the Company. The Company's competitors may succeed in developing
products and services that are more effective than those that have been or will
be developed by the Company and may also prove to be more successful than the
Company in producing and marketing those services to third party asset managers.
Any failure of the Company to compete effectively could have a material adverse
effect on the Company and its results of operations, financial condition and
cash flows.
VARIABILITY OF QUARTERLY AND ANNUAL OPERATING RESULTS
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 its
competitors and changes or anticipated changes in economic conditions, including
fluctuations in interest rates and declines in stock market values. Because the
Company's operating expenses are relatively fixed, any unanticipated shortfall
in revenues in a specified period may have a material 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, results of operations, financial condition, cash
flows and stock price.
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares are estimated to
be $25,139,044 ($27,683,044 if the Underwriter's over-allotment option is
exercised in full), assuming a public offering price of $66.25 per share (the
last reported per share sales price for the Common Stock on August 19, 1998) and
after deducting the estimated underwriting discount and offering expenses
payable by the Company. The Company expects to use the net proceeds from this
offering together with internal resources to fund the purchase price of the
BankBoston Acquisition. See "Recent and Pending Acquisitions -- BankBoston
Domestic Institutional Trust and Custody Acquisition."
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 following table sets forth the range of
quarterly high and low bid quotations for the Company's Common Stock as reported
by Nasdaq. The quotations represent interdealer quotations without adjustment
for retail markups, markdowns or commissions, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
---------- ----------
<S> <C> <C>
1996
First Quarter......................................................... $ 23.1250 $ 20.5000
Second Quarter........................................................ $ 23.5000 $ 21.0000
Third Quarter......................................................... $ 26.0000 $ 20.8750
Fourth Quarter........................................................ $ 28.0000 $ 25.7500
1997
First Quarter......................................................... $ 35.1250 $ 27.5000
Second Quarter........................................................ $ 50.0000 $ 30.7500
Third Quarter......................................................... $ 48.2500 $ 41.2500
Fourth Quarter........................................................ $ 51.2500 $ 41.2500
1998
First Quarter......................................................... $ 56.0000 $ 41.0000
Second Quarter........................................................ $ 59.6265 $ 49.5000
Third Quarter (through August 19)..................................... $ 68.3750 $ 51.8750
</TABLE>
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 depends in part on the receipt of dividends from
Investors Bank. In addition, the Company may not pay dividends on its 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 by its
subsidiary Investors Capital Trust I. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity." Any dividend
payments by Investors Bank are subject to certain restrictions imposed by the
Massachusetts Commissioner of Banks. Subject to these restrictions and
regulatory requirements, Investors Bank 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 $.12 per share of outstanding Common Stock
(approximately $804,230 based upon 6,701,915 shares outstanding as of June 30,
1998). The Company expects to declare and pay such dividend ratably on a
quarterly basis.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1998, and (ii) as adjusted to reflect the receipt by the Company of the
estimated net proceeds from the sale of the 400,000 shares of Common Stock
offered hereby at an assumed public offering price of $66.25 per share, the last
reported per share sales price for the Common Stock on August 19, 1998.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------
<S> <C> <C>
PRO FORMA AS
ACTUAL ADJUSTED
-------------- --------------
Company obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated deferrable interest debentures of the
Company........................................................................ $ 24,175,256 $ 24,175,256
Shareholders' equity(1):
Capital stock:
Preferred stock, with par value of $.01; authorized, 1,000,000 shares; issued
and outstanding, none......................................................
Class A common stock, with par value of $.01; authorized 650,000 shares;
issued and outstanding, none...............................................
Common stock, with par value of $.01; authorized, 20,000,000 shares; issued
and outstanding, 6,701,915 shares; as adjusted, 7,101,915 shares........... 67,059 71,059
Surplus........................................................................ 57,143,765 82,278,809
Deferred compensation.......................................................... (1,453,617) (1,453,617)
Retained earnings.............................................................. 25,578,427 25,578,427
Accumulated other comprehensive income......................................... 436,145 436,145
Treasury stock (at par, 4,000 shares).......................................... (40) (40)
-------------- --------------
Total shareholders' equity................................................... 81,771,739 106,910,783
-------------- --------------
Total capitalization............................................................. $ 105,946,995 $ 131,086,039
-------------- --------------
-------------- --------------
Regulatory Capital Ratios:
Tier I Risk-Based Capital...................................................... 22.87% 18.94%
Total Risk-Based Capital....................................................... 22.89% 18.96%
Leverage Capital............................................................... 6.96% 5.79%
</TABLE>
- ------------------------
(1) Does not include (i) 517,284 shares of Common Stock issuable upon exercise
of stock options outstanding as of June 30, 1998 or (ii) 628,802 shares of
Common Stock reserved for issuance pursuant to future option grants under
the Company's Amended and Restated 1995 Stock Plan, 1995 Non-Employee
Director Plan and 1997 Employee Stock Purchase Plan.
11
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
UNAUDITED PRO FORMA CONDENSED ADJUSTED BALANCE SHEETS
JUNE 30, 1998
The following unaudited pro forma condensed adjusted balance sheets set
forth the unaudited balance sheets of the Company (i) as of June 30, 1998 and
(ii) as adjusted to give effect to the BankBoston Acquisition using the purchase
method of accounting and the issuance and sale of the shares of Common Stock
offered hereby as if each had occurred on June 30, 1998. The following
information is based upon the assumptions set forth in the Notes to Unaudited
Pro Forma Condensed Adjusted Balance Sheets and should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto
incorporated herein by reference and other financial information appearing
elsewhere in this Registration Statement and in the documents incorporated by
reference herein.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
---------------- -------------- ----------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks...................................... $ 35,195,951 $ 35,195,951
Federal funds sold and securities purchased under resale
agreements................................................. 35,000,000 (18,860,956) 16,139,044
Securities held to maturity (approximate market value of
$963,295,155 at June 30, 1998)............................. 955,143,294 955,143,294
Securities available for sale................................ 489,749,346 489,749,346
Nonmarketable equity securities.............................. 7,626,500 7,626,500
Loans, less allowance for loan losses of $100,000............ 69,789,107 69,789,107
Accrued interest and fees receivable......................... 26,508,190 26,508,190
Equipment and leasehold improvements, net.................... 9,541,039 9,541,039
Intangible assets............................................ -- 44,000,000 44,000,000
Other assets................................................. 15,122,633 15,122,633
---------------- ----------------
TOTAL ASSETS............................................. $ 1,643,676,060 $ 1,668,815,104
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand................................................... $ 348,225,784 $ 348,225,784
Savings.................................................. 548,807,803 548,807,803
Time..................................................... 65,000,000 65,000,000
---------------- ----------------
Total deposits....................................... 962,033,587 962,033,587
Short-term borrowings...................................... 561,845,785 561,845,785
Other liabilities.......................................... 13,849,693 13,849,693
---------------- ----------------
Total liabilities.................................... 1,537,729,065 1,537,729,065
---------------- ----------------
Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely junior subordinated
deferrable interest debentures of the Company.............. 24,175,256 24,175,256
---------------- ----------------
STOCKHOLDERS' EQUITY:
Common Stock............................................... 67,059 4,000 71,059
Surplus.................................................... 57,143,765 25,135,044 82,278,809
Deferred compensation...................................... (1,453,617) (1,453,617)
Retained earnings.......................................... 25,578,427 25,578,427
Accumulated other comprehensive income..................... 436,145 436,145
Treasury stock (at par, 4,000 shares)...................... (40) (40)
---------------- ----------------
Total stockholders' equity........................... 81,771,739 106,910,783
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $ 1,643,676,060 $ 1,668,815,104
---------------- ----------------
---------------- ----------------
</TABLE>
See notes to unaudited pro forma condensed adjusted balance sheets.
12
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED ADJUSTED BALANCE SHEETS
NOTE A: BASIS OF PRESENTATION
The unaudited pro forma condensed adjusted balance sheets as of June 30,
1998 reflect the historical consolidated balance sheets of the Company at June
30, 1998 and as adjusted to give effect to the BankBoston Acquisition and the
issuance of shares of Common Stock offered hereby as if each had occurred on
June 30, 1998. The BankBoston Acquisition will be accounted for as a purchase.
See "Recent and Pending Acquisitions -- BankBoston Domestic Institutional Trust
and Custody Acquisition."
NOTE B: PURCHASE PRICE AND FUNDING
The purchase price reflected in the unaudited pro forma condensed adjusted
balance sheets is based upon cash consideration of approximately $44 million, $1
million paid on July 17, 1998 and $43 million to be paid at Closing, and does
not reflect an undetermined amount to be paid for the accounts receivable of the
Business as of the Closing and a possible additional payment of up to $6 million
to be made one year after the Closing based on client retention. See "Recent and
Pending Acquisitions -- BankBoston Domestic Institutional Trust and Custody
Acquisition."
The transaction is currently expected to be financed through a combination
of existing resources and the proceeds from the issuance of the Shares being
offered hereby as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE
---------------
(IN THOUSANDS)
<S> <C>
Issuance of Common Stock for cash, net of
estimated issuance costs of $1,467......................................... $ 25,139
Reduction of federal funds sold and securities
purchased under resale agreements.......................................... 18,861
-------
Total purchase price paid at Closing................................... $ 44,000
-------
-------
</TABLE>
The reduction in federal funds sold and securities purchased under resale
agreements will be decreased to the extent that client accounts associated with
the BankBoston Acquisition generate deposit balances with the Company.
While the Company and BankBoston have not yet agreed on the allocation of
the Purchase Price to specific assets, the Company believes that the majority of
the purchase price will be allocated to goodwill. The specified number of future
periods to be benefited by the goodwill cannot be measured or determined by the
Company with absolute accuracy. The Company believes that 25 years would be the
most appropriate period of amortization for the goodwill derived from the
BankBoston Acquisition. Under current federal statutes, the amortization of
goodwill is not tax deductible.
13
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data regarding the Company's operating results and financial position for and at
the periods indicated and certain ratio and other statistical information at the
periods indicated. The data presented below for the years ended December 31,
1996 and 1997, the two months ended December 31, 1995 and the year ended October
31, 1995, respectively, were derived from the Consolidated Financial Statements
of the Company and Notes thereto incorporated by reference herein. The data
presented below for the six months ended June 30, 1997 and 1998 were derived
from the unaudited consolidated financial statements of the Company incorporated
by reference herein, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for the
unaudited interim periods. The results of operations for the six months ended
June 30, 1998 may not be indicative of results that may be expected for the full
year ending December 31, 1998. 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 Notes thereto
incorporated herein by reference, and other financial information appearing
elsewhere in this Registration Statement and the documents incorporated by
reference herein. All prior periods have been restated to reflect the AMT
Acquisition, which was completed on May 29, 1998 and was accounted for using the
pooling-of-interests method. See "Recent and Pending Acquisitions -- AMT Capital
Acquisition."
