<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Investors Financial Services Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
200 CLARENDON STREET
BOSTON, MA 02116
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------
To the Stockholders of Investors Financial Services Corp.:
The Annual Meeting of Stockholders of Investors Financial Services
Corp. (the "Company"), a Delaware corporation, will be held on Tuesday, April
13, 1999 at 11:00 a.m., local time, at the company's offices at 200 Clarendon
Street, 17th Floor, Boston, Massachusetts, for the following purposes:
1. To elect two (2) Class I directors, each to serve for a
three-year term and until his or her successor is elected and
qualified.
2. To approve the Company's Amended and Restated 1995
Non-Employee Director Stock Option Plan.
3. To ratify the selection of Deloitte & Touche, LLP as
independent auditors for the fiscal year ending December 31,
1999.
4. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on February 17,
1999 are entitled to notice of and to vote at the meeting and any adjournments
thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if such stockholder has returned a proxy.
By Order of the Board of Directors
John E. Henry
Secretary
Boston, Massachusetts
March 5, 1999
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
200 CLARENDON STREET
BOSTON, MA 02116
-----------------
PROXY STATEMENT
-----------------
MARCH 5, 1999
Proxies in the form enclosed with this proxy statement are solicited by
the Board of Directors of Investors Financial Services Corp., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders to be
held on Tuesday, April 13, 1999, at 11:00 a.m., local time, at the Company's
offices at 200 Clarendon Street, 17th Floor, Boston, Massachusetts, or at any
adjournments thereof (the "Annual Meeting").
Only stockholders of record at the close of business on February 17,
1999 will be entitled to receive notice of and to vote at the Annual Meeting and
any adjournments thereof. As of that date, 6,741,778 shares of the Company's
Common Stock, $.01 par value per share (the "Common Stock"), were issued and
outstanding. An Annual Report to Stockholders, containing financial statements
for the fiscal year ended December 31, 1998, is being mailed together with this
proxy statement to all stockholders entitled to vote. This proxy statement and
the form of proxy were first mailed to stockholders on or about March 5, 1999.
The holders of Common Stock are entitled to one vote per share on any
proposal presented at the Annual Meeting. Stockholders may vote in person or by
proxy. Execution of a proxy will not in any way affect a stockholder's right to
attend the Annual Meeting and vote in person. Any stockholder giving a proxy has
the right to revoke it by written notice delivered to the Secretary of the
Company at any time up to and including the last business day before the day of
the Annual Meeting or to the Chairman of the Annual Meeting on the day of the
Annual Meeting or any adjournment thereof.
The representation in person or by proxy of at least a majority of the
outstanding Common Stock entitled to vote at the meeting is necessary to
constitute a quorum for the transaction of business. Votes withheld from any
director nominee, abstentions and broker "non-votes" are counted as present or
represented for purposes of determining the presence or absence of a quorum for
the meeting. A "non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another proposal because, in
respect of the other proposal, the nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
In the election of directors, the nominees receiving the highest number
of affirmative votes of the shares present or represented and entitled to vote
at the meeting shall be elected as directors. Votes may be cast in favor of or
withheld from each nominee. On all other matters being submitted to
stockholders, an affirmative vote of a majority of the shares present or
represented and voting on each such matter is required for approval. An
automated system administered by the Company's transfer agent tabulates the
votes. The vote on each matter submitted to stockholders is tabulated
separately. Abstentions and broker "non-votes" are not considered to have been
voted for the particular matter and have the practical effect of reducing the
number of affirmative votes required to achieve a majority for such matter by
reducing the total number of shares from which the majority is calculated.
In addition to the election of directors, the stockholders will
consider and vote upon proposals to (i) approve the Company's Amended and
Restated 1995 Non-Employee Director Stock Option Plan; and (ii) ratify the
selection of auditors, each as further described in this proxy statement. The
persons named as attorneys-in-fact in the proxies are officers of the Company.
All properly executed proxies returned in time to be counted at the meeting will
be voted. Where a choice has been specified on the proxy with respect to the
foregoing matters, the
<PAGE>
-2-
shares represented by the proxy will be voted in accordance with the
specifications and will be voted FOR if no specification is indicated.
The Board of Directors knows of no other matters to be presented at the
meeting. If any other matter should be presented at the meeting upon which a
vote properly may be taken, shares represented by all proxies received by the
Board of Directors will be voted with respect thereto in accordance with the
judgment of the persons named as attorneys in the proxies.
On February 16, 1999, the Board of Directors declared a two-for-one
stock split in the form of a 100% stock dividend payable March 17, 1999 to
stockholders of record on March 1, 1999. All share numbers shown in this Proxy
Statement reflect shares outstanding as of February 17, 1999, PRIOR to the
two-for-one stock split. Upon completion of the stock split, all share numbers
presented in this Proxy Statement will double, but percentage ownership will
remain unchanged.
<PAGE>
-3-
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 17, 1999: (i) by each
person who, to the knowledge of the Company, beneficially owned more than 5% of
the shares of the Company's Common Stock outstanding at such date; (ii) by each
director, nominee and each executive officer identified in the Summary
Compensation Table set forth below under "Compensation and Other Information
Concerning Directors and Officers"; and (iii) by all officers, directors and
nominees as a group. Unless otherwise indicated below, each person listed below
maintains a business address c/o Investors Financial Services Corp., 200
Clarendon Street, Boston, MA 02116 and, to the knowledge of the Company, all
persons listed below have sole voting and investment power with respect to their
shares of Common Stock, except to the extent authority is shared by spouses
under applicable law or as otherwise noted.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF OWNERSHIP OF CLASS**
- ------------------- ------------ ----------
<S> <C> <C>
Entities associated with The Northwestern
Mutual Life Insurance Company (1) ............................ 519,100 7.7%
720 East Wisconsin Avenue
Milwaukee, WI 53202
Frank B. Condon, Jr. (2)...................................... 14,340 *
Robert B. Fraser (3).......................................... 4,837 *
Donald G. Friedl (4).......................................... 7,081 *
Thomas P. McDermott (2)....................................... 9,043 *
James M. Oates (5)............................................ 20,206 *
Phyllis S. Swersky (6) ....................................... 4,574 *
Kevin J. Sheehan (7).......................................... 238,180 3.5%
Michael F. Rogers (8)......................................... 136,937 2.0%
Edmund J. Maroney (9)......................................... 40,778 *
Robert D. Mancuso (10)........................................ 36,166 *
Karen C. Keenan (11).......................................... 30,637 *
All officers and directors as a group (14 persons) (12)....... 566,610 8.1%
- ------------------
</TABLE>
* Less than 1%
** Percentage ownership is based upon 6,741,778 shares of Common Stock
outstanding as of February 17, 1999. Shares of Common Stock that may be
acquired within 60 days of February 17, 1999 are deemed outstanding for
purposes of computing the average ownership of the person holding the
right to acquire such shares, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(1) Includes (i) 224,300 shares held by The Northwestern Mutual Life
Insurance Company, (ii) 75,200 shares held by The Northwestern Mutual
Life Insurance Company Group Annuity Separate Account, (iii) 205,400
shares held by the Growth Stock Portfolio of The Northwestern Mutual
Life Series Fund, Inc., a wholly-owned subsidiary of The Northwestern
Mutual Life Insurance Company, (iv) 2,900 shares held by the Asset
Allocation Fund and 10,700 shares held by the Aggressive Growth Stock
Fund of Mason Street
<PAGE>
-4-
Funds, Inc., an affiliate of The Northwestern Mutual Life Insurance
Company, and (v) 600 shares held by Northwestern Long Term Care
Insurance Company, a wholly-owned subsidiary of The Northwestern Mutual
Life Insurance Company. Information with respect to entities associated
with The Northwestern Mutual Life Insurance Company is derived from the
Schedule 13G filed by The Northwestern Mutual Life Insurance Company
with the Securities and Exchange Commission on or about February 2,
1999.