<TABLE>
<CAPTION>
FOR THE TWO
FOR THE YEAR MONTHS FOR THE YEAR ENDED
ENDED ENDED DECEMBER 31,
OCTOBER 31, DECEMBER 31, --------------------------
1995(1) 1995 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net interest income.......................... $ 5,870 $ 1,966 $ 17,944 $ 26,173
Noninterest income........................... 53,607 8,407 59,189 82,524
Gain/(loss) on sale of investment
securities................................. -- -- (2) 114
------------ ------------ ------------ ------------
Net operating revenues....................... 59,477 10,373 77,131 108,811
Operating expenses........................... 52,569 8,877 64,613 87,362
------------ ------------ ------------ ------------
Income before income taxes................... 6,908 1,496 12,518 21,449
Income taxes................................. 2,782 664 4,852 7,382
Minority interest expense.................... -- -- -- 1,437
------------ ------------ ------------ ------------
Net income................................... $ 4,126 $ 832 $ 7,666 $ 12,630
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PER SHARE DATA:
Basic earnings per share..................... $ 0.13 $ 1.15 $ 1.90
------------ ------------ ------------
------------ ------------ ------------
Diluted earnings per share................... $ 0.12 $ 1.14 $ 1.85
------------ ------------ ------------
------------ ------------ ------------
AVERAGE BALANCE SHEET DATA:
Interest-earning assets...................... $ 106,130 $ 219,775 $ 575,662 $ 1,167,361
Total assets................................. 128,174 249,064 628,893 1,236,519
Total deposits............................... 106,446 197,013 377,219 594,768
Common stockholders' equity.................. 16,119 34,000 56,137 68,370
SELECTED FINANCIAL RATIOS:
Return on equity (2)......................... 25.60% 14.68% 13.66% 18.47%
Return on assets (2)......................... 3.22% 2.00% 1.22% 1.02%
Common equity as % of total assets........... 12.58% 16.61% 6.39% 5.18%
Dividend payout ratio (3).................... 1.36% 0.00% 2.49% 4.45%
Tier I capital ratio (4)..................... 37.62% 44.47% 24.57% 29.17%
Noninterest income as % of net operating
income..................................... 90.13% 81.05% 76.74% 75.84%
Nonperforming assets as % of total assets.... 0.00% 0.00% 0.00% 0.00%
Allowance for loan losses as % of total
loans...................................... 0.26% 0.15% 0.15% 0.18%
OTHER STATISTICAL DATA:
Assets processed at end of period (5)........ $91,099,976 $94,208,228 $122,563,401 $139,418,241
Employees at end of period................... 679 682 827 1,028
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, (UNAUDITED)
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net interest income.......................... $ 13,046 $ 12,916
Noninterest income........................... 38,516 45,764
Gain/(loss) on sale of investment
securities................................. 7 471
------------ ------------
Net operating revenues....................... 51,569 59,151
Operating expenses........................... 41,229 47,242
------------ ------------
Income before income taxes................... 10,340 11,909
Income taxes................................. 3,587 4,380
Minority interest expense.................... 651 782
------------ ------------
Net income................................... $ 6,102 $ 6,747
------------ ------------
------------ ------------
PER SHARE DATA:
Basic earnings per share..................... $ 0.92 $ 1.01
------------ ------------
------------ ------------
Diluted earnings per share................... $ 0.90 $ 0.98
------------ ------------
------------ ------------
AVERAGE BALANCE SHEET DATA:
Interest-earning assets...................... $ 1,004,253 $ 1,401,831
Total assets................................. 1,066,419 1,485,952
Total deposits............................... 590,361 738,596
Common stockholders' equity.................. 65,067 78,029
SELECTED FINANCIAL RATIOS:
Return on equity (2)......................... 18.76% 17.30%
Return on assets (2)......................... 1.14% 0.90%
Common equity as % of total assets........... 5.49% 4.97%
Dividend payout ratio (3).................... 4.23% 5.77%
Tier I capital ratio (4)..................... 26.94% 22.87%
Noninterest income as % of net operating
income..................................... 74.69% 77.37%
Nonperforming assets as % of total assets.... 0.00% 0.00%
Allowance for loan losses as % of total
loans...................................... 0.10% 0.14%
OTHER STATISTICAL DATA:
Assets processed at end of period (5)........ $145,947,484 $163,993,822
Employees at end of period................... 951 1,102
</TABLE>
14
<PAGE>
- ------------------------
(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.
(2) Ratios for the two months ended December 31, 1995 and for the six months
ended June 30, 1997 and 1998 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 15.84% and 1.99%, 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 $.12 per share, subject to
receipt of a like dividend from Investors Bank and further subject to
regulatory requirements. See "Price Range of Common Stock and Dividend
Policy."
(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.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE SUBJECT TO
SUBSTANTIAL RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S
CONTROL, INCLUDING BUT NOT LIMITED TO THE FACTORS SET FORTH UNDER "RISK FACTORS"
BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
OVERVIEW
The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the Selected
Financial Data beginning on page 14 of this Prospectus and the Company's
Consolidated Financial Statements and related notes thereto incorporated by
reference herein and the other financial and operating information included
elsewhere or incorporated by reference in this Prospectus. The Company, through
its wholly owned subsidiaries, Investors Bank and Investors Capital Services,
Inc., provides 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 $164 billion at June 30, 1998,
including assets managed by 59 mutual fund complexes and insurance companies,
and approximately $12 billion of foreign assets. The Company also engages in
private banking transactions, including secured lending and deposit accounts.
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 the relationship. Accordingly,
management believes net operating revenue (net interest income plus noninterest
income) and net income are meaningful measures of financial results. Revenue
generated from asset administration and other fees and interest income increased
15% to $59,151,000 in the first six months of 1998 from $51,569,000 in the first
six months of 1997.
Noninterest income consists primarily of fees for financial asset
administration and is principally derived from custody, multicurrency
accounting, transfer agency, mutual fund administration, and investment advisory
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, the number of portfolio transactions, income collected and
other value-added services such as foreign exchange, securities lending and
performance measurement. 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.
16
<PAGE>
STATEMENT OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
NONINTEREST INCOME
Noninterest income increased $7,711,000 to $46,235,000 for the six months
ended June 30, 1998 from $38,524,000 for the six months ended June 30, 1997.
Noninterest income consists of the following items:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------- -----------
1997 1998 CHANGE
--------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Asset administration fees...................................... $ 36,862 $ 45,023 22%
Computer service fees.......................................... 339 273 (19)
Other operating income......................................... 1,316 468 (64)
Gain on sale of securities..................................... 7 471 --
--------- ---------
Total Noninterest Income..................................... $ 38,524 $ 46,235 20%
--------- ---------
--------- ---------
</TABLE>
Asset administration fees increased $8,161,000 to $45,023,000 for the six
months ended June 30, 1998 compared to $36,862,000 for the six months ended June
30, 1997. The Company earns these fees on assets processed by the Company on
behalf of a variety of financial asset managers. 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, mutual fund administration and investment advisory
services. Total assets processed increased to $164 billion at June 30, 1998 from
$146 billion at June 30, 1997. Of this $18 billion net increase in assets
processed, approximately 29% of the increase reflects assets processed for new
clients, and the remainder of the increase reflects growth of assets processed
for existing clients. The largest component of asset administration fees is
asset-based fees, which increased between periods due to the increase in assets
processed. Another significant portion of the increase in asset administration
fees resulted from the Company's success in marketing ancillary services such as
securities lending and foreign exchange.
Computer service fees consist of amounts charged by the Company for data
processing services related to client accounts. The decrease in computer service
fees is related to renegotiations of contracts performed by Investors Capital
Services, Inc. in 1998. Other operating income consists of dividends received
relating to the Federal Home Loan Bank of Boston ("FHLBB") stock investment and
miscellaneous transaction-oriented private banking fees. The decrease in other
operating income was due to a decrease in services provided by Investors Capital
Advisers, Inc., a wholly owed subsidiary of the Company. Gain on sale of
securities increased during the first six months of 1998 due to the Company's
sale of certain mortgage-backed securities in anticipation of increased
prepayment risk.
17
<PAGE>
OPERATING EXPENSES
Total operating expenses increased by $6,013,000 to $47,242,000 for the six
months ended June 30, 1998 compared to $41,229,000 for the six months ended June
30, 1997. The components of operating expenses were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------- -----------
1997 1998 CHANGE
--------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Compensation and benefits...................................... $ 24,845 $ 29,347 18%
Technology and telecommunications.............................. 5,189 5,322 3
Transaction processing services................................ 3,902 3,962 2
Occupancy...................................................... 2,314 3,418 48
Depreciation and amortization.................................. 922 1,270 38
Travel and sales promotion..................................... 799 1,003 26
Professional fees.............................................. 1,146 788 (31)
Insurance...................................................... 374 392 5
Other operating expenses....................................... 1,738 1,740 --
--------- ---------
Total Operating Expenses..................................... $ 41,229 $ 47,242 15%
--------- ---------
--------- ---------
</TABLE>
Compensation and benefits expense increased by $4,502,000 or 18% from period
to period due to several factors. The average number of employees increased 20%
to 1,068 during the six months ended June 30, 1998 from 890 during the same
period in 1997. This increase relates primarily to the increase in client
relationships and to the expansion of existing client relationships during the
period. Effective January 1, 1998 the Company adopted the accounting method
promulgated by Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," ("SOP 98-1"). SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. Accordingly, the Company capitalized $318,000 of
compensation and compensation-related expenses for employees who were directly
associated with internal use computer software projects during the six months
ended June 30, 1998.
Occupancy expense increased $1,104,000 to $3,418,000 for the six months
ended June 30, 1998 from $2,314,000 for the six months ended June 30, 1997. The
increase resulted from the expansion into additional office space in the
Company's Boston, Toronto and Dublin offices.
Depreciation and amortization expense increased $348,000 between periods due
to purchases of furniture, equipment, and capitalized software throughout 1997
and the first six months of 1998.
Travel and sales promotion expense increased $204,000 to $1,003,000 for the
six months ended June 30, 1998 from $799,000 for the six months ended June 30,
1997 due to increased travel by the sales and marketing professionals.
Professional fees decreased $358,000 to $788,000 for the six months ended
June 30, 1998 from $1,146,000 for the six months ended June 30, 1997. The
decrease in professional fees relates to non-recurring consulting and legal fees
incurred in the first six months of 1997.
18
<PAGE>
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 six months ended June 30, 1998 compared to the same
period in 1997.
<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................. $ (199) $ 74 $ (125)
Investment securities........................................ 11,932 (2,056) 9,876
Loans........................................................ 38 137 175
--------- --------- ---------
Total interest-earning assets.............................. 11,771 (1,845) 9,926
--------- --------- ---------
INTEREST-BEARING LIABILITIES
Deposits..................................................... 3,210 (245) 2,965
Borrowings................................................... 6,608 483 7,091
--------- --------- ---------
Total interest-bearing liabilities......................... 9,818 238 10,056
--------- --------- ---------
Change in net interest income................................ $ 1,953 $ (2,083) $ (130)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net interest income decreased $130,000 or 1% to $12,916,000 for the six
months ended June 30, 1998 from $13,046,000 for the same period in 1997. This
net decrease resulted from an increase in interest income of $9,926,000 offset
by an increase in interest expense of $10,056,000. The net impact of the above
changes was a 76 basis point decrease in net interest margin.
Interest expense increased due primarily to a $385,000,000 increase in
average deposits and short term borrowings for the six months ended June 30,
1998 compared to the same period in 1997. Also, to a lesser extent, interest
expense increased due to an increase in the average interest rate paid by the
Company from 4.93% to 5.03% during the period.
INCOME TAXES
The Company's earnings were taxed on the federal level at 35% for the 1998
and 1997 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 11.32% in 1997 and 10.91% in 1998. The provision for
income taxes for the six months ended June 30, 1998 increased by $793,000
compared to the same period in 1997. The overall effective tax rate increased to
36.78% for the six months ended June 30, 1998, from 34.69% for the same period
in 1997. The increase in the effective tax rate is due to the change in tax
status of Investors Capital Services, Inc. AMT Capital Services, Inc. was a
Subchapter S corporation which incurred no federal or state tax on net income
through May 29, 1998.
19
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NONINTEREST INCOME
Noninterest income increased $23,453,000 to $82,639,000 for the year ended
December 31, 1997 from $59,186,000 for the year ended December 31, 1996.
Noninterest income consists of the following items:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------- -----------
1996 1997 CHANGE
--------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Asset administration fees...................................... $ 57,462 $ 78,325 36%
Computer service fees.......................................... 482 644 34
Other operating income......................................... 1,244 3,556 186
Net gain/(loss) on sale of securities.......................... (2) 114 --
--------- ---------
Total Noninterest Income..................................... $ 59,186 $ 82,639 40%
--------- ---------
--------- ---------
</TABLE>
Asset administration fees increased due principally to higher levels of
assets processed. The Company earns such fees on assets processed by the Company
on behalf of a variety of financial asset managers. 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: global custody,
multicurrency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending, mutual fund administration
and investment advisory services. Total assets processed increased to $139
billion at December 31, 1997 from $122 billion at December 31, 1996. Of the $17
billion net increase in assets processed from December 31, 1996 to December 31,
1997, 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, offset in part by the assets of clients no longer serviced
by the Company. Also contributing to the growth in asset administration fees was
the expansion of relationships with existing clients. The largest component of
asset administration fees is asset based fees, which increased between periods
due to the previously mentioned increase in assets processed. Another
significant portion of the increase in asset administration fees resulted from
the Company's success in marketing ancillary services such as securities
lending, foreign exchange and advisory services.
Computer service fees consist of amounts charged by the Company for data
processing services related to client accounts. Other operating income consists
of dividends received relating to the FHLBB stock investment and miscellaneous
transaction-oriented private banking fees. The increase in other operating
income was due to the Company's increased investment in FHLBB stock as well as
an increase in services provided by Investors Capital Advisers, Inc. a wholly
owned subsidiary of the Company.