(2) Includes 7,310 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the Company's 1995 Non-Employee Director Stock Option Plan (the
"Director Plan").
(3) Includes 3,837 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the Director Plan.
(4) Includes 6,581 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the Director Plan.
(5) Includes 7,205 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of options granted under
the Director Plan.
(6) Includes 4,374 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the Director Plan.
(7) Includes 59,914 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the Company's Amended and Restated 1995 Stock Plan (the "1995
Plan").
(8) Includes 49,154 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the 1995 Plan.
(9) Includes 23,332 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the 1995 Plan.
(10) Includes 23,177 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the 1995 Plan.
(11) Includes 15,818 shares of Common Stock which may be purchased within 60
days of February 17, 1999 upon the exercise of stock options granted
under the 1995 Plan.
(12) Includes 184,620 shares of Common Stock which may be purchased by
officers and directors within 60 days of February 17, 1999 upon the
exercise of stock options granted under the 1995 Plan and 29,412 shares
of Common Stock which may be purchased by directors within 60 days of
February 17, 1999 upon the exercise of stock options granted under the
Director Plan.
<PAGE>
-5-
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The Company's By-laws provide for a Board of Directors divided into
three classes. The members of each class of directors serve for staggered
three-year terms. Mr. Friedl and Ms. Swersky are Class I directors whose terms
expire at the Annual Meeting of Stockholders. The Board of Directors is also
composed of (i) two Class II directors (Messrs. Condon and Fraser) whose terms
expire upon the election and qualification of directors at the Annual Meeting of
Stockholders to be held in 2000 and (ii) three Class III directors (Messrs.
Sheehan, Oates and McDermott) whose terms expire upon the election and
qualification of directors at the Annual Meeting of Stockholders to be held in
2001.
The Board of Directors has nominated and recommended that Mr. Friedl
and Ms. Swersky be elected Class I directors, to hold office until the Annual
Meeting of Stockholders to be held in the year 2002 and until their successors
have been duly elected and qualified or until their earlier resignation or
removal. The Board of Directors knows of no reason why the nominees should be
unable or unwilling to serve, but if any nominee should for any reason be unable
or unwilling to serve, the proxies will be voted or not voted in accordance with
the judgment of the persons named as attorneys in the proxies with respect to
the vacancy created by that nominee's inability or unwillingness to serve.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the nominees named below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE ELECTION OF DONALD G. FRIEDL AND PHYLLIS S. SWERSKY
The following table sets forth the nominees to be elected at the Annual
Meeting and, for each director whose term of office will extend beyond the
Annual Meeting, the year such nominee or director was first elected a director,
the positions currently held by the nominees and each director with the Company,
the year the nominee's or director's term will expire and the class of director
of each nominee and each director:
<TABLE>
<CAPTION>
NOMINEE'S OR DIRECTOR'S
NAME AND YEAR NOMINEE OR POSITION(S) WITH YEAR TERM CLASS OF
DIRECTOR FIRST BECAME A DIRECTOR THE COMPANY WILL EXPIRE DIRECTOR
- -------------------------------- ----------- ----------- --------
<S> <C> <C> <C>
NOMINEES:
Donald G. Friedl (1996) Director 2002 I
Phyllis S. Swersky (1996) Director 2002 I
CONTINUING DIRECTORS:
Frank B. Condon, Jr. (1986) Director 2000 II
Robert B. Fraser (1996) Director 2000 II
Kevin J. Sheehan (1990) Chairman, President, and 2001 III
Chief Executive Officer
James M. Oates (1995) Director 2001 III
Thomas P. McDermott (1995) Director 2001 III
</TABLE>
<PAGE>
-6-
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and the executive officers
of the Company, their ages, and the positions currently held by them with the
Company. The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full time
employee of the Company. There is no family relationship between any executive
officer or director of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kevin J. Sheehan 47 Chairman of the Board, President and Chief Executive Officer
Michael F. Rogers 41 Executive Vice President
Karen C. Keenan 36 Senior Vice President, Chief Financial Officer and Treasurer
Robert D. Mancuso 38 Senior Vice President - Marketing and Client Management
Edmund J. Maroney 42 Senior Vice President - Technology
David F. Flynn 52 Senior Vice President - Lending
Richard D. Bartoney 53 Senior Vice President
Judy A. Murphy 37 Managing Director - Human Resources
John E. Henry 34 Managing Director, General Counsel and Secretary
James M. Oates 52 Director
Thomas P. McDermott 63 Director
Robert B. Fraser 70 Director
Frank B. Condon, Jr. 63 Director
Donald G. Friedl 66 Director
Phyllis S. Swersky 47 Director
</TABLE>
Mr. Sheehan is Chairman of the Executive Committee of which Messrs.
Oates and Condon are also members. Mr. Oates is Chairman of the Compensation
Committee of which Messrs. Condon and McDermott are also members. Mr. McDermott
is Chairman of the Audit Committee of which Mr. Friedl and Ms. Swersky are also
members. The Company was organized in June 1995 to serve as the holding company
for Investors Bank & Trust Company (the "Bank") and for periods prior to that
date, references to the Company mean the Bank. The board of directors and
executive officers of the Bank are identical to the board of directors and
executive officers of the Company.
MR. SHEEHAN has served as a director since 1990 and as President since
June 1992. He has been Chief Executive Officer and Chairman of the Board of
Directors since June 1995. Prior to joining the Company in May 1990 with the
Company's acquisition of the Financial Products Services Division of the Bank
of New England, Mr. Sheehan was a Senior Vice President at the Bank of New
England.
MR. ROGERS has been Executive Vice President since September 1993, and has
had responsibility for all operating areas since 1990. Prior to joining the
Company in May 1990 with the Company's acquisition of the Financial Products
Services Division of Bank of New England, Mr. Rogers was Vice President at the
Bank of New England.
MS. KEENAN has been Treasurer since September 1997 and Senior Vice
President and Chief Financial Officer since June 1995. Ms. Keenan has served as
Vice President of the Company since September 1992. She joined the Company in
August 1989 as an Operations Manager in the mutual fund group, and became Senior
Audit Officer in May 1990. She was Treasurer of the Company from July 1991 to
May 1994. Prior to joining the Company, Ms. Keenan worked for Arthur Andersen &
Co., a public accounting firm.
MR. MANCUSO has been Senior Vice President - Marketing and Client
Management since September 1993. He joined the Company in September 1992. Prior
to joining the Company, Mr. Mancuso was Eastern Region Director of Sales for PRJ
Associates, a software development firm from January 1989.
<PAGE>
-7-
MR. FLYNN has been Senior Vice President - Lending since April 1992, and
served as Director of Marketing prior to April 1992. Prior to joining the
Company in May 1990 with the Company's acquisition of the Financial Products
Services Division of Bank of New England, he was Vice President at the Bank of
New England.
MR. MARONEY has been Senior Vice President - Technology since July 1991.
Mr. Maroney served as a Systems Manager in the custody department prior to
becoming Senior Vice President. Prior to joining the Company in May 1990 with
the Company's acquisition of the Financial Products Services Division of the
Bank of New England, he was Vice President at the Bank of New England.
MR. BARTONEY has been Senior Vice President since 1990. Prior to joining
the Company in May 1990 with the Company's acquisition of the Financial Products
Services Division of the Bank of New England, Mr. Bartoney was Vice President at
the Bank of New England.
MS. MURPHY has been Managing Director of Human Resources since September
1997. Prior to joining the Company, Ms. Murphy was Vice President - Human
Resources at Fidelity Investments.
MR. HENRY has been General Counsel of the Company since February 1996,
Secretary of the Company since January 1997 and Managing Director since November
1998. Prior to joining the Company, Mr. Henry was an associate at the Boston law
firm of Testa, Hurwitz & Thibeault LLP.
MR. OATES has been a director of the Company since June 1995. Mr. Oates has
been Chairman of IBEX Capital Markets, LLC since 1996 and has been the managing
director of the Wydown Group, a consulting firm specializing in start-ups,
turn-arounds and defining growth strategies since 1994. Mr. Oates served as
President and Chief Executive Officer of Neworld Bancorp Incorporated from 1984
to 1994. Mr. Oates is also a director of Blue Cross and Blue Shield of New
Hampshire, Stifel Financial Corporation, Phoenix, Duff & Phelps, Plymouth Rubber
Company and Command Systems, as well as twenty-five Phoenix Mutual Funds and six
AIB Govett Funds.
MR. MCDERMOTT has been a director of the Company since June 1995. He has
been Managing Director of TPM Associates, a consulting firm, since January 1994.
He served as Managing Partner, New England Area of Ernst & Young from 1989 to
1993. Mr. McDermott is also a director of ACCION International and the Pioneer
Institute of Public Policy Research.
MR. FRASER has been a director of the Company since June 1996. Mr. Fraser
was Chairman of the Boston law firm of Goodwin, Procter & Hoar LLP from 1984 to
1997 and serves as a director of several charitable organizations.
MR. CONDON has been a director of the Company since April 1986. From July
1982 to July 1993, he was Chief Executive Officer and President, and from July
1993 to April 1997 he was Chief Executive Officer and Chairman of Woodstock
Corporation, a Boston-based investment management firm and of its wholly owned
subsidiary, Woodstock Service Corporation, a provider of financial services.
Mr. Condon also serves as a Director of Big Sandy Management Company.
MR. FRIEDL has been a director of the Company since February 1996.
Mr. Friedl has been Managing Director of AquaBio Products Sciences, Inc., a
marine biotechnology company, since 1997. He was the Chairman, President and
Chief Executive Officer of All Seasons Services, Inc., a commercial food and
vending company, from 1986 until January 1997. Mr. Friedl currently serves as
a director of Classic Foods, Inc. and Custom Foods, Inc. Mr. Friedl also
serves on the Advisory Board of Internet Commerce Services Corp.
MS. SWERSKY has been a director of the Company since February 1996. She has
been President of The Meltech Group, a consulting firm specializing in business
advisory services for high-growth potential businesses, since 1995. She was the
President of The Net Collaborative, Inc., an Internet systems integration
company, from 1996 to 1997. She served as President of Work/Family Directions,
Inc., a provider of employee benefits programs,
<PAGE>
-8-
from 1992 through 1995. Prior to 1992, she was Executive Vice President and
Chief Financial Officer of AICorp, Inc., a computer software company.
A director may be removed for cause, which is generally defined under
Delaware law as an event of a substantial nature which directly affects the
rights and interests of a company's stockholders, such as disclosing trade
secrets of the company or embezzling corporate funds, by a vote of at least a
majority of the shares of the Company's capital stock entitled to vote in the
election of directors. A director may be removed without cause by a vote of at
least seventy-five percent of the shares of the Company's capital stock entitled
to vote in the election of directors.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met twelve times during the fiscal year ended
December 31, 1998. The Audit Committee of the Board of Directors, of which
Messrs. McDermott and Friedl and Ms. Swersky are currently members, reviews with
the independent accountants and management the annual financial statements and
independent auditors' opinion, discusses the scope and reviews the results of
the examination of the Company's financial statements by the independent
auditors, recommends the retention of the independent auditors to the Board of
Directors and periodically reviews the Company's accounting policies, audit
procedures and internal accounting and financial controls. The Audit Committee
met four times during the fiscal year ended December 31,1998. The Compensation
Committee, whose members currently are Messrs. Oates, McDermott and Condon, is
responsible for administering the Company's stock plans and for reviewing and
approving compensation matters concerning the executive officers and key
employees of the Company. The Compensation Committee met two times during the
fiscal year ended December 31, 1998. The Nominating Committee, whose members
currently are Messrs. Condon, McDermott and Oates, is responsible for
recommending to the Board of Directors persons to be nominated for election or
appointment as directors of the Company. The Nominating Committee will consider
nominees recommended by stockholders. Any such recommendations should be
submitted in writing to the Secretary of the Company at the Company's principal
executive offices in accordance with the nominating procedures set forth in the
Company's by-laws. The Nominating Committee met one time during the fiscal year
ended December 31, 1998. During 1998, no director attended fewer than 75% of (i)
the total number of meetings of the Board of Directors (held during the period
for which he or she has been a director) and (ii) the total number of meetings
held by all committees of the Board on which he or she served (during the period
that he or she served).
<PAGE>
-9
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUITIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation paid or earned for services rendered to the Company in all
capacities during the years ended December 31, 1998, 1997 and 1996 to (i) the
Company's Chief Executive Officer and (ii) each of the other four most highly
compensated executive officers of the Company who received total annual salary
and bonus in excess of $100,000 in fiscal 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------- ----------
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(2)
----------------------------- -------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Kevin J. Sheehan............. 1998 385,000 481,250 30,000 79,296
President; Chief Executive 1997 350,000 437,500 30,000 39,520
Officer; Chairman 1996 300,000 411,000 30,000 29,971
Michael F. Rogers............ 1998 302,500 302,500 25,000 28,032
Executive Vice President 1997 275,000 275,000 25,000 15,421
1996 250,000 312,500 25,000 9,964
Edmund J. Maroney............ 1998 225,000 225,000 15,000 14,460
Senior Vice President - 1997 200,000 200,000 15,000 4,635
Technology 1996 175,000 218,750 10,000 2,732
Robert D. Mancuso............ 1998 200,000 227,358(3) 15,000 5,847
Senior Vice President - 1997 180,000 210,326(3) 15,000 751
Marketing and Client 1996 155,000 162,000(3) 8,500 706
Management
Karen C. Keenan.............. 1998 160,000 120,000 15,000 5,005
Senior Vice President, Chief 1997 140,000 70,000 15,000 700
Financial Officer and Treasurer 1996 122,000 68,320 7,500 666
</TABLE>
- ----------
(1) Does not include non-cash compensation that in the aggregate does not
exceed the lesser of $50,000 or 10% of such named individual's cash
compensation.
(2) The amount shown for each Named Executive Officer for 1998, 1997 and
1996 includes the dollar value ($4,800, $520 and $520, respectively) of
matching contributions made pursuant to the Company's 401(k) plan, a
qualified employee benefit defined contribution plan. Also included are
net premiums paid by the Company for term life insurance for the
benefit of Messrs. Sheehan ($6,704, $449 and $240), Rogers ($2,623,
$353 and $240), Maroney ($1,389, $257 and $210), Mancuso ($1,047, $231
and $186) and Ms. Keenan ($205, $180 and $146) in 1998, 1997 and 1996,
respectively. The amounts shown also include contributions to a
non-qualified supplemental retirement plan for Mr. Sheehan ($67,792,
$38,551 and $29,211), Mr. Rogers ($20,609, $14,548 and $9,204) and Mr.
Maroney ($8,271, $3,858 and $2,002) in 1998, 1997 and 1996,
respectively.
(3) Amounts shown represent commission payments made during 1998, 1997 and
1996, some of which payments relate to revenues generated in 1997, 1996
and 1995, respectively.