20
<PAGE>
OPERATING EXPENSES
Total operating expenses increased by $22,749,000 to $87,362,000 for the
year ended December 31, 1997 compared to $64,613,000 for the year ended December
31, 1996. The components of operating expenses were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------- -----------
1996 1997 CHANGE
--------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Compensation and benefits...................................... $ 39,096 $ 53,457 37%
Technology and telecommunications.............................. 7,894 10,656 35
Transaction processing services................................ 5,685 8,000 41
Occupancy...................................................... 4,527 4,620 2
Depreciation and amortization.................................. 1,616 2,070 28
Travel and sales promotion..................................... 1,264 1,647 30
Professional fees.............................................. 1,290 2,011 56
Insurance...................................................... 876 768 (12)
Other operating expenses....................................... 2,365 4,133 75
--------- ---------
Total Operating Expenses..................................... $ 64,613 $ 87,362 35%
--------- ---------
--------- ---------
</TABLE>
Compensation and benefits expense increased by $14,361,000 or 37% from
period to period due to several factors. The average number of employees
increased 29% to 958 for the year ended December 31, 1997 from 744 during 1996.
This increase relates primarily to the increase in client relationships and to
the expansion of existing client relationships during the period. In addition,
compensation expense related to the Company's management incentive plans
increased $799,000 between periods because of the increase in earnings subject
to incentive payments in 1997 compared to 1996. Benefits, including payroll
taxes, group insurance plans, retirement plan contributions and tuition
reimbursement, increased by $984,000 for the year ended December 31, 1997 from
the same period in 1996. The increase was due principally to increased payroll
taxes attributable to the increase in compensation expense.
Technology and telecommunications expense consists of operating lease
payments for microcomputers, fees charged by Electronic Data Systems for
mainframe data processing, telephone expense, software maintenance fees and
licenses, optical imaging and contract programming fees. Increased hardware,
software and telecommunications expenses needed to support the growth in assets
processed accounted for $1,710,000 of the increase between periods. Also
contributing was the Company's increased use of contract programmers to perform
information systems development projects, which accounted for $644,000 of the
increase. License fees on software used to generate automated financial
statements for Company clients as a part of its expanded mutual fund
administration services accounted for $408,000 of the increase.
Transaction processing services expense consists of volume-related expenses
including subcustodian fees and external contract services. The increase in this
expense relates primarily to an increase in subcustodian fees and pricing
services, driven by the growth in assets processed. The Company's decision to
outsource its mailroom and photocopy facility in February of 1996 contributed to
$325,000 of the increase from year to year.
Depreciation and amortization expense increased $454,000 to $2,070,000 for
the year ended December 31, 1997 from $1,616,000 for the year ended December 31,
1996. This increase resulted from the purchase of furniture and equipment
related to the Company's move to new office space in late 1996 and 1997.
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
21
<PAGE>
existing client sites and the Company's foreign subsidiaries, and attending
industry conferences. This expense increased $383,000 to $1,647,000 for the year
ended December 31, 1997 from $1,264,000 for the year ended December 31, 1996 due
primarily to increased travel to the foreign subsidiaries.
Professional fees increased $721,000 to $2,011,000 for the year ended
December 31, 1997 from $1,290,000 for the year ended December 31, 1996. This
increase resulted primarily from an increase in consulting fees relating to
performing technical development work along with additional audit fees related
to compliance with the Federal Deposit Insurance Corporation Improvement Act of
1991.
Insurance expense decreased by $108,000 between the periods due to the
renegotiation of the Company's premiums and coverages for errors and omissions
liability, directors and officers liability and blanket bond during 1996.
Other operating expenses increased $1,768,000 to $4,133,000 for the year
ended December 31, 1997 from $2,365,000 for the year ended December 31, 1996.
Other operating expenses include fees for office supplies, recruiting costs,
temporary help and various fees assessed by the Massachusetts Banking
Commission. Recruiting costs and temporary help accounted for $770,000 of the
increase; this increase relates to the tight labor market caused by low
unemployment in Massachusetts in 1997. Fees assessed by the Massachusetts
Banking Commission increased by $278,000 due to the growth in the total assets
of Investors Bank and a change in the assessment base. The remainder of the
increase relates to growth in assets processed.
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, 1997 compared to the year ended
December 31, 1996.
<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................. $ 1,096 $ 20 $ 1,116
Investment securities........................................ 35,563 (564) 34,999
Loans........................................................ 514 (270) 244
--------- --------- ---------
Total interest-earning assets.............................. 37,173 (814) 36,359
--------- --------- ---------
INTEREST-BEARING LIABILITIES
Deposits..................................................... 8,768 671 9,439
Borrowings................................................... 18,351 405 18,756
--------- --------- ---------
Total interest-bearing liabilities......................... 27,119 1,076 28,195
--------- --------- ---------
Change in net interest income................................ $ 10,054 $ (1,890) $ 8,164
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net interest income increased $8,164,000 or 45% to $26,173,000 for the year
ended December 31, 1997 from $18,009,000 for the 1996 period. This net increase
resulted from an increase in interest income of $36,359,000 offset by an
increase in interest expense of $28,195,000. The net impact of the above changes
was an 89 basis point decrease in net interest margin.
22
<PAGE>
The increase in interest income resulted primarily from a higher level of
interest-earning assets. The Company's average assets for the year ended
December 31, 1997 increased $607,626,000 or 97% compared to the year ended
December 31, 1996. This growth primarily resulted from an increase in average
interest-earning assets of $591,699,000.
Interest expense increased $28,195,000 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. The average rate paid on deposits and short-term
borrowings increased from 4.83% to 5.03% between periods.
INCOME TAXES
The Company's earnings were taxed on the federal level at 35% for the 1997
and 1996 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 11.32%. The provision for income taxes for the year ended
December 31, 1997 increased by $2,530,000 over the 1996 provision. The overall
effective tax rate decreased to 34.41% for the year ended December 31, 1997,
from 38.76% for the year ended December 31, 1996. The decrease in the effective
tax rate is due to the Company's investment in municipal securities in the first
quarter of 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NONINTEREST INCOME
Noninterest income increased $5,327,000 to $59,186,000 for the year ended
December 31, 1996 from $53,859,000 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...................................... $ 49,630 $ 57,462 16%
Proceeds from assignment of UIT servicing, net................. 2,572 -- --
Computer service fees.......................................... 501 482 (4)
Other operating income......................................... 1,156 1,244 8
Net loss on sale of securities................................. -- (2) --
--------- ---------
Total Noninterest Income..................................... $ 53,859 $ 59,186 10%
--------- ---------
--------- ---------
</TABLE>
Asset administration fees increased due principally to higher levels of
assets processed. 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. Prior to the Company's spin-off (the
"Spin-Off Transaction") from its former parent, Eaton Vance Corp., the Company
was subject to a 7% annual asset growth cap under the Competitive Equality
Banking Act of 1987 ("CEBA"). After the Spin-Off Transaction and the removal of
CEBA growth limitations, the Company became eligible to accept deposits that had
been historically directed to other financial institutions. As a result, the
Company experienced a shift in the mix of compensation received from its
clients. 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
23
<PAGE>
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 Company. 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 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 11 of Notes to Consolidated Financial Statements incorporated
herein by reference.
Other operating income consists of miscellaneous private banking fees for
safe deposit and checking account services.
OPERATING EXPENSES
Total operating expenses increased by $10,974,000 to $64,613,000 for the
year ended December 31, 1996 compared to $53,639,000 for the year ended December
31, 1995. The components of operating expenses were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------- -----------
1995 1996 CHANGE
--------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Compensation and benefits...................................... $ 34,328 $ 39,096 14%
Technology and telecommunications.............................. 6,476 7,894 22
Transaction processing services................................ 2,765 5,685 106
Occupancy...................................................... 4,510 4,527 --
Depreciation and amortization.................................. 1,438 1,616 12
Travel and sales promotion..................................... 785 1,264 61
Professional fees.............................................. 966 1,290 34
Insurance...................................................... 1,078 876 (19)
Other operating expenses....................................... 1,293 2,365 83
--------- ---------
Total Operating Expenses..................................... $ 53,639 $ 64,613 20%
--------- ---------
--------- ---------
</TABLE>
Compensation and benefits increased by $4,768,000 or 14% from period to
period due to several factors. The number of average employees increased 9% to
744 for the year ended December 31, 1996 from 683 during 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. Benefits, including payroll taxes, group insurance plans,
retirement plan contributions and tuition reimbursement, increased $590,000 for
the year ended December 31, 1996 from 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.
Technology and telecommunications expense consists of lease payments for
microcomputers, fees charged by Electronic Data Systems for mainframe data
processing, telephone expense, software maintenance fees and licenses, and
contract programming fees. The expense varies with the level of assets processed
by the Company. Growth in assets processed contributed to $974,000 of the
increase between periods. Also contributing to the increase was the Company's
continued use of contract programmers which accounted for $444,000 of the
increase between periods.
24
<PAGE>
The increase in transaction processing expense relates primarily to an
increase in subcustodian fees and pricing services, driven by the growth in
assets processed. This expense increased $2,920,000 to $5,685,000 for the year
ended December 31, 1996 from $2,765,000 for the year ended December 31, 1995.
This increase resulted 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. The outsourcing of the photocopy service commenced in 1996
and accounted for approximately $240,000 of the increase between periods. Fees
for daily market pricing data which vary with the level of assets processed,
increased by $119,000 during the period.
Depreciation and amortization expense increased $178,000 between periods due
to purchases of furniture and equipment throughout 1997.
Travel and sales promotion expense increased $479,000 to $1,264,000 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.
Professional fees increased $324,000 to $1,290,000 for the year ended
December 31, 1996 from $966,000 for the year ended December 31, 1995. Legal fees
which were incurred in connection with the Company's initial compliance with
year-end related filings with the Commission and the change of the Company's
fiscal year contributed to this increase.
Insurance expense decreased by $202,000 or 19% between the periods due to
the renegotiation of the Company's coverage for errors and omissions liability,
directors and officers liability and blanket bond.
Other operating expenses increased $1,072,000 to $2,365,000 for the year
ended December 31, 1996 from $1,293,000 for the year ended December 31, 1995.
Other operating expenses are comprised of office supplies, recruiting costs,
temporary help, and Delaware excise tax. Expenses such as office supplies vary
with staffing levels. 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 Company in June 1995 and accounts for $180,000
of the increase between periods. Approximately $797,000 of the increase between
periods related to recruiting costs and temporary help caused by a tight labor
market resulting from a period of low unemployment in Massachusetts. The
remainder of the increase resulted from the increases in assets processed and
staffing levels.
25
<PAGE>
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 December 31,
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. The elimination of the CEBA growth restriction after
the Spin-Off Transaction 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 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 34.00% for the
1995 period and 35.00% 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
$1,820,000 over the 1995 provision. The overall effective tax rate decreased to
38.76% for the year ended December 31, 1996, from 44.41% 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 45.73%, 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
26
<PAGE>
income in the Company's Canadian subsidiary resulted as the Company transferred
certain offshore processing activities from Toronto to Dublin and the Cayman
Islands.
FINANCIAL CONDITION
INVESTMENT PORTFOLIO
The following table summarizes the Company's investment portfolio as of the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------
1995 1996 1997 1998
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
State and political subdivisions............. $ -- $ -- $ 35,225 $ 35,518
Mortgage-backed securities................... 144,124 414,665 590,365 733,121
Federal agency securities.................... 10,000 37,517 168,687 178,766
Foreign government securities................ -- 7,828 7,769 7,738
---------- ---------- ---------- ----------
Total securities held to maturity.......... $ 154,124 $ 460,010 $ 802,046 $ 955,143
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SECURITIES AVAILABLE FOR SALE:
Municipal bonds.............................. $ -- $ -- $ 8,382 $ 39,217
U.S. Treasury securities..................... 50,652 40,259 30,092 10,045
Mortgage-backed securities................... 40,167 230,862 424,376 362,819
Federal agency securities.................... -- -- -- 28,598
Corporate debt............................... 49,070
---------- ---------- ---------- ----------
Total securities available for sale........ $ 90,819 $ 271,121 $ 462,850 $ 489,749
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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
institutions in connection with its custody services. The portfolio is comprised
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"), Federal agency callable bonds
issued by FHLMC and the FHLBB, municipal securities, corporate debt securities
and foreign government bonds issued by the Canadian provinces of Ontario and
Manitoba.
The Company invests in mortgage-backed securities and Federal agency
callable bonds 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. Credit risk results from the possibility that a
loss may occur if a counterparty is unable to meet the terms of a contract.
Prepayment risk results from the possibility that changes in interest rates may
cause mortgage securities to be paid off prior to their maturity dates. Federal
agency callable bonds generally have a higher yield than U.S. Treasury
securities due to credit risk and call risk. Credit risk results from the
possibility that the Federal agency issuing the bonds may be unable to meet the
terms of the bond. Call risk results from the possibility that fluctuating
interest rates and other factors may result in the exercise of the call option
by the Federal agency. Credit risk related to mortgage-backed securities and
Federal agency callable bonds is substantially reduced by payment guarantees and
credit enhancements.
The Company invests in municipal securities to generate stable, tax
advantaged income. Municipal securities generally have lower stated yields than
Federal agency and U.S. Treasury securities, but the after-tax yields are
comparable. Municipal securities are subject to credit risk.
27
<PAGE>
The Company invests in foreign government bonds in order to generate foreign
source income to maximize the use of the foreign tax credit. The foreign
government bonds are denominated in U.S. dollars to avoid foreign currency risk.
These bonds are subject to credit risk.
The Company invests in corporate debt in order to increase the total return
of the investment portfolio. Corporate debt has credit risk resulting from the
possibility that the underlying holding company may be unable to meet the terms
of the security.
The book value and weighted average yield of the Company's securities held
to maturity at June 30, 1998, by effective maturity, are reflected in the
following table:
<TABLE>
<CAPTION>
WEIGHTED
BOOK AVERAGE
VALUE YIELD
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due from one to five years............................................. $ 310,847 6.55%
Due from five years up to ten years.................................... 189,393 6.51%
Due after ten years.................................................... 454,903 6.30%
----------
Total securities held to maturity.................................... $ 955,143
----------
----------
</TABLE>
The book value and weighted average yield of the Company's securities
available for sale at June 30, 1998, by effective maturity, are reflected in the
following table:
<TABLE>
<CAPTION>
WEIGHTED
BOOK AVERAGE
VALUE YIELD
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due within one year.................................................... $ 10,045 6.20%
Due from one to five years............................................. 346,831 6.32%
Due from five years up to ten years.................................... 66,786 5.67%
Due after ten years.................................................... 66,087 6.38%
----------
Total securities available for sale.................................. $ 489,749
----------
----------
</TABLE>
The maturities of mortgage backed securities have been allocated in the
above tables as described in Note 3 of the Notes to Condensed Consolidated
Financial Statements incorporated herein by reference.
LOAN PORTFOLIO
The following table summarizes the Company's loan portfolio as of the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- ---------
1995 1996 1997 1998
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans to individuals.............................. $ 12,610 $ 23,449 $ 26,858 $ 20,086
Loans to not-for-profit organizations............. 289 13 13 13
Loans to mutual funds............................. 10,000 42,875 29,174 49,790
--------- --------- --------- ---------
22,899 66,337 56,045 69,889
Less: allowance for loan losses................... (35) (100) (100) (100)
--------- --------- --------- ---------
Net loans....................................... $ 22,864 $ 66,237 $ 55,945 $ 69,789
--------- --------- --------- ---------
--------- --------- --------- ---------
Floating Rate..................................... $ 22,839 $ 66,224 $ 55,932 $ 69,776
Fixed Rate........................................ 25 13 13 13
--------- --------- --------- ---------
$ 22,864 $ 66,237 $ 55,945 $ 69,789
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
28
<PAGE>
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 tradable securities held in
custody by the Company for the borrower. As of June 30, 1998, the Company has
entered into agreements to provide up to an aggregate of $40 million under lines
of credit to mutual fund clients. These unsecured lines of credit may, in the
event of a default, be collateralized at the Company's option by securities held
in custody by the Company for those mutual funds. 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 collateralized by liquid collateral, primarily freely
tradable securities held in custody by the Company for those mutual funds.
At June 30, 1998, the Company's only lending concentrations which exceeded
10% of total loans were revolving lines of credit to mutual fund clients as
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's credit loss experience has been excellent. There have been no
loan chargeoffs 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 June 30, 1998, there were no past due
loans, troubled debt restructurings, or any loans on non-accrual status.
Although virtually all of the Company's loans are fully collateralized with
freely tradable securities, management recognizes some credit risk inherent in
the loan portfolio, and has recorded an allowance for loan losses of
approximately $100,000 at June 30, 1998. 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.
INTEREST RATE SENSITIVITY
Interest rate risk arises when an interest-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
amount of interest-earning assets and the amount of interest-bearing liabilities
that could change interest rates 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
interest-earning asset with a specific interest-bearing liability. Instead, as
shown in the table below, it aggregates all of its interest-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 interest-earning assets than interest-bearing
liabilities reprice 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.
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 floors and interest rate swaps. Interest rate swaps
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. There can be no
assurance that such portfolio actions will adequately limit interest rate risk.
29
<PAGE>
The following table presents the repricing schedule for the Company's
interest-earning assets and interest-bearing liabilities at June 30, 1998:
<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.................... $ 35,000 $ -- $ -- $ -- $ -- $ 35,000
Investment securities(2).............. 603,903 178,132 205,170 351,447 106,241 1,444,893
Loans--fixed rate..................... 69,776 -- -- -- -- 69,776
Loans--variable rate.................. -- -- -- 13 -- 13
----------- ---------- --------- ---------- ----------- -----------
Total interest-earning assets..... 708,679 178,132 205,170 351,460 106,241 1,549,682
INTEREST-BEARING LIABILITIES
Demand deposit accounts............... 152,370 -- -- -- -- 152,370
Savings accounts...................... 548,808 -- -- -- -- 548,808
Interest rate contracts............... (370,000) 50,000 110,000 210,000 -- --
Short-term borrowings................. 561,846 -- -- -- -- 561,846
----------- ---------- --------- ---------- ----------- -----------
Total interest-bearing
liabilities..................... 893,024 50,000 110,000 210,000 -- 1,263,024
----------- ---------- --------- ---------- ----------- -----------
Net interest sensitivity gap
during the period............... $ (184,345) $128,132 $ 95,170 $ 141,460 $ 106,241 $ 286,658
----------- ---------- --------- ---------- ----------- -----------
----------- ---------- --------- ---------- ----------- -----------
Cumulative gap.................... $ (184,345) $(56,213) $ 38,957 $ 180,417 $ 286,658
----------- ---------- --------- ---------- -----------
----------- ---------- --------- ---------- -----------
Interest sensitive assets as a percent
of interest sensitive liabilities
(cumulative).......................... 79.36% 94.04% 103.70% 114.28% 122.70%
Interest sensitive assets as a percent
of total assets (cumulative).......... 43.12% 53.95% 66.44% 87.82% 94.28%
Net interest sensitivity gap as a
percent of total assets............... (11.22%) 7.80% 5.79% 8.61% 6.46%
Cumulative gap as a percent of total
assets................................ (11.22%) (3.42%) 2.37% 10.98% 17.44%
</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 effective maturity.
30
<PAGE>
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, new deposits, short term borrowings, interest
payments on securities held to maturity and available for sale, and fees
collected from asset administration clients. 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 $.12 per share.
The Company's ability to pay dividends on the Common Stock depends in part
on the receipt of dividends from Investors Bank. In addition, the Company may
not pay dividends on its Common Stock if it is in default under certain
agreements entered into in connection with the sale of capital securities
offered and sold by a subsidiary trust of the Company. Any dividend payments by
Investors Bank are subject to certain restrictions imposed by the Massachusetts
Commissioner of Banks. Subject to these restrictions and regulatory
requirements, Investors Bank 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 $.12 per share of the Company's outstanding Common Stock
(approximately $804,230 based upon 6,701,915 shares outstanding as of June 30,
1998). See "Price Range of Common Stock and Dividend Policy."
At June 30, 1998, cash and cash equivalents were 2% of total assets. At June
30, 1998, approximately $10 million or 1% of total interest-earning assets were
scheduled to 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 June 30, 1998 was $176 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 June 30,
1998 was $1.3 billion.
The Company also has a borrowing arrangement with the FHLBB whereby the
Company may borrow amounts determined by prescribed collateral levels and the
amount of FHLBB stock held by the Company. The minimum amount of FHLBB stock
held by the Company is required to be the greater of (i) 1% of its outstanding
residential mortgage loan principal (including mortgage pool securities), (ii)
0.3% of total assets, and (iii) total advances from the FHLBB, divided by a
leverage factor of 20. If the Company borrows under this arrangement, the
Company is required to hold FHLBB stock equal to 5% of such outstanding
advances. The aggregate amount of borrowing available to the Company under this
arrangement at June 30, 1998 was $752 million.
The Company intends to use the net proceeds of the sale of the shares of
Common Stock offered hereby to partially fund the BankBoston Acquisition. See
"Recent and Pending Acquisitions -- BankBoston Domestic Institutional Trust and
Custody Acquisition."
31
<PAGE>
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. The Company's capital expenditures have
been incurred and its microcomputer leases entered into on an as-required basis.
As a result, the Company's capital expenditures were $2,782,403 and $2,295,832
for the six months ended June 30, 1997 and 1998, respectively.
Stockholders' equity at June 30, 1998 was $81,772,000, an increase of
$6,059,000 or 8%, from $75,713,000 at December 31, 1997. The ratio of
stockholders' equity to assets decreased to 4.97% at June 30, 1998 from 5.18% at
December 31, 1997 due to the significant increase 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 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 June 30, 1998:
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------
AMOUNT RATIO
---------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Tier I capital...................................................... $ 105,511 22.87%
Tier I capital minimum requirement.................................. 18,454 4.00%
---------- ---------
Excess Tier I capital............................................... $ 87,057 18.87%
---------- ---------
---------- ---------
Total capital....................................................... $ 105,611 22.89%
Total capital minimum requirement................................... 36,909 8.00%
---------- ---------
Excess Total capital................................................ $ 68,702 14.89%
---------- ---------
---------- ---------
Risk adjusted assets, net of intangible assets...................... $ 461,361
----------
----------
</TABLE>
32
<PAGE>
The following table summarizes Investors Bank's Tier I and total capital
ratios at June 30, 1998:
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------
AMOUNT RATIO
---------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Tier I capital...................................................... $ 102,688 22.33%
Tier I capital minimum requirement.................................. 18,397 4.00%
---------- ---------
Excess Tier I capital............................................... $ 84,291 18.33%
---------- ---------
---------- ---------
Total capital....................................................... $ 102,788 22.35%
Total capital minimum requirement................................... 36,794 8.00%
---------- ---------
Excess Total capital................................................ $ 65,994 14.35%
---------- ---------
---------- ---------
Risk adjusted assets, net of intangible assets...................... $ 459,927
----------
----------
</TABLE>
In addition to the risk-based capital guidelines, the Federal Reserve Board
and the FDIC use a "Leverage Ratio" as an additional tool to evaluate capital
adequacy. The Leverage Ratio is defined to be a company's Tier I capital divided
by its adjusted total assets. The Leverage 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 Ratio of 4.0% to 5.0%. The computation of the
risk-based capital ratios and the Leverage Ratio requires that the capital of
the Company be reduced by most intangible assets. The Company's Leverage Ratio
at June 30, 1998 was 6.96%, which is in excess of regulatory requirements.
Investors Bank's Leverage Ratio at June 30, 1998 was 6.78%, which is also in
excess of regulatory requirements.
33
<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>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1998
----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------------ --------- ---------- ------------ --------- ----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Federal funds sold and securities purchased
under resale agreements..................... $ 31,586 $ 844 5.34% $ 24,961 $ 719 5.76%
Investment securities......................... 914,752 29,840 6.52% 1,317,464 39,716 6.03%
Loans......................................... 57,915 1,340 4.63% 59,506 1,515 5.09%
------------ --------- ------------ ---------
Total interest-earning assets............... 1,004,253 32,024 6.38% 1,401,931 41,950 5.98%
--------- ---------
Allowance for loan losses..................... (100) (100)
Noninterest-earning assets.................... 62,266 84,121
------------ ------------
Total assets.................................. $ 1,066,419 $ 1,485,952
------------ ------------
------------ ------------
INTEREST-BEARING LIABILITIES
Deposits:
Demand...................................... $ 121,003 $ 2,965 4.90% $ 192,611 $ 4,830 5.02%
Savings..................................... 269,880 6,484 4.81% 331,432 7,572 4.57%
Time........................................ 472 11 4.66% 870 23 5.29%
Short-term borrowings....................... 378,790 9,518 5.03% 630,376 16,609 5.27%
------------ --------- ------------ ---------
Total interest-bearing liabilities.......... 770,145 18,978 4.93% 1,155,289 29,034 5.03%
--------- ---------
Noninterest-bearing liabilities
Demand deposits............................. 147,708 148,683
Noninterest-bearing time deposits........... 51,298 65,000
Other liabilities........................... 11,870 14,784
------------ ------------
Total liabilities............................. 981,021 1,383,756
Trust preferred stock......................... 20,331 24,167
Equity........................................ 65,067 78,029
------------ ------------
Total liabilities and equity.................. $ 1,066,419 $ 1,485,952
------------ ------------
------------ ------------
Net interest income........................... $ 13,046 $ 12,916
--------- ---------
--------- ---------
Net interest margin(1)........................ 2.60% 1.84%
Average interest rate spread(2)............... 1.45% 0.95%
Ratio of interest-earning assets to
interest-bearing liabilities................ 130.40% 121.35%
</TABLE>
- ------------------------
(1) Net interest income divided by total interest-earning assets.