<PAGE>
-10
OPTION GRANTS IN 1998
The following table sets forth certain information regarding options to
purchase Common Stock granted during 1998 by the Company to the Named Executive
Officers. The Company did not grant any stock appreciation rights in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL PERCENTAGE RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------- -----------
NAME GRANTED (1) FISCAL YEAR ($/SHARE) (2) DATE 5% ($) 10% ($)
- ---- ----------- ------------ -------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Sheehan...... 30,000 12.64% 47.875 11/16/08 903,250 2,289,013
Michael F. Rogers..... 25,000 10.53% 47.875 11/16/08 752,708 1,907,511
Edmund J. Maroney..... 15,000 6.32% 47.875 11/16/08 451,625 1,144,506
Robert D Mancuso...... 15,000 6.32% 47.875 11/16/08 451,625 1,144,506
Karen C. Keenan....... 15,000 6.32% 47.875 11/16/08 451,625 1,144,506
</TABLE>
- ---------------
(1) Grants become exercisable in 48 equal monthly installments beginning on
November 16, 1998.
(2) The exercise price per share of each option was determined by the
Compensation Committee to be equal to the fair market value per share
of the Common Stock on the date of grant.
(3) Amounts shown represent hypothetical gains that could be achieved for
the respective options exercised at the end of the option term. These
gains are based on assumed rates of appreciation of 5% and 10%
compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other
expenses associated with the exercise of the options or sale of the
underlying shares. The actual gains, if any, on the stock option
exercises will depend on the future performance of the Common Stock,
the optionholder's continued employment through the option period, the
date on which the options are exercised and the date on which the
underlying shares of Common Stock are sold. The potential realizable
value does not represent the Company's prediction of its future stock
price performance.
<PAGE>
-11
AGGREGATED OPTION EXERCISES IN 1998
AND OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth certain information regarding stock
option exercises by the Named Executive Officers in 1998 and the number and
value of the Named Executive Officers' unexercised stock options at December 31,
1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(2)
SHARES ACQUIRED VALUE ------------------------------- ------------------------
NAME ON EXERCISE (#) REALIZED (1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Sheehan...... 8,365 227,946 57,464 74,171 2,048,515 1,595,744
Michael F. Rogers..... 6,000 221,437 44,339 61,461 1,554,092 1,314,783
Edmund J. Maroney..... 2,500 111,875 18,388 32,712 604,271 631,292
Robert D. Mancuso..... 1,000 35,875 20,476 32,024 702,132 608,244
Karen C. Keenan....... 1,500 67,125 14,476 30,524 448,598 547,964
</TABLE>
- ---------------
(1) Calculated as the difference between the fair market value of the
underlying Common Stock at the exercise date of the options and the
aggregate exercise price. Actual gains on stock option exercises depend
on the value of the underlying Common Stock on the date such Common
Stock is actually sold.
(2) Value is based on the difference between the option exercise price and
the fair market value of the Company's Common Stock on December 31,
1998 ($59.625 per share, the last reported sales price of the Company's
Common Stock on the Nasdaq National Market on December 31, 1998)
multiplied by the number of shares underlying the option. The actual
gains, if any, on stock option exercises will depend on the future
performance of the Common Stock, the optionholder's continued
employment through the option period, the date on which the options are
exercised and the date on which the underlying shares of Common Stock
are sold.
STOCK PLANS
The Company currently has three stock plans: the Amended and Restated
1995 Stock Plan, the Amended and Restated 1995 Non-Employee Director Stock
Option Plan and the 1997 Employee Stock Purchase Plan.
BONUSES
The Company from time to time awards certain key employees bonuses
based on both individual and Company performance. The Company's 1998 Bonus Plan
was put in place in December 1997 and expired on December 31, 1998. The plan
established a target level for 1998 operating earnings per share and cash bonus
pools for executive officers based on achieving target levels. Bonuses were
allocated by management based on contributions to operating results. Payments to
Named Executive Officers in 1998 were made in the following amounts: Mr. Sheehan
$481,250; Mr. Rogers $302,500; Mr. Maroney $225,000; Ms. Keenan $120,000; and
all executive officers as a group $1,361,000.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Kevin J. Sheehan,
Michael F. Rogers, Robert D. Mancuso, Edmund J. Maroney and Karen C. Keenan on
October 11, 1995, each with a term of three years subject to annual renewal and
earlier termination. These agreements currently have a term that expires on
December 31, 2001.
<PAGE>
-12-
Messrs. Sheehan's and Rogers' agreements provide that the Company will
employ Messrs. Sheehan and Rogers as President and Chief Executive Officer, and
Executive Vice President, respectively, and will pay them an annual salary
determined by the Company's Board of Directors, as well as an annual bonus under
the Company's then applicable bonus plans, if any. Under their employment
agreements, the Company may terminate their employment for cause defined as (i)
a finding by the majority of the Board of Directors that the employee has
performed his duties inadequately, (ii) action or inaction by the employee which
results in a material breach of the agreement or in the employee unfairly
competing with the Company, (iii) the commission of a felony which shall
adversely affect the employee's ability to perform his duties, or (iv) the
commission of an act of fraud, dishonesty, gross negligence or deliberate
disregard for the rules and policies of the Company. Termination for cause
results in no liability to the Company beyond the payment of wages to the date
of discharge, except in the case of a termination solely pursuant to a finding
by the majority of the Board of Directors that they have performed their duties
inadequately, in which case the agreements provide for a lump sum payment equal
to nine months of their annual salary at their then current rate, as well as
nine months of continuing medical coverage paid for by the Company. Should their
employment be terminated by the Company without cause, by disability, or by
Mr. Sheehan or Mr. Rogers for good reason, which good reason includes (i) a
material change by the Company of either of their authority, functions or
duties which results in a reduction in their respective position's scope,
importance or responsibilities, (ii) a failure by the Company to comply with
the terms of the employment agreements, and (iii) with respect to Mr. Sheehan
only, a failure by the shareholders to re-elect him as a director of the
Company, the agreements provide for a lump sum payment equal to the greater of
twice their current annual salary or the salary due to be paid under the
remaining term of the agreement, plus a bonus payment equal to twice the
average of their last two annual bonuses. The agreements also provide for
continuation of medical coverage for the longer of two years or the remaining
term of the agreement. The agreements also provide that the Company shall pay
to Messrs. Sheehan and Rogers an amount sufficient to fund a life insurance
policy payable to the beneficiaries of their choice in a face amount equal to
same amount as that they would receive upon termination of their employment by
the Company without cause. Should the employment of Messrs. Sheehan or Rogers
be terminated within three months before and twelve months after a change in
control of the Company, defined to be a consolidation, merger, reorganization
or sale or transfer of all or substantially all of the assets of the Company, a
change in the majority of the Board of Directors, or the acquisition by any
person of 20% or more of the voting securities of the Company, the agreements
provide for a lump sum severance payment equal to three times their most recent
annual salary plus a payment equal to three times the average of their two most
recent annual bonuses as well as continuing medical coverage for three years.