(2) Yield on interest-earning assets less rate paid on interest-bearing
liabilities.
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------- -------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
--------- ----------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<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............................... 19,276 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
Trust Preferred Securities............................... -- --
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)......................... 2.24% 1.54%
Ratio of interest-earning assets to interest-bearing
liabilities............................................ 497.65% 148.90%
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
---------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold........................................... $ 53,758 $ 2,981 5.55%
Interest-earning deposits................................ -- --
Investment securities.................................... 1,053,009 67,489 6.41%
Demand Loans............................................. 60,594 2,566 4.23%
----------- ---------
Total interest-earning assets............................ 1,167,361 73,036 6.26%
---------
Allowance for loan losses................................ (100)
Noninterest-earning assets............................... 69,258
-----------
Total assets............................................. $ 1,236,519
-----------
-----------
INTEREST-BEARING LIABILITIES
Deposits:
Demand................................................... $ 140,274 $ 7,179 5.12%
Savings.................................................. 252,408 11,468 4.54%
Time..................................................... 1,472 76 5.16%
Short-term borrowings.................................... 538,315 28,140 5.23%
----------- ---------
Total interest-bearing liabilities....................... 932,469 46,863 5.03%
---------
Noninterest-bearing liabilities:
Demand deposits........................................ 142,436
Noninterest-bearing time deposits...................... 58,178
Other liabilities...................................... 12,814
-----------
Total liabilities........................................ 1,145,897
Trust Preferred Securities............................... 22,252
Equity................................................... 68,370
-----------
Total liabilities and equity............................. $ 1,236,519
-----------
-----------
Net interest income...................................... $ 26,173
---------
---------
Net interest margin (1).................................. 2.24%
Average interest rate spread (2)......................... 1.23%
Ratio of interest-earning assets to interest-bearing
liabilities............................................ 125.20%
</TABLE>
- ------------------------
(1) Net interest income divided by total interest-earning assets.
(2) Yield on interest-earning assets less rate paid on interest-bearing
liabilities.
35
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Purchase Agreement between the
Company and Keefe, Bruyette & Woods, Inc. (the "Underwriter"), the Underwriter
has agreed to purchase from the Company, and the Company has agreed to sell to
the Underwriter, 400,000 shares of Common Stock at the public offering price
less the underwriting discounts set forth on the cover page of this Prospectus.
The Purchase Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent and that the Underwriter will purchase
all such shares of Common Stock if any of such shares are purchased. The
Underwriter is obligated to take and pay for all of the shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any are taken.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer such shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriter may allow, and such dealers may re-allow, a concession not in excess
of $ per share to certain other dealers. After the initial public offering,
public offering, the offering price and other selling terms may be changed by
the Underwriter.
The Company has granted options to the Underwriter, exercisable during the
30-day period after the date of this Prospectus, to purchase up to 40,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions.
The Underwriter may exercise such options only to cover over-allotments, if any,
incurred in the sale of the shares that the Underwriter has agreed to purchase.
To the extent that the Underwriter exercises such options, the Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as is approximately the percentage of
shares of Common Stock that it is obligated to purchase of the total number of
the shares under the Purchase Agreement and as shown in the table set forth
above.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), or to contribute to payments that the Underwriter may be
required to make in respect thereof.
The Company and each of its directors and executive officers have agreed not
to offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of any shares of Common Stock owned by them prior to the expiration of
90 days from the date of this Prospectus, except (i) for shares of Common Stock
offered hereby; (ii) with the prior written consent of the Underwriter; and
(iii) for the issuance of shares of Common Stock upon the exercise of options or
the grant of options to purchase shares of Common Stock and in certain other
limited circumstances.
In connection with this Offering, the Underwriter and certain selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriter also may create a short position for the account of the Underwriter
by selling more Common Stock in connection with the Offering than it is
committed to purchase from the Company, and in such case may purchase Common
Stock in the open market following completion of the Offering to cover all or a
portion of such short position. The Underwriter may also cover all or a portion
of such short position, up to 40,000 shares of Common Stock, by exercising the
Underwriter's over-allotment option referred to above. Any transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. The Underwriter is not required to engage in these activities, and, if
they are undertaken, they may be discontinued at any time.
36
<PAGE>
The Underwriter and dealers may engage in passive market making transactions
in the Common Stock in accordance with Rule 103 of Regulation M under the
Exchange Act. In general, a passive market maker may not bid for, or purchase,
the Common Stock at a price that exceeds the highest independent bid. In
addition, the net daily purchases made by any passive market maker generally may
not exceed 30% of its average daily trading volume in the Common Stock during a
specified two month prior period, or 200 shares, whichever is greater. A passive
market maker must identify passive market making bids as such on the Nasdaq
electronic inter-dealer reporting system. Passive market making may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriter and dealers are not required to engage in passive market making
and may end passive market making activities at any time.
From time to time, the Underwriter or certain of its affiliates have
provided, and may continue to provide in the future, investment banking services
to the Company and its affiliates, for which they have received, and expect to
receive, customary compensation. The Underwriter acted as initial purchaser of
capital securities issued by a subsidiary trust of the Company in January, 1997
and received a customary commission for its services. The Underwriter also acted
as financial advisor to the Company in connection with the BankBoston
Acquisition and will receive a customary fee for its services in connection
therewith.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the shares of Common
Stock offered hereby will be passed upon for the Company by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts. As of the date of this Prospectus,
certain attorneys with the firm of Testa, Hurwitz & Thibeault, LLP beneficially
own an aggregate of 2,000 shares of the Company's Common Stock. Certain legal
matters in connection with this offering will be passed upon for the Underwriter
by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Company's Current Report on Form 8-K filed with the
Commission on August 19, 1998 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
37
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information............................ 3
Incorporation of Certain Information by
Reference...................................... 4
The Company...................................... 5
Recent and Pending Acquisitions.................. 5
Risk Factors..................................... 7
Use of Proceeds.................................. 10
Price Range of Common Stock and Dividend
Policy......................................... 10
Capitalization................................... 11
Unaudited Pro Forma Condensed Adjusted Balance
Sheets......................................... 12
Selected Financial Data.......................... 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 16
Underwriting..................................... 36
Legal Matters.................................... 37
Experts.......................................... 37
</TABLE>
400,000 SHARES
INVESTORS FINANCIAL
SERVICES CORP.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
KEEFE, BRUYETTE & WOODS, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 8,705
NASD Filing Fee................................................... 3,451
Nasdaq National Market Listing Fee................................ 8,800
Printing and Engraving............................................ 70,000
Legal fees and expenses........................................... 125,000
Accounting fees and expenses...................................... 85,000
---------
Total......................................................... $ 300,956
---------
---------
</TABLE>
The Company will bear all expenses shown above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Company's Certificate of
Incorporation provide for indemnification of the Company's directors and
officers for liabilities and expenses that they may incur in such capacities. In
general, directors and officers are indemnified with respect to actions taken in
good faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
Reference is made to the Company's Certificate of Incorporation filed as Exhibit
3.1 to the Company's Registration Statement on Form S-1 (File No. 33-95980).
The Company maintains directors' and officers' liability insurance to insure
the directors and certain officers of the Company against certain liabilities
and certain expenses in connection therewith which arise out of or in connection
with their capacities as such.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1* Form of Purchase Agreement
2.1 Purchase and Sale Agreement dated as of July 17, 1998 by and between
Investors Bank & Trust Company and BankBoston, N.A. (filed as Exhibit
2.1 to the Company's Current Report on Form 8-K filed with the
Commission on August 19, 1998 and incorporated herein by reference)
4.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 to
the Company's Registration Statement on Form S-1 (File No. 33-95980)
and incorporated herein by reference)
4.2 By-laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 33-95980) and incorporated
herein by reference)
4.3 Rights Agreement, dated as of September 25, 1995, by and between the
Company and First Chicago Trust Company of New York (filed as Exhibit
4.2 to the Company's Registration Statement on Form S-1 (File No.
33-95980) and incorporated herein by reference)
4.4 Amendment No. 1 to Rights Agreement, dated as of June 16, 1998 by and
between the Company and First Chicago Trust Company of New York (filed
as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference)
4.5* Registration Rights Agreement dated as of May 29, 1998 by and among the
Company, Carla E. Dearing and Alan M. Trager
5.1* Opinion of Testa, Hurwitz & Thibeault, LLP
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1)
24.1* Power of attorney (included on signature page)
</TABLE>
- ------------------------
* Filed herewith.
The Company will provide to the Commission, upon request, a copy of any
omitted schedule or exhibit to the Exhibits listed above.
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or
II-2
<PAGE>
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
as amended, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1)
or (4) or 497(h) under the Securities Act of 1933, as amended, shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Boston, Massachusetts on August 18, 1998.
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 Karen C.
Keenan, 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 pre-effective and post-effective amendments to this
registration statement, or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and generally 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 Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ KEVIN J. SHEEHAN President, Chief Executive August 18, 1998
---------------------------- Officer and Chairman
Kevin J. Sheehan (Principal Executive
Officer)
/s/ KAREN C. KEENAN Senior Vice President, August 18, 1998
---------------------------- Chief Financial Officer
Karen C. Keenan and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ JAMES M. OATES Director August 18, 1998
----------------------------
James M. Oates
/s/ THOMAS P. MCDERMOTT Director August 18, 1998
----------------------------
Thomas P. McDermott
/s/ ROBERT B. FRASER Director August 18, 1998
----------------------------
Robert B. Fraser
/s/ FRANK B. CONDON, JR. Director August 18, 1998
----------------------------
Frank B. Condon, Jr.
/s/ DONALD G. FRIEDL Director August 18, 1998
----------------------------
Donald G. Friedl
/s/ PHYLLIS S. SWERSKY Director August 18, 1998
----------------------------
Phyllis S. Swersky
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement
2.1 Purchase and Sale Agreement dated as of July 17, 1998 by and
between Investors Bank & Trust Company and BankBoston, N.A.
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K filed with the Commission on August 19, 1998 and
incorporated herein by reference)
4.1 Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (File No. 33-95980) and incorporated herein by
reference)
4.2 By-laws of the Company (filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File No.
33-95980) and incorporated herein by reference)
4.3 Rights Agreement, dated as of September 25, 1995, by and
between the Company and First Chicago Trust Company of New
York (filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File No. 33-95980) and incorporated
herein by reference)
4.4 Amendment No. 1 to Rights Agreement, dated as of June 16,
1998 by and between the Company and First Chicago Trust
Company of New York (filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference)
4.5* Registration Rights Agreement dated as of May 29, 1998 by
and among the Company, Carla E. Dearing and Alan M. Trager
5.1* Opinion of Testa, Hurwitz & Thibeault, LLP
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of Testa, Hurwitz & Thibeault, LLP (included in
Exhibit 5.1)
24.1* Power of attorney (included on signature page)
</TABLE>
- ------------------------
* Filed herewith.
The Company will provide to the Commission, upon request, a copy of any
omitted schedule or exhibit to the Exhibits listed above.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTORS FINANCIAL SERVICES CORP.