The employment agreements with Messrs. Mancuso and Maroney and
Ms. Keenan provide that the Company will employ them as Senior Vice President -
Marketing and Client Management, Senior Vice President - Technology and Chief
Financial Officer, respectively, and will pay them an annual salary determined
by Mr. Sheehan, as President of the Company, subject to approval by the Board of
Directors, and an annual bonus in accordance with the Company's then applicable
bonus policy. The provisions regarding termination for cause under their
employment agreements are identical to those contained in the employment
agreements of Messrs. Sheehan and Rogers. Should the employment of
Messrs. Mancuso or Maroney or Ms. Keenan be terminated by the Company without
cause, by disability, or by Mr. Mancuso, Mr. Maroney or Ms. Keenan for good
reason, which good reason is defined the same as described above in the
employment agreements of Messrs. Sheehan and Rogers, the agreements provide for
a lump sum payment equal to the greater of the current annual salary of
Messrs. Mancuso or Maroney or Ms. Keenan or the salary due to be paid under
the remaining term of the agreement, plus a bonus payment equal to the average
of their last two annual bonuses. Should Ms. Keenan's employment be terminated
by death, her agreement provides for a lump sum payment in the same amount as
that she would receive upon termination of her employment by the Company
without cause. The agreements of Messrs. Maroney and Mancuso provide that the
Company shall pay to Messrs. Maroney and Mancuso an amount sufficient to fund a
life insurance policy payable to the beneficiaries of their choice in a face
amount equal to the same amount as that they would receive upon termination of
their employment by the Company without cause. The agreements also provide for
continuation of medical coverage for the longer of one year or the remaining
term of the agreement. Should the employment of Messrs. Mancuso or Maroney or
Ms. Keenan be terminated within three months before and twelve months after a
change in control of the Company, as described above in the employment
agreements of Messrs. Sheehan and Rogers, the agreements provide for a lump
sum severance payment equal to two times the most recent
<PAGE>
-13-
annual salary of Messrs. Mancuso or Maroney or Ms. Keenan, as applicable, plus a
payment equal to two times the average of their two most recent annual bonuses
as well as continuing medical coverage for two years.
PENSION PLAN
In 1971, the Company adopted the Investors Bank & Trust Pension Plan,
as amended (the "Pension Plan"), covering all employees who are at least 21
years of age. In 1996, the Company amended the Pension Plan to freeze the
admission of new entrants after December 31, 1996. Benefits under the Pension
Plan are based on an employee's years of service and his or her final average
monthly compensation. A participant's monthly benefit at normal retirement
(I.E., at or after attaining the age of 65 years) payable as a life annuity
equals a percentage of the participant's final average monthly compensation
multiplied by years of service. The percentage varies depending on years of
service and the level of final average monthly compensation. Early retirement
benefits are available to participants who have attained age 55 and have at
least 10 years of service. Benefits are payable at retirement in the form of a
monthly annuity or a single lump sum.
A participant's final average monthly compensation is the average of
his total eligible compensation (I.E., salary, annual bonus and other cash
earnings) in his highest paid five consecutive full calendar years of employment
in his last 10 consecutive full calendar years of employment, subject to certain
limits on eligible compensation set by Federal law. For 1998, such limit was
$160,000. The Pension Plan's benefit formula described above became effective in
1991, but applies to all periods of benefit service.
The following table shows the estimated annual benefits payable upon
retirement in specified compensation and years of service classifications.
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------------------------------------------
Remuneration 10 15 20 25 30 35
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$50,000 $ 8,000 $12,000 $ 16,000 $ 20,000 $ 21,875 $ 23,750
$100,000 $18,134 $27,201 $ 36,268 $ 45,335 $ 49,085 $ 52,835
$150,000 $28,884 $43,326 $ 57,768 $ 72,210 $ 77,835 $ 83,460
$200,000 $39,634 $59,451 $ 79,268 $ 99,085 $106,585 $114,085
$250,000 $50,384 $75,576 $100,768 $125,960 $135,335 $144,710
$300,000 $61,134 $91,701 $122,268 $152,835 $164,085 $175,335
</TABLE>
The Named Executive Officers have the following credited years of
service under the Pension Plan: Mr. Sheehan, 25 years; Mr. Rogers, 17 years; Mr.
Maroney, 12 years; Ms. Keenan, 10 years; and Mr. Mancuso, 6 years.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
three member Compensation Committee of the Board of Directors (the "Compensation
Committee"). The three members of the Compensation Committee are non-employee
Directors. Pursuant to the authority delegated by the Board of Directors, the
Compensation Committee establishes each year the compensation of the Chief
Executive Officer, and together with the Chief Executive Officer, establishes
the compensation of the other executive officers of the Company.
The Company's compensation policy for executive officers is designed to
achieve the following objectives:
- To enhance profitability of the Company and increase stockholder
value.
- To reward executives in accordance with the Company's annual and
long-term performance goals.
- To recognize individual initiative and achievement.
- To provide competitive compensation that will attract and retain
qualified executives.
The compensation program for executive officers consists of three
elements: (1) base salary, which is determined on an annual basis and is
primarily dependent on external market data; (2) annual incentive
<PAGE>
-14-
compensation in the form of cash bonuses which are based on the achievement of
both pre-determined financial objectives of the Company and individual
objectives; and (3) long-term incentive compensation, in the form of stock
options, granted periodically with the objective of aligning the executive
officers' long-term interests with those of the stockholders, encouraging
superior results over an extended period and retaining key executive officers.
Base salary is intended to be competitive with base salary offered for
similar executive positions at other local companies in the same or similar
industries. The base salary for the Company's executive officers for 1998
reflected a mid-range level of competitive compensation in order to attract and
retain key executive officers. In addition to external market data, the
Committee also reviews the Company's financial performance and individual
performances when adjusting base salary annually.
In November 1998, the Compensation Committee set the terms for the 1999
Bonus Plan, which is to be reviewed and updated annually. This plan established
a target level for operating earnings per share for 1999 and cash bonus pools
for executive officers based on achieving target levels. If 1999 operating
earnings per share equal the target, executive officers will receive bonuses
ranging from 50% to 125% of their salary, depending on their position and
individual performance, with the Chief Executive Officer receiving 125% of his
salary. If 1999 operating earnings per share exceed the target level, additional
bonus amounts are available. No bonuses will be payable to executive officers if
1999 operating earnings per share are less than or equal to 1998 operating
earnings per share.
Long-term incentive compensation, in the form of stock options, also
aligns executive officers' interests with those of stockholders. In addition,
the Compensation Committee believes that equity ownership by executive officers
helps to balance the short term focus of annual incentive compensation with an
emphasis on long-term financial results and may help to retain key executive
officers.
When establishing stock option grant levels, the Compensation Committee
considers existing levels of stock ownership, previous grants of stock options,
vesting schedules and exercise price of outstanding options and the current
stock price. Stock options granted under the Company's 1995 Stock Plan have had
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant and generally vest over a four-year period.
The 1998 base salary for Mr. Sheehan, the Company's Chief Executive
Officer and President, was established by the Board of Directors in December
1997. Under the terms of the 1998 Bonus Plan, Mr. Sheehan's bonus eligibility
was set forth on a matrix under which Mr. Sheehan would receive no bonus if 1998
operating earnings per share did not exceed 1997 operating earnings per share.
Mr. Sheehan's bonus eligibility increased incrementally with each $.05 per share
by which 1998 operating earnings exceeded 1997 operating earnings. In accordance
with the terms of the 1998 Bonus Plan, at the Company's operating earnings level
of $2.20 per share for 1998, Mr. Sheehan was eligible for a bonus equal to 125%
of his 1998 salary, or $481,250. Accordingly, approximately 56% of his $866,250
in 1998 cash compensation was based on corporate performance, specifically, the
Company's operating earnings per share. Also, the Compensation Committee granted
Mr. Sheehan options to purchase 30,000 shares of Common Stock. The Board of
Directors believes that Mr. Sheehan has led the Company toward achieving its
goals of growth in the revenue and client base and expansion in the breadth of
services provided. The Board specifically noted the Company's successful
completion of two strategic acquisitions during 1998 and the Company's overall
performance under Mr. Sheehan.
In general, under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), the Company cannot deduct, for federal income tax
purposes, compensation in excess of $1,000,000 paid to certain executive
officers. This deduction limitation does not apply, however, to compensation
that constitutes "qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations promulgated thereunder. The
Compensation Committee has considered the limitations on deductions imposed by
Section 162(m) of the Code, and it is the Compensation Committee's present
intention that, for so long as it is consistent with its overall compensation
objective, substantially all tax deductions attributable to executive
compensation will not be subject to the deduction limitations of Section 162(m)
of the Code.
<PAGE>
-15-
The Compensation Committee is satisfied that the executive officers of
the Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute towards achieving this goal.
RESPECTFULLY SUBMITTED BY
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
James M. Oates
Frank B. Condon, Jr.
Thomas P. McDermott
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has established a Compensation Committee
currently consisting of Messrs. Oates, Condon and McDermott. No executive
officer of the Company served as a member of the Compensation Committee of
another entity (or other committee of the Board of Directors performing
equivalent functions or, in the absence of any such committee, the entire Board
of Directors), one of whose executive officers served as a director of the
Company.
COMPENSATION OF DIRECTORS
Employee directors do not receive cash compensation for their service
as members of the Board of Directors. For 1998, non-employee directors received
an annual fee of $10,000 and an additional $1,000 for each meeting of the Board
of Directors they attended. During 1999, non-employee directors will receive
$1,100 for each meeting of the Board of Directors that they attend. Non-employee
directors are also eligible for participation in the 1995 Non-Employee Director
Stock Option Plan, pursuant to which each non-employee director receives
automatic grants of options and is eligible to receive their annual fee in the
form of stock options. See Proposal 2 "Approval of the Amended and Restated 1995
Non-Employee Director Stock Option Plan."
<PAGE>
-16-
STOCK PERFORMANCE
The following graph compares the change in the cumulative total
stockholder return on the Company's Common Stock for the period from the
Company's initial public offering on November 8, 1995 through December 31, 1998,
with the cumulative total return on the Center for Research in Securities Prices
Index for the Nasdaq Stock Market ("Nasdaq Stock Market Index") and the Center
for Research in Securities Prices Index for Nasdaq financial stocks ("Nasdaq
Financial Stocks Index"). The comparison assumes $100 was invested on November
8, 1995 in the Company's Common Stock at the $16.50 initial offering price and
in each of the foregoing indices and assumes reinvestment of dividends, if any.
Comparison of Five Year(1) Cumulative Total Return Among
Investors Financial Services Corp., Nasdaq Stock Market Index
and Nasdaq Financial Stocks Index
<TABLE>
<CAPTION>
11/8/95 12/29/95 12/31/96 12/31/97 12/31/98
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Investors Financial Services Corp...... 100 125.76 168.36 279.45 362.76
Nasdaq Stock Market Index.............. 100 100.58 123.68 151.74 213.30
Nasdaq Financial Stocks Index.......... 100 105.02 134.63 205.66 198.99
</TABLE>
- ------------
(1) Prior to November 8, 1995 the Company's Common Stock was not
publicly traded.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has adopted a policy whereby all transactions between the
Company and its officers, directors and affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by a majority of the disinterested members of the Company's
Board of Directors.
<PAGE>
-17-
PROPOSAL 2
APPROVAL OF THE AMENDED AND RESTATED 1995 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
The 1995 Non-Employee Director Stock Option Plan was adopted by the
Board of Directors and approved by the Company's sole stockholder in October
1995 and subsequently amended and restated and approved by the stockholders of
the Company in 1997. The Director Plan provides for the grant of options to
purchase a maximum of 100,000 shares of Common Stock to non-employee directors
of the Company. The Board of Directors has approved and recommended to the
stockholders that they approve the Amended and Restated 1995 Non-Employee
Director Plan containing the amendments set forth below.
THE AMENDMENTS
The Director Plan, as amended, will allow non-employee directors to pay
for the exercise price of vested options through the surrender of shares of
Common Stock already owned by the director. As amended, the Director Plan also
provides that shares of Common Stock surrendered in payment of the exercise
price are added back into the total number of shares available for grant under
the Director Plan. Therefor, only the net number of shares issued upon such an
exercise are counted against the number of shares issued under the Director
Plan. For example, if a director exercises options to purchase 300 shares of
Common Stock and pays the exercise price by delivering 200 shares of Common
Stock, only the net 100 shares are counted as being issued under the Director
Plan.
The proposed amendments also provide for the automatic grant of
"reload" options when a non-employee director exercises options using the
surrender of shares method. The new "reload" stock option will:
- be an option to purchase the number of shares paid to
the Company as the exercise price for the exercise of
the original stock option
- have a per share exercise price equal to the fair
market value of the Common Stock as of the date of
exercise of the original stock option
- be immediately exercisable and have a term of ten
years from the date of the original stock option
- otherwise have the same terms and conditions as the
original stock option, except that it will not
provide for the automatic grant of additional reload
stock options upon its exercise
Finally, the amendments to the Director Plan provide for two changes to
the provisions regarding the term of option agreements. First, the Director
Plan, as amended, states that option grants after January 12, 1999 shall have a
term of ten years from the date of grant, an increase from the previous
five-year term. Second, the Director Plan provides that if a non-employee
director ceases to be a member of the Board for any reason other than death or
permanent disability, any outstanding option shall remain exercisable until the
scheduled expiration date of the option. The Director Plan previously provided
that all such vested options would terminate 90 days after cessation of Board
membership. Such option shall remain exercisable, however, only to the extent
the option was exercisable at the time the director ceased to be a member of the
Board.
The Company relies on stock options as the essential part of the
compensation package necessary for the Company to attract and retain qualified
and experienced non-employee members of its Board of Directors. Non-employee
directors receive a grant of options to purchase 2,500 shares of Common Stock at
the fair market value on the date of grant upon their initial election to the
Board and upon each one-year anniversary of their election. Non-employee
directors also receive an annual cash retainer of $10,000 plus 1,100 for each
meeting attended.
Surrendering shares of Common Stock in payment of the exercise price
allows non-employee directors to purchase and hold shares without having to
raise cash or, as is common, immediately sell the option shares in a cashless
exercise in order to pay the exercise price. In addition, the grant of the
reload option encourages non-employee directors to exercise and hold shares of
Common Stock because they can continue to participate in future appreciation in
the price of the Common Stock without the reduction in their stock ownership
that would otherwise
<PAGE>
-18-
occur when they paid to the Company the shares of Common Stock representing the
exercise price. These provisions encourage non-employee directors to exercise
their options, and own shares of Common Stock outright, earlier in the option
term. Continued ownership of Common Stock by non-employee directors aligns the
interests of those directors with the interests of the Company's stockholders.
Accordingly, the Company and the Board believe, therefore, that these amendments
are in the best interest of both the Company and its stockholders.
DESCRIPTION OF THE DIRECTOR PLAN
The complete text of the Amended and Restated 1995 Non-Employee
Director Stock Option Plan, as amended (the "Director Plan"), is attached hereto
as APPENDIX A and the following discussion is qualified in its entirety by the
full text of the Director Plan.
The Director Plan is administered by the Board or by a committee
appointed by the Board. The Board or the appointed committee, subject to the
provisions of the Director Plan, has the power to construe the Director Plan, to
determine all questions thereunder, and to adopt and amend such rules and
regulations for the administration of the Director Plan as it may deem
desirable. The Compensation Committee currently administers the Director Plan.
The Director Plan authorizes the grant of options for up to 100,000
shares of Common Stock. As of the Record Date, options to purchase 66,940 shares
of Common Stock had been granted under the Director Plan. Outstanding options
under the Director Plan are subject to adjustment for capital changes. If any
options granted under the Director Plan are surrendered before exercise or lapse
without exercise, in whole or in part, the shares reserved therefor shall
continue to be available under the Director Plan. If an optionee uses shares of
Common Stock to pay the exercise price of an option, only the number of shares
issued net of shares tendered in payment of such exercise price shall be deemed
to be issued for the purposes of determining the maximum number of shares
available under the Director Plan.