(a Delaware corporation)
425,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: September [ ], 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. Representations and Warranties........................... 2
(a) Representations and Warranties by the Company.... 2
(i) Compliance with Registration Requirements...... 2
(ii) Independent Accountants........................ 3
(iii) Financial Statements........................... 3
(iv) No Material Adverse Change In Business......... 4
(v) Good Standing of the Company................... 4
(vi) Good Standing of Subsidiaries.................. 4
(vii) Capitalization................................. 5
(viii) Authorization and Description of Securities.... 5
(ix) Absence of Defaults and Conflicts.............. 5
(x) Absence of Labor Dispute....................... 6
(xi) Absence of Proceedings......................... 6
(xii) Accuracy of Exhibits........................... 6
(xiii) Possession of Intellectual Property............ 6
(xiv) Absence of Further Requirements................ 7
(xv) Possession of Licenses and Permits............. 7
(xvi) Authorization of Agreement..................... 7
(xvii) The Purchase and Sale Agreement................ 7
(xviii) Compliance With Applicable Laws................ 7
(xix) Title to Property.............................. 8
(xx) Registration Rights............................ 8
(xxi) Warrants, Options and Other Rights............. 8
(xxii) Investment Company Act......................... 8
(xxiii) Tax Matters.................................... 8
(xxiv) Insurance...................................... 8
(xxv) Accounting Controls............................ 8
(xxvi) Fees........................................... 9
(xxvii) Lock-Up Agreements............................. 9
(xxviii)Use of Prospectus.............................. 9
(xxix) Rights Agreement............................... 9
(b) Officer's Certificates........................... 9
SECTION 2. Sale and Delivery to Underwriter; Closing................ 9
(a) Initial Securities............................... 9
(b) Option Securities................................ 9
(c) PAYMENT.......................................... 10
(d) Denominations; Registration...................... 10
SECTION 3. Covenants of the Company................................. 10
(a) Compliance with Securities Regulations and
Commission Requests.............................. 10
(b) Filing of Amendments............................. 11
(c) Delivery of Registration Statements.............. 11
(d) Delivery of Prospectuses......................... 11
(e) Continued Compliance with Securities Laws........ 11
(f) Blue Sky Qualifications.......................... 11
(g) RULE 158......................................... 12
<PAGE>
(h) Use of Proceeds.................................. 12
(i) LISTING.......................................... 12
(j) Restriction on Sale of Securities................ 12
(k) Reporting Requirements........................... 12
SECTION 4. Payment of Expenses...................................... 12
(a) EXPENSES......................................... 12
(b) Termination of Agreement......................... 13
SECTION 5. Conditions of Underwriter's Obligations.................. 13
(a) Effectiveness of Registration Statement.......... 13
(b) Opinion of Counsel for Company................... 13
(c) Opinion of Counsel for Underwriter............... 13
(d) Officer's Certificate............................ 13
(e) Accountant's Comfort Letter...................... 14
(f) Bring-Down Comfort Letter........................ 14
(g) Approval of Listing.............................. 14
(h) No Objection..................................... 14
(i) Lock-up Agreements............................... 14
(j) Additional Documents............................. 14
(k) Conditions to Purchase of Option Securities...... 14
(i) Officer's Certificate.......................... 14
(ii) Opinion of Counsel for Company................. 15
(iii) Opinion of Counsel for Underwriter............. 15
(iv) Bring-Down Comfort Letter...................... 15
(l) Termination of Agreement......................... 15
SECTION 6. Indemnification.......................................... 15
(a) Indemnification of Underwriter................... 15
(b) Indemnification of Company, Directors
and Officers..................................... 16
(c) Actions Against Parties; Notification............ 16
(d) Settlement Without Consent if Failure
to Reimburse..................................... 17
SECTION 7. Contribution............................................. 17
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery......................................... 18
SECTION 9. Termination of Agreement................................. 18
(a) Termination; General............................. 18
(b) Liabilities...................................... 18
SECTION 10. Notices.................................................. 18
SECTION 11. Parties.................................................. 18
SECTION 12. GOVERNING LAW AND TIME................................... 19
SECTION 13. Effect of Headings....................................... 19
ii
<PAGE>
425,000 Shares
INVESTORS FINANCIAL SERVICES CORP.
(a Delaware corporation)
Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
September [ ], 1998
KEEFE, BRUYETTE & WOODS, INC.
Two World Trade Center
New York, New York 10048
Dear Ladies and Gentlemen:
Investors Financial Services Corp., a Delaware corporation (the
"Company"), confirms its agreement with Keefe, Bruyette & Woods, Inc. ("KBW"
or the "Underwriter") with respect to the sale by the Company and the
purchase by the Underwriter of 425,000 shares of Common Stock, par value $.01
per share, of the Company ("Common Stock") and with respect to the grant by
the Company to the Underwriter of the option described in Section 2(b) hereof
to purchase all or any part of 42,500 additional shares of Common Stock
solely to cover over-allotments, if any. The aforesaid 425,000 shares of
Common Stock (the "Initial Securities") to be purchased by the Underwriter
and all or any part of the 42,500 shares of Common Stock subject to the
option described in Section 2(b) hereof (the "Option Securities") are
hereinafter called, collectively, the "Securities."
The proceeds from the offering of Securities will provide a portion of
the funding for the purchase (the "Acquisition") by Investors Bank & Trust
Company ("IBT"), a wholly-owned subsidiary of the Company, of substantially
all of the assets relating to the institutional trust and custody business of
BankBoston N.A., pursuant to a purchase and sale agreement (the "Purchase and
Sale Agreement"), dated July 17, 1998.
The Company understands that the Underwriter proposes to make a public
offering of the Securities as soon as the Underwriter deems advisable after
this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-[ ])
covering the registration of the Securities under the Securities Act of 1933,
as amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i)
<PAGE>
prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933
Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to
rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file
a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434
and Rule 424(b). The information included in such prospectus or in such Term
Sheet, as the case may be, that was omitted from such registration statement
at the time it became effective but that is deemed to be part of such
registration statement at the time it became effective (a) pursuant to
paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b)
pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434
Information." Each prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such
effectiveness and prior to the execution and delivery of this Agreement, is
herein called a "preliminary prospectus." Such registration statement,
including the exhibits thereto, schedules thereto, if any, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus, including the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first
furnished to the Underwriter for use in connection with the offering of the
Securities is herein called the "Prospectus." If Rule 434 is relied on, the
term "Prospectus" shall refer to the preliminary prospectus dated August
[ ], 1998 together with the Term Sheet and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is
incorporated by reference in the Registration Statement, any preliminary
prospectus or the Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement, any
preliminary prospectus or the Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934 (the
"1934 Act") which is incorporated by reference in the Registration Statement,
such preliminary prospectus or the Prospectus, as the case may be.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to the Underwriter as of the date hereof, and as of
the Closing Time referred to in Section 2(c) hereof, and as of the Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with the
Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company meets the
requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
2
<PAGE>
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (as hereinafter defined) (and, if any
Option Securities are purchased, at the Date of Delivery (as hereinafter
defined)), the Registration Statement, the Rule 462(b) Registration
Statement and any amendments and supplements thereto complied and will
comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain 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 not
misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will 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. If Rule 434 is
used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to the
Company in writing by the Underwriter expressly for use in the Registration
Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriter for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
INCORPORATED DOCUMENTS. The documents incorporated or deemed to be
incorporated by reference in the Registration Statement and the Prospectus,
when they became effective or at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations or the 1934
Act and the rules and regulations of the Commission thereunder (the "1934
Act Regulations"), as applicable, and, when read together with the other
information in the Prospectus, at the time the Registration Statement
became effective, at the time the Prospectus was issued and at the Closing
Time (and if any Option Securities are purchased, at the Date of Delivery),
did not and will not contain 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 not misleading.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included in
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly (i) the financial position of the
Company and its consolidated subsidiaries at the dates indicated and (ii)
the statement of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries for the periods specified; except as
otherwise stated in the Registration Statement, said financial statements
have been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved.
3
<PAGE>
The supporting schedules, if any, included in the Registration Statement
present fairly in accordance with GAAP the information required
to be stated therein. The selected financial data, incorporated by
reference in the Registration Statement, have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement. The pro forma financial statements and the related
notes thereto included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, (B) there have been no transactions entered
into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company
and its subsidiaries considered as one enterprise, and (C) there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) GOOD STANDING OF THE COMPANY. 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 Prospectus 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 condition, financial or otherwise, or the earnings, 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.
(vi) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus 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, individually or in the aggregate, have a material adverse effect
on the condition, financial or otherwise, or the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise; all of the issued and outstanding capital stock of each such
subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, except with respect to Investors Capital Trust I, is
directly owned by the Company, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any subsidiary was issued in
violation of the preemptive or similar rights of any stockholder of such
corporation arising by operation of law, under the charter or by-laws of
any subsidiaries or under any agreement to which the Company or any
4
<PAGE>
subsidiary is a party. The only subsidiaries of the Company are the
subsidiaries listed on Schedule C hereto and except as set forth or
incorporated by reference in the Registration Statement, the capital stock
of each subsidiary is owned by the Company, free and clear of any pledge,
lien, encumbrance, claim or equity. Except for the shares of capital stock
of the subsidiaries and such shares of stock included in the balance sheet
of the Company under the heading "Securities available for sale," the
Company does not own 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 as described in by the Prospectus.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans of the Company and
referred to in the Prospectus or in documents incorporated by reference in
the Prospectus or pursuant to the exercise of convertible securities or
options of the Company and referred to in the Prospectus or in the
documents incorporated by reference in the Prospectus). The shares of
issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; none
of the outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any securityholder
of the Company arising by operation of law, under the charter and by laws
of the Company or under any agreement to which the Company or any of its
subsidiaries is a party.
(viii) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities
to be purchased by the Underwriter from the Company have been duly
authorized for issuance and sale to the Underwriter pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued, fully paid and non-assessable; the Common Stock conforms to
all statements relating thereto contained in the Prospectus; no holder of
the Securities will be subject to personal liability by reason of being
such a holder; and the issuance and sale of the Securities by the Company
is not subject to the preemptive or other similar rights of any
securityholder of the Company arising by operation of law, under the
charter and by laws of the Company or under any agreement to which the
Company or any of its subsidiaries is a party.
(ix) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any
of its subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which or any
of them may be bound, or to which any of the property or assets of the
Company or any of its subsidiaries is subject, and which violation or
default, singly or in the aggregate, would materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise; and the execution, delivery and performance of this Agreement,
the consummation of the transactions contemplated herein and compliance by
the Company with its obligations hereunder (including the use of the
proceeds from the sale of the Securities as described in the Prospectus
under the caption "Use of Proceeds") and the consummation of the
Acquisition and transactions related thereto, as are applicable to the
Company 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 constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any subsidiaries of the Company pursuant to, any
contract, indenture, mortgage,
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deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any of its
subsidiaries is subject and which breach or default singly or in the
aggregate, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise; nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any
subsidiaries of the Company or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of
their assets or properties and which violation, singly or in the
aggregate, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment
of all or a portion of such indebtedness by the Company or any
subsidiaries of the Company.
(x) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the knowledge of the
Company, is imminent.
(xi) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
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 any of its
subsidiaries which is required to be disclosed in the Registration
Statement, or which might reasonably be expected to result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, 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 properties or assets
thereof or the consummation of this Agreement or the performance by the
Company of its obligations hereunder and the consummation of the
Acquisition and the transactions related thereto; the aggregate of all
pending legal or governmental proceedings to which the Company or any 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 Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise.
(xii) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xiii) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, 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 Prospectus, except where
lack thereof would not result in a material adverse change in the
condition, financial or otherwise, or the earnings, 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
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any notice or is otherwise aware 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 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 result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise.
(xiv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation by it of the transactions
contemplated by this Agreement and the consummation of the Acquisition and
the transactions related thereto, except (i) as described in the Prospectus
and (ii) such as have been already obtained or as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws.
(xv) POSSESSION OF LICENSES AND PERMITS. 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 condition, financial or otherwise, or the
earnings, 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
condition, financial or otherwise, earnings, 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 condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise.
(xvi) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.
(xvii) THE PURCHASE AND SALE AGREEMENT. The Purchase and Sale
Agreement has been duly authorized, executed and delivered and constitutes
a valid and legally binding obligation of the parties thereto, enforceable
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(xviii) COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in the
Prospectus, the Company and its subsidiaries are in compliance in all
material respects with all applicable laws, statutes, ordinances, rules or
regulations, the violation of which, individually or in the aggregate,
would be reasonably expected to have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise.
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(xix) TITLE TO PROPERTY. The Company and its subsidiaries have
good and marketable title to all properties (real and personal) 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 Prospectus or (b) do not, singly or
in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or its subsidiaries; and all properties held under lease by the
Company or its subsidiaries are held under valid, subsisting and
enforceable leases.
(xx) REGISTRATION RIGHTS. Except for the Registration Rights
Agreement, dated May 29, 1998, there are no persons with registration or
other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxi) WARRANTS, OPTIONS AND OTHER RIGHTS. Except as disclosed in
the Prospectus, there are no outstanding options, warrants, or other rights
calling for the issuance of, and no commitments, plans or arrangements to
issue, any shares of capital stock of the Company or any of its
subsidiaries or any security convertible into or exchangeable for capital
stock of the Company or any of its subsidiaries.
(xxii) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
under the caption "Use of Proceeds" will not be, an "investment company" or
an entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(xxiii) TAX MATTERS. 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 any of its subsidiaries has not been finally
determined or remains open to examination by applicable taxing authorities.
(xxiv) INSURANCE. 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.