The Director Plan authorizes the grant to each director who is not an
employee of the Company and who is first elected as a director after the date of
the Company's initial public offering, an option to purchase 2,500 shares of
Common Stock on the date of such director's first election to the Board. Each
non-employee director will also receive, on each one-year anniversary of such
director's first election to the Board, an option to purchase 2,500 shares of
Common Stock, provided that such director has continuously served on the Board
during such one-year period.
In addition to the automatic grant of options described above, the
Director Plan, as amended, also provides that each non-employee director may
make a written election (an "Election") to receive, in lieu of his or her cash
retainer, options to acquire shares of Common Stock. Any Election must be
received by the Company no less than six-months prior to the scheduled payment
of the cash retainer which the Election is scheduled to replace. Each
non-employee director who elects to receive options in lieu of his or her cash
retainer shall be granted an option to purchase shares on the first day of each
calendar quarter. The total number of shares of stock to be covered by the
option is equal to the quotient obtained by dividing the cash retainer scheduled
to be paid on such date by the value of an option on the date of grant as
determined using the Black-Scholes model. An Election may only be revoked by a
written revocation, which revocation shall take effect six months after receipt
of such revocation by the Company.
If an optionee makes payment for the exercise of an option granted
hereunder through the delivery to the Company of shares of Common Stock, such
optionee shall be granted automatically a new "reload" stock option. Such new
"reload" stock option shall (i) be an option to purchase the number of shares
paid to the Company as the exercise price for the exercise of the original stock
option, (ii) have a per share exercise price equal to the fair market value of
such shares as of the date of exercise of the original stock option, (iii) be
immediately exercisable and have a term of ten years from the date of the
original stock option, and (iv) otherwise have the same terms and conditions as
the original stock option, except that it will not provide for the automatic
grant of additional reload stock options upon its exercise.
<PAGE>
-19-
The exercise price per share of options granted under the Director Plan
is 100% of the fair market value of the Company's Common Stock on the date the
option is granted. The exercise price is subject to adjustment for changes in
capitalization. The Director Plan requires that options granted thereunder will
expire on the date which is ten years from the date of grant. Options granted
prior to January 12, 1999 expire on the date which is five years from the date
of grant. Each option granted pursuant to the automatic grant provisions of the
Director Plan becomes exercisable in forty-eight equal monthly installments.
Options granted in lieu of a cash retainer and reload options vest immediately.
Subject to the terms and conditions of the Director Plan, an option
granted under the Director Plan shall be exercisable in whole or in part by
giving written notice to the Company at its principal executive offices. The
notice must state the number of shares as to which the option is being exercised
and must be accompanied by payment in full for such shares by cash, check,
surrender of shares of Common Stock or, consistent with applicable law, through
the delivery of an assignment to the Company of a sufficient amount of the
proceeds from the sale of the Common Stock acquired upon exercise of the option
and an authorization to the broker or selling agent to pay that amount to the
Company.
If an optionee ceases to be a member of the Board for any reason other
than death or permanent disability, any unexercised portion of an option to the
extent vested remains exercisable until the scheduled expiration date of the
option. In the event that an optionee ceases to be a member of the Board by
reason of his or her death or permanent disability, any option granted to such
optionee shall be immediately and automatically accelerated and become fully
vested and all unexercised options shall be exercisable by the optionee (or by
the optionee's personal representative, heir or legatee, in the event of death)
until the scheduled expiration date of the option.
No option granted pursuant to the Director Plan is assignable or
transferable other than by will or by the laws of descent and distribution and
is exercisable during the optionee's lifetime only by him or her. Option holders
and the Company are protected against dilution in the event of a stock dividend,
recapitalization, stock split, merger or similar transaction. Upon the happening
of any of the foregoing events, the class and aggregate number of shares
reserved for issuance upon the exercise of options under the Director Plan shall
be appropriately adjusted to reflect the events.
Options may not be granted under the Director Plan after October 1,
2005, and the Director Plan will terminate when all options granted or to be
granted thereunder are no longer outstanding. The Board may from time to time
adopt amendments, certain of which are subject to shareholder approval, and may
terminate the Director Plan at any time, although such action shall not affect
options previously granted under the Director Plan.
The following general rules are applicable under current federal income
tax law to options under the Director Plan.
1. Options granted under the Director Plan do not qualify as
"Incentive Stock Options" under Section 422 of the Code.
2. A Director will not recognize any taxable income upon the
grant of an option under the Director Plan (provided that the option
does not have a readily ascertainable fair market value), but will
generally recognize ordinary compensation income at the time of
exercise of the option in an amount equal to the excess, if any, of the
fair market value of the shares on the date of exercise over the
exercise price.
3. When a director sells the Common Stock acquired upon
exercise of an option, he or she generally will recognize a capital
gain or loss equal to the difference between the amount realized upon
sale of the stock and his or her basis in the stock (in the case of a
cash exercise, the exercise price plus the amount, if any, taxed to the
director as compensation income as a result of his or her exercise of
the option). If the director's holding period for the stock exceeds 1
year, the gain or loss will be long-term capital gain or loss.
<PAGE>
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4. Generally, upon any grant or exercise of an option in which
a director does not recognize compensation income, no tax deduction
will be allowed to the Company. When a director recognizes compensation
income as a result of the exercise of an option under the Director
Plan, the Company generally will be entitled to a corresponding
deduction for income tax purposes.
5. Special rules apply if the Common Stock acquired through
the exercise of an option is subject to vesting or resale restrictions
under federal securities laws applicable to directors.
Approval of the Amended and Restated 1995 Non-Employee Director Stock
Option Plan will require an affirmative vote of a majority of the outstanding
shares of Common Stock of the Company represented in person or by proxy at the
Annual Meeting and voting on this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE PROPOSAL TO APPROVE THE AMENDED AND RESTATED
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
PROPOSAL 3
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has selected the firm of Deloitte & Touche LLP ("Deloitte & Touche"),
independent certified public accountants, to serve as auditors for the fiscal
year ending December 31, 1999. Deloitte & Touche has served as the Company's
accountants since the fiscal year ended October 31, 1989. It is expected that a
member of Deloitte & Touche will be present at the Annual Meeting with the
opportunity to make a statement if so desired and will be available to respond
to appropriate questions. Ratification of the selection of auditors is not
required under the laws of the State of Delaware but will be considered by the
Board of Directors in selecting auditors for future years.
Ratification of the selection of Deloitte and Touche to serve as
auditors for the fiscal year ending December 31, 1999 will require an
affirmative vote of a majority of the outstanding shares of Common Stock of the
Company represented in person or by proxy at the Annual Meeting and voting on
this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP.
SECTION 16 REPORTING
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Such persons are required by regulations of the Commission to furnish the
Company with copies of all such filings. Based on its review of the copies of
such filings received by it with respect to the period ended December 31, 1998,
the Company believes that all Reporting Persons complied with all Section 16(a)
filing requirements in the period ended December 31, 1998.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement
to be furnished to all stockholders entitled to vote at the next Annual Meeting
of Stockholders of the Company must be received at the Company's principal
executive offices not later than November 5, 1999 nor earlier than September 5,
1999. Proposals of stockholders not intended for inclusion in the proxy
statement must be received at the Company's principal executive offices not
later than November 5, 1999 nor earlier than September 5, 1999 to be properly
brought before
<PAGE>
-21-
the next Annual Meeting of Stockholders of the Company. All stockholder
proposals must comply with the applicable requirements of the Company's by-laws.