(xxv) ACCOUNTING CONTROLS. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are 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.
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(xxvi) FEES. Other than as contemplated by this Agreement, there
is no broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or any other fee, commission or
payment as a result of the transactions contemplated by this Agreement.
(xxvii) LOCK-UP AGREEMENTS. The Company has obtained and delivered
to the Underwriter the agreements of the persons and entities named in
Schedule A annexed hereto to the effect that each such person will not, for
a period of 90 days from the date hereof and except as otherwise provided
therein, without the prior written consent of the Underwriter, directly or
indirectly, offer to sell, grant any option for the sale of, or otherwise
dispose of, any shares of Common Stock or any securities convertible into
or exercisable for Common Stock owned by such person or entity or with
respect to which such person has the power of disposition.
(xxviii) USE OF PROSPECTUS. The Company has not distributed and,
prior to the later to occur of (i) the Closing Time and (ii) completion of
the distribution of the Securities, will not distribute any prospectus (as
such term is defined in the 1933 Act and the 1933 Act Regulations) in
connection with the offering and sale of the Securities other than the
Registration Statement, any preliminary prospectus, the Prospectus or other
materials, if any, permitted by the 1933 Act or by the 1933 Act Regulations
and approved by the Underwriter.
(xxix) RIGHTS AGREEMENT. The Rights Agreement dated as of
September 25, 1995, as amended (the "Rights Agreement"), between the
Company and First Chicago Trust Company of New York has been duly
authorized, executed and delivered by the Company; the preferred stock
purchase rights (the "Rights") issued and issuable under the Rights
Agreement have been duly authorized by the Company; each outstanding share
of Common Stock is associated with and entitled to one duly authorized and
validly issued Right; and, when the Common Stock to be sold by the Company
hereunder is issued, each such share will be associated with and entitled
to one duly authorized and validly issued Right.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company and delivered to the Underwriter or to counsel for the Underwriter shall
be deemed a representation and warranty by the Company to the Underwriter as to
the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITER; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter and the Underwriter agrees
to purchase from the Company, at the price per share set forth in Schedule B,
425,000 Initial Securities plus any additional number of Initial Securities
which the Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriter to purchase up
to an additional 42,500 shares of Common Stock at the price per share set forth
in Schedule B, less an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but not payable on
the Option Securities. The option hereby granted will expire 30 days after the
date hereof and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Underwriter to the Company setting forth the number of Option Securities as to
which the Underwriter is then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
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delivery (a "Date of Delivery") shall be determined by the Underwriter, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Brown &
Wood LLP, One World Trade Center, New York 10048, or at such other place as
shall be agreed upon by the Underwriter and the Company, at 9:00 A.M. (Eastern
time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time)
on any given day) business day after the date hereof (unless postponed in
accordance with the provisions of Section 10), or such other time not later than
ten business days after such date as shall be agreed upon by the Underwriter and
the Company (such time and date of payment and delivery being herein called the
"Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Securities shall be made at the above-mentioned
offices of Brown & Wood LLP, or at such other place as shall be agreed upon by
the Underwriter and the Company, on each Date of Delivery as specified in the
notice from the Underwriter to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Underwriter of certificates for the Securities being purchased, which
delivery may be made through the facilities of the Depository Trust Company, New
York, New York.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Underwriter may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Underwriter in The City of New York not later than 10:00 A.M. (Eastern time) on
the business day prior to the Closing Time or the relevant Date of Delivery, as
the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with the
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Underwriter immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
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(b) FILING OF AMENDMENTS. The Company will give the Underwriter notice
of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
whether pursuant to the 1933 Act, the 1934 or otherwise, will furnish the
Underwriter with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file
or use any such document to which the Underwriter or counsel for the
Underwriter shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Underwriter and counsel for the Underwriter, without
charge, signed copies of the Registration Statement as originally filed and
of each amendment thereto (including exhibits filed therewith or incorporated
by reference therein and documents incorporated or deemed to be incorporated
by reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Underwriter, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits). The copies of the Registration
Statement and each amendment thereto furnished to the Underwriter will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to the
Underwriter, without charge, as many copies of each preliminary prospectus as
the Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to the Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
such number of copies of the Prospectus (as amended or supplemented) as the
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriter will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Securities as contemplated in this Agreement and in the Prospectus.
If at any time when a prospectus is required by the 1933 Act to be delivered
in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriter or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will 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 existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b), such amendments or
supplements as may be necessary to correct such statement or omission or to
make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriter such number of
copies of such amendments or supplements as the Underwriter may reasonably
request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts,
in cooperation with the Underwriter, to qualify the Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Underwriter may designate and to
maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any
Rule 462(b) Registration Statement; provided, however, that the Company shall
not be obligated to file any general consent to service of process or to
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qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to taxation
in respect of doing business in any jurisdiction in which it is not otherwise
so subject. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds."
(i) LISTING. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and
will file with the Nasdaq National Market all documents and notices required
by the Nasdaq National Market of companies that have securities that are
traded in the over-the-counter market and quotations for which are reported
by the Nasdaq National Market.
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days
from the date of the Prospectus, the Company will not, without the prior
written consent of the Underwriter, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any share of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock or file any registration statement under the 1933 Act with respect to
any of the foregoing or (ii) enter into any swap or any other agreement or
any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any such
swap or transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold
hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option, right or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus or (C) the
grant of any option pursuant to the Amended and Restated 1995 Stock Plan, the
1997 Employees Stock Purchase Plan or the 1995 Director Stock Option Plan.
(k) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to
the 1934 Act within the time periods required by the 1934 Act and the 1934
Act Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
printing and filing of the Registration Statement as originally filed and of
each amendment thereto, (ii) the preparation, printing and delivery to the
Underwriter of this Agreement 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 Underwriter, including any capital duties, stamp duties and
stock or other transfer taxes payable upon the sale of the Securities to the
Underwriter, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the
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Securities under securities laws in accordance with the provisions of Section
3(f) hereof, including filing fees and the fees and disbursements of counsel
for the Underwriter in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (vi) the
printing and delivery to the Underwriter of copies of each preliminary
prospectus and of the Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriter of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses
of any transfer agent or registrar for the Securities and (ix) the filing
fees incident to, and the fees and disbursements of counsel to the
Underwriter in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Securities and (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the Underwriter for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriter.
SECTION 5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations
of the Underwriter hereunder are subject to the accuracy of the
representations and warranties of the Company herein contained, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective not later than 5:30 P.M. on the date
hereof, or with the consent of the Underwriter, at a later time and date, not
later, however, than 5:30 P.M. on the first business day following the date
hereof, or at such later time and date as may be approved by the Underwriter;
and at the Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated threatened or, to the knowledge of the
Company, contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriter. If the Company has
elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the
Securities and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing in accordance with Rule 424(b) of
the 1933 Act Regulations within the prescribed time period and prior to
Closing Time the Company shall have provided evidence satisfactory to the
Underwriter of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the 1933 Act Regulations.
(b) OPINION OF COUNSEL FOR COMPANY. At the Closing Time the
Underwriter shall have received the opinion, dated as of the Closing Time, of
Testa, Hurwitz & Thibeault, LLP, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriter to the effect set forth
in Exhibit A hereto and to such further effect as counsel to the Underwriter
may reasonably request.
(c) OPINION OF COUNSEL FOR UNDERWRITER. At the Closing Time, the
Underwriter shall have received the favorable opinion, dated as of the
Closing Time, of Brown & Wood LLP, counsel for the Underwriter in form and
substance satisfactory to the Underwriter.
(d) OFFICER'S CERTIFICATE. 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 Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Underwriter shall have received a certificate of the President or a
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Vice President of the Company and of the chief financial or chief accounting
officer of the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations and
warranties in Section 1 hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, (iii) the Company
has complied with all agreements and satisfied all conditions on its part to
be performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated or threatened by the
Commission. As used in this Section 5(d) the term "Prospectus" means the
Prospectus in the form first used by the Underwriter to confirm sales of the
Securities.
(e) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of
this Agreement, the Underwriter shall have received from Deloitte & Touche
LLP a letter dated such date, in form and substance satisfactory to the
Underwriter containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(f) BRING-DOWN COMFORT LETTER. At the Closing Time the Underwriter
shall have received from Deloitte & Touche LLP a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three days prior to
Closing Time.
(g) APPROVAL OF LISTING. At the Closing Time the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject only
to official notice of issuance.
(h) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(i) LOCK-UP AGREEMENTS. At the date of this Agreement, the
Underwriter shall have received an agreement substantially in the form of
Exhibit B hereto signed by each of the persons named in Schedule A hereto.
(j) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery counsel for the Underwriter shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Underwriter and counsel for the
Underwriter.
(k) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that
the Underwriter exercises its option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company hereunder shall be true and correct as
of each Date of Delivery and, at the relevant Date of Delivery, the
Underwriter shall have received:
(i) OFFICER'S CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(d)
hereof remains true and correct as of such Date of Delivery.
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(ii) OPINION OF COUNSEL FOR COMPANY. The opinion of Testa,
Hurwitz & Thibeault, LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(b)
hereof.
(iii) OPINION OF COUNSEL FOR UNDERWRITER. The opinion of Brown &
Wood LLP, counsel for the Underwriter, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(c)
hereof.
(iv) BRING-DOWN COMFORT LETTER. A letter from Deloitte & Touche
LLP, in form and substance satisfactory to the Underwriter and dated such
Date of Delivery, substantially the same in form and substance as the
letter furnished to the Underwriter pursuant to Section 5(e) hereof, except
that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than four days prior to such Date of
Delivery.
(a) 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 Underwriter by notice to the Company
at any time at or prior to 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 6 and 7 shall survive any such termination
and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITER. The Company agrees to indemnify
and hold harmless the Underwriter and each person, if any, who controls the
Underwriter 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 contained in the Registration
Statement (or any amendment thereto), including the information deemed to
be part of the Registration Statement pursuant to Rule 430A(b) of the 1933
Act Regulations, if applicable, 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
preliminary prospectus or prospectus, including the 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) 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
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to the third sentence of Section 6(c) hereof, the fees
and disbursements of counsel chosen by the Underwriter), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or
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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 (i) or (ii) above;
PROVIDED, HOWEVER, that 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
Company by the Underwriter expressly for use in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto).
The foregoing indemnification with respect to any preliminary prospectus
shall not inure to the benefit of the Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased
Securities, or any person controlling the Underwriter, 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 the Underwriter 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.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. The
Underwriter agrees to indemnify and hold harmless the Company, its directors,
each of its officers who signed the Registration Statement, 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
Registration Statement (or any amendment thereto) or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by the Underwriter expressly for use in the Registration Statement
(or any amendment thereto) or such preliminary prospectus or the Prospectus
(or any amendment or supplement thereto).
(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 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 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 6 or Section 7 hereof (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.
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(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 6(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.
SECTION 7. CONTRIBUTION. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless 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 Company on the one hand and the Underwriter on the other hand from the
offering of the 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 Company on
the one hand and of the Underwriter 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 Company on the one hand and the
Underwriter on the other hand in connection with the offering of the
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
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriter,
in each case as set forth on the cover of the Prospectus, bear to the
aggregate initial public offering price of the Securities as set forth on
such cover.
The relative fault of the Company on the one hand and the Underwriter 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 by the Underwriter and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 7 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 7.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7
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 7, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
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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 7, each person, if any, who controls the
Underwriter 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 Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, 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.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Underwriter or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities to the Underwriter.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Underwriter may terminate this
Agreement, by notice to the Company, at any time at or prior to 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 Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of 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 Underwriter,
impracticable to market the Securities or to enforce contracts for the sale
of the Securities, or (iii) if trading in the Common Stock has been suspended
or limited by the Commission or Nasdaq, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq
National 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
NASD or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal, New York or Massachusetts authorities.
(b) LIABILITIES. 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 3(1), 6 and 7 shall survive such termination and remain in full
force and effect.
SECTION 10. 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
Underwriter shall be directed to Keefe, Bruyette & Woods, Inc., Two World
Trade Center, New York, New York 10048, attention of John Duffy, Executive
Vice President; notices to the Company shall be directed to at 200 Clarendon
Street, Boston, Massachusetts 02216, attention of Kevin J. Sheehan,
President.
SECTION 11. PARTIES. This Agreement shall each inure to the benefit
of and be binding upon the Underwriter and the Company and their respective
successors. Nothing expressed or mentioned in
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this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriter and the Company and their respective
successors and the controlling persons and officers and directors referred to
in Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy 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
Underwriter and the Company 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 Underwriter shall be deemed to be a
successor by reason merely of such purchase.
SECTION 12. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 13. EFFECT OF HEADINGS. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not
affect the construction thereof.
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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 Underwriter and the Company in accordance with its
terms.
Very truly yours,
INVESTORS FINANCIAL SERVICES CORP.
By: ___________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
KEEFE, BRUYETTE & WOODS, INC.
By: ____________________________________
Title:
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EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made this 29th
day of May, 1998 by and among Investors Financial Services Corp., a corporation
organized under the laws of Delaware (the "Company"), and Alan M. Trager and
Carla E. Dearing (collectively the "Company Shareholders").
WHEREAS, the Company and the Company Shareholders have entered into the
Merger Agreement pursuant to which all of the outstanding capital stock of AMT
Capital Services, Inc. and all of the outstanding capital stock of AMT Capital
Advisers, Inc. will be exchanged for 194,006 shares of Company's Common Stock
(the "Company Stock");
WHEREAS, pursuant to the Merger Agreement, the Company and the Company
Shareholders have agreed that a Registration Rights Agreement shall be delivered
at the time of the Closing of the Merger Agreement; and
WHEREAS, the Company wishes to grant, and the Company Shareholders wish
to obtain, certain registration rights with respect to certain shares of the
Company Stock.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing Date" shall have the meaning set forth in the Merger
Agreement.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
Company (including the associated rights (the "Right") to purchase
preferred stock of the Company pursuant to the Company's Rights
Agreement), as constituted as of the date of this Agreement.
"Escrow Agent" shall have the meaning set forth in the Merger
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Merger Agreement" shall mean that certain Agreement and Plan of
Merger, dated May 12, 1998, by and among the Company, the Company
Shareholders and the other parties named therein, as the same may be
amended from time to time.
"Publication Date" shall mean the date on which the Company publishes
financial statements covering a period of not less than 30 days of
combined operations of the
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Company, AMT Capital Services, Inc. and AMT Capital Advisers, Inc.
following the Closing Date.
"Registration Expenses" shall mean the expenses so described in Section
5(a).
"Restricted Stock" shall mean the Company Stock, excluding shares of
Company Stock which (a) have been registered under the Securities Act
pursuant to an effective registration statement filed thereunder and
disposed of in accordance with the registration statement covering
them; or (b) have been sold pursuant to Rule 144 under the Securities
Act; or (c) are delivered to the Escrow Agent on the Closing Date
pursuant to the Merger Agreement, being 18,938 shares of Common Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section
5(a).
Capitalized terms not herein defined shall have the meanings ascribed
thereto in the Merger Agreement.
2. Restrictive Legend. Each certificate representing Company Stock
shall, except as otherwise provided herein, be stamped or otherwise imprinted
with a legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY
NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS: (i) THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION; (ii) THE
CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL SATISFACTORY TO
THE CORPORATION THAT SUCH TRANSACTION IS EXEMPT FROM SUCH
REGISTRATION OR (iii) THE CORPORATION IS OTHERWISE SATISFIED THAT
SUCH TRANSACTION IS EXEMPT FROM SUCH REGISTRATION. THE HOLDER OF
THIS SECURITY IS ENTITLED TO CERTAIN REGISTRATION RIGHTS SET FORTH
IN A REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY __, 1998, A
COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF THE
CORPORATION."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities represented thereby may be publicly
sold without registration under the Securities Act and any applicable state
securities laws or if such securities have been sold pursuant to Rule 144 or an
effective registration statement.
3. Registration. Not later than 30 days following the Closing Date, the
Company will file a registration statement under the Securities Act on an
appropriate form (which shall be Form S-3, if available) with respect to all of
the Restricted Stock and the Company shall use its best efforts to cause such
registration statement to become effective as soon as possible following the
filing thereof, but in no
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event sooner than the Publication Date. Such registration shall cover the resale
of such shares of the Restricted Stock in the public market in brokers'
transactions or transactions with market makers, or in privately negotiated
transactions, but in no event will it apply to an underwritten public offering
of the Restricted Stock. Company Shareholders undertake in connection therewith
to provide in a timely manner all such information and materials and take all
such action as may be required in order to permit the Company to comply with all
applicable requirements of the Commission and to obtain the acceleration of the
effective date of the registration statement. The Company shall use its best
efforts to keep such registration statement effective for a period ending on the
earlier of the sale of all Restricted Stock covered thereby or June 1, 2000.
4. Registration Procedures. If and whenever the Company is
required by the provisions of Section 3 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 3 above;
(b) furnish to each seller of Restricted Stock such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or other disposition of the Restricted
Stock covered by such registration statement;
(c) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as the sellers of Restricted Stock reasonably shall
request, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to take any action which would
subject it to the service of process in suits other than those arising out of
the offer or sale of the securities covered by the registration statement in any
jurisdiction where it is not then so subject;
(d) use its best efforts to list the Restricted Stock (but not
including the Rights) covered by such registration statement subject to
quotation on the Nasdaq National Market; and
(e) notify each seller of Restricted Stock, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
In connection with the registration of Restricted Stock
hereunder, the sellers of Restricted Stock will furnish to the Company in
writing such information with respect to themselves and the proposed
distribution by them as shall be necessary in order to assure compliance with
federal and applicable state securities laws.
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5. Expenses; Indemnification.
(a) All expenses incurred by the Company in complying with
Sections 3 and 4, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses incurred in connection
with complying with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, and costs of issuance, but excluding any Selling Expenses, are
called "Registration Expenses." All brokerage commission and expenses,
underwriting discounts, commissions and expenses and the fees and disbursements
of Company Shareholders' counsel and accountants are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with
the registration statement under Section 3. All Selling Expenses in connection
with the registration statement under Section 3 shall be borne by the
participating Company Shareholders in proportion to the number of shares sold by
each.
(b) In connection with the registration of the Restricted Stock
under the Securities Act pursuant to Section 3 hereof, the Company agrees to
indemnify and hold each Company Shareholder and each person, if any, who
controls any Company Shareholder within the meaning of Section 15 of the
Securities Act harmless against any and all losses, claims, damages or
liabilities to which they or any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages,
liabilities or actions shall arise out of or shall be based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement relating to the sale of such shares of Restricted Stock
(including any documents incorporated therein by reference), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in any case, at the
time it became effective under the Securities Act, or (ii) any untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus (as amended or supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto), if used prior to the
effective date of such registration statement, or contained in the prospectus
(as amended or supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto), if used within the period during
which the Company shall be required to keep the registration statement to which
such prospectus relates effective pursuant to the terms of this Agreement, or
the omission or alleged omission to state therein (if so used) a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
indemnification agreement contained in this Paragraph 5(b) shall not apply to
such losses, claims, damages, liabilities or actions which shall arise from the
sale of shares of Restricted Stock to any person if such losses, claims,
damages, liabilities or actions shall arise out of or shall be based upon any
such untrue statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission shall have been (x) made in
reliance upon and in conformity with information furnished in writing to the
Company by any Company Shareholder specifically for use in connection with the
preparation of the registration statement or any preliminary prospectus or
prospectus contained in the registration statement or any such amendment thereof
or supplement thereto or (y) made in any preliminary prospectus, and the
prospectus contained in the registration statement in the form filed by the
Company with the Commission pursuant to Rule 424(b) under the Securities Act
shall have corrected such statement or omission and a copy of such prospectus
shall not have been sent or given to such person at or prior to the confirmation
of such sale to him.
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(c) In connection with the registration of the Restricted
Stock under the Securities Act pursuant to Section 3 hereof, each of the Company
Shareholders, severally and jointly, agrees in the same manner and to the same
extent as set forth in Paragraph 5(b) of this Agreement to indemnify and hold
harmless the Company and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act, its directors and those
officers of the Company who shall have signed any such registration statement
with respect to any statement in or omission from such registration statement or
any preliminary prospectus (as amended or as supplemented, if amended or
supplemented as aforesaid) or prospectus contained in such registration
statement (as amended or as supplemented, if amended or supplemented as
aforesaid), if such statement or omission shall have been made in reliance upon
and in conformity with information furnished in writing to the Company by such
Company Shareholder specifically for use in connection with the preparation of
such registration statement or any preliminary prospectus or prospectus
contained in such registration statement or any such amendment thereof or
supplement thereto.
(d) Each party indemnified under Paragraph 5(b) or (c) of this
Agreement shall, promptly after receipt of notice of the commencement of any
action against such indemnified party in respect of which indemnity may be
sought, notify the indemnifying party in writing of the commencement thereof.
The omission of any indemnified party so to notify an indemnifying party of any
such action shall not relieve the indemnifying party from any liability in
respect of such action which it may have to such indemnified party on account of
the indemnity agreement contained in Paragraph 5(b) or (c) of this Agreement,
unless the indemnifying party was prejudiced by such omission, and only to the
extent so prejudiced. In case any such action shall be brought against any
indemnified party and it shall notify an indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under Paragraph
5(b) or (c) of this Agreement for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
(e) In order to provide for just and equitable contribution to
joint liability in any case in which a claim for indemnification is made
pursuant to this Section 5 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in such case, the Company and each
Company Shareholder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
proportion to the relative fault of the Company, on the one hand, and each
Company Shareholder, severally, on the other hand; provided, however, that, in
any such case, no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
6. Changes in Common Stock. If, and as often as, there is any
change in the Common Stock by way of a stock split, stock dividend, combination
or reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
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7. Rule 144 Reporting. With a view to making available to the
Company Shareholders the benefits of Rule 144 promulgated under the Securities
Act ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Company Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as such holder may reasonably request in availing itself of Rule
144.
9. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Restricted Stock), provided that such transferee
executes a counterpart signature page to the Agreement in a form acceptable to
the Company, whether so expressed or not, provided further that no holder or
transferee of Common Stock which has ceased to be Restricted Stock shall have
the benefit of the covenants and agreements in this Agreement with respect to
such Common Stock.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in accordance with the
notification requirements set forth in the Merger Agreement:
(c) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least two-thirds of the outstanding shares of Restricted
Stock.
(e) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) Notwithstanding anything herein to the contrary, the
Company's obligation to file a registration statement, or cause such
registration statement to become and remain effective, shall be suspended for a
period not to exceed 90 days and, by notice to the holders of Restricted Stock,
the Company may immediately suspend sales at any time under the registration
statement, if there exists at the time material non-public information relating
to the Company which, in the reasonable opinion of the Company, should not be
disclosed; provided, however, that if such registration shall be so suspended,
the period of time for which the Company is obligated to keep such registration
statement effective shall be extended for a like period of time.
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(g) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
WHEREFORE, the parties hereto have executed this Registration
Rights Agreement as of the date first written above.
INVESTORS FINANCIAL SERVICES, CORP.
By: /s/Kevin J. Sheehan
-------------------------------------
Kevin J. Sheehan
President and Chief Executive Officer
COMPANY SHARHOLDERS:
/s/Alan M. Trager
-------------------------------------
Alan M. Trager
/s/Carla E. Dearing
-------------------------------------
Carla E. Dearing
<PAGE>
August 20, 1998
Investors Financial Services Corp.
200 Clarendon Street
Boston, Massachusetts 02116
Re: S-3 Registration Statement
---------------------------
Ladies and Gentlemen:
This opinion relates to an aggregate of 440,000 shares (the "Shares") of
Common Stock, $.01 par value per share (the "Common Stock"), of Investors
Financial Services Corp., a Delaware corporation (the "Company"), which are
the subject matter of a Registration Statement on Form S-3 (the "Registration
Statement") filed pursuant to the Securities Act of 1933, as amended.
The 440,000 shares of Common Stock covered by the Registration Statement
are being sold by the Company and include 40,000 shares subject to an
over-allotment option granted by the Company to the underwriter named in the
prospectus included in the Registration Statement.
We have reviewed the corporate proceedings taken by the Board of
Directors of the Company with respect to the authorization and issuance of
the Shares. We have also examined and relied upon originals or copies,
certified or otherwise authenticated to our satisfaction, of all corporate
records, documents, agreements or other instruments of the Company and have
made all investigations of law and have discussed with the Company's officers
all questions of fact that we have deemed necessary or appropriate.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, when issued, sold and delivered against payment therefor in
accordance with the provisions of the Prospectus will be legally issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
TESTA, HURWITZ & THIBEAULT, LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Investors Financial Services Corp. (the "Company") on Form S-3 of our
report dated August 12, 1998 (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the tax-free, pro rata
distribution of Eaton Vance Corp.'s ownership in the Company), appearing in
the Current Report on Form 8-K of the Company filed on August 19, 1998 and to
the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
Deloitte & Touche LLP
Boston, MA
August 20, 1998