In order to curtail controversy as to the date on which a proposal was received
by the Company, it is suggested that proponents submit their proposals by
Certified Mail, Return Receipt Requested, to Investors Financial Services Corp.,
P.O. Box 9130, Boston, MA 02117-9130, Attention: Corporate Secretary.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and
in addition to soliciting stockholders by mail through its regular employees,
the Company may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company registered
in the names of a nominee and, if so, will reimburse such banks, brokers and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company may also be made of
some stockholders in person or by mail, telephone or telegraph following the
original solicitation.
<PAGE>
APPENDIX A
INVESTORS FINANCIAL SERVICES CORP.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDED AND RESTATED AS OF JANUARY 12, 1999
1. PURPOSE. This Non-Qualified Stock Option Plan, to be known as the 1995
Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is intended
to promote the interests of Investors Financial Services Corp. (hereinafter, the
"Company") by providing an inducement to obtain and retain the services of
qualified persons who are not employees or officers of the Company to serve as
members of its Board of Directors (the "Board").
2. AVAILABLE SHARES. The total number of shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") for which options may be
granted under this Plan shall not exceed 100,000 shares, subject to adjustment
in accordance with paragraph 12 of this Plan. Shares subject to this Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under this Plan are
surrendered before exercise or lapse without exercise, in whole or in part, the
shares reserved therefor shall continue to be available under this Plan. If, in
accordance with the Plan, an optionee uses shares of common stock of the Company
to pay the exercise price of an Option, only the number of shares issued net of
shares tendered in payment of such exercise price shall be deemed to be issued
for purposes of determining the maximum number of shares available under the
Plan.
3. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. AUTOMATIC GRANT OF OPTIONS. Subject to the availability of shares under
this Plan, (a) each person who is or becomes a member of the Board and who is
not an employee or officer of the Company (a "Non-Employee Director") shall be
automatically granted on the later of (i) the date such person is first elected
to the Board or (ii) the date of pricing of the Company's initial public
offering of shares of Common Stock (the "Approval Date") (such later date being
referred to herein as the "Grant Date"), without further action by the Board, an
option to purchase 2,500 shares of the Common Stock, and (b) each person
receiving an option pursuant to clause (a) above who is a Non-Employee Director
shall be, on each successive one-year anniversary of such person's Grant Date
during the term of this Plan, automatically granted on each such date an option
to purchase 2,500 shares of the Common Stock.
5. ELECTION TO RECEIVE STOCK OPTIONS. In addition to the automatic grant
of options under Section 4, subject to the availability of shares under this
Plan, each Non-Employee Director may make an election (the "Election") to
receive, in lieu of his or her cash retainer, options to acquire shares of
Common Stock. The Election must be in writing and must be delivered to the
Secretary of the Company at least six months prior to the scheduled payment date
of the cash retainer which it is intended to replace.
(a) Any Election shall be irrevocable for six months and may only be
revoked after such six-month period by a written revocation which shall take
effect six months after receipt of such revocation by the Company.
<PAGE>
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(b) Each Non-Employee Director who elects to receive options in lieu of
his or her cash retainer shall be granted an option to purchase shares on the
first day of each calendar quarter provided that at least six months has lapsed
since the Election. The total number of shares of stock to be covered by the
option shall be equal to the quotient obtained by dividing the cash retainer by
the value of an option on the date of grant as determined using the
Black-Scholes model.
6. RELOAD OPTIONS. If an optionee makes payment for the exercise of an
option granted hereunder through the delivery to the Company of shares of the
Company's Common Stock pursuant to paragraph 11(b) of this Plan, such optionee
shall be granted automatically a new "reload" stock option. Such new "reload"
stock option shall (i) be an option to purchase the number of shares provided as
consideration for the exercise price in connection with the exercise of the
original stock option, (ii) have a per share exercise price equal to the fair
market value of such shares as of the date of exercise of the original stock
option, (iii) be immediately exercisable and have a term of ten years from the
date of the original stock option, and (iv) otherwise have the same terms and
conditions as the original stock option, except that it will not provide for the
automatic grant of additional reload stock options upon its exercise.
7. OPTION PRICE. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 12 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the date of grant or, if prices or quotes are unavailable for
such date, the last business day for which such prices or quotes are available
prior to the date of grant and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then traded
on a national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market List. Notwithstanding, the purchase price
of the stock underlying the options granted upon the pricing of the Company's
initial public offering pursuant to Section 4(a)(ii) above shall be the initial
public offering price of the Company's Common Stock. However, if the Common
Stock is not publicly traded at the time an option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Common Stock as
determined by the Committee after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Common Stock in private transactions negotiated at arm's length.
8. PERIOD OF OPTION. Unless sooner terminated in accordance with the
provisions of paragraph 10 of this Plan, an option granted hereunder shall
expire on the date which is ten (10) years after the date of grant of the
option. Notwithstanding, options granted prior to January 12, 1999 shall expire
on the date which is five (5) years after the date of grant.
9. (a) VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS. Options
granted under this Plan shall not be exercisable until they become vested.
Options granted under Section 4 of this Plan shall vest in the optionee and thus
become exercisable in 48 equal monthly installments beginning one month from the
date of grant, provided that the optionee has continuously served as a member of
the Board through such vesting date. Options granted under Section 5 of this
Plan shall vest in the optionee and thus become exercisable on the date of
grant.
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan.
(b) NON-TRANSFERABILITY. Any option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
<PAGE>
-3-
10. TERMINATION OF OPTION RIGHTS.
(a) In the event an optionee ceases to be a member of the Board
for any reason other than death or permanent disability, any then unexercised
portion of options granted to such optionee shall, to the extent not then
vested, immediately terminate and become void; and any portion of an option
which is then vested but has not been exercised at the time the optionee so
ceases to be a member of the Board shall remain exercisable until the scheduled
expiration date of the option.
(b) In the event that an optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option granted
to such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the optionee
(or by the optionee's personal representative, heir or legatee, in the event of
death) until the scheduled expiration date of the option.
11. EXERCISE OF OPTION. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to the Company, at its principal
executive offices, stating the number of shares with respect to which the option
is being exercised, accompanied by payment in full for such shares. Payment may
be (a) in United States dollars in cash or by check, (b) through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) consistent with
applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon exercise of the option and an authorization to the broker or selling agent
to pay that amount to the Company, which sale shall be at the participant's
direction at the time of exercise, or (d) at the discretion of the Committee, by
any combination of (a), (b) and (c) above. There shall be no such exercise at
any one time as to fewer than one hundred (100) shares or all of the remaining
shares then purchasable by the person or persons exercising the option, if fewer
than one hundred (100) shares. The Company's transfer agent shall, on behalf of
the Company, prepare a certificate or certificates representing such shares
acquired pursuant to exercise of the option, shall register the optionee as the
owner of such shares on the books of the Company and shall cause the fully
executed certificate(s) representing such shares to be delivered to the optionee
as soon as practicable after payment of the option price in full. The holder of
an option shall not have any rights of a stockholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise of the
option.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER EVENTS. Upon the
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
(b) RECAPITALIZATION ADJUSTMENTS. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all
or substantially all of the Company's assets or otherwise, each option
granted under this Plan which is outstanding but unvested as of the
effective date of such event shall become exercisable in full 15 days
prior to the effective date of such event. In the event of a
reorganization, recapitalization, merger, consolidation, or any other
change in the corporate structure or shares of the Company, to the extent
permitted by Rule 16b-3 under the Securities Exchange Act of 1934,
adjustments in the number and kind of shares authorized by this Plan and
in the number and kind of shares covered by, and in the option price of
outstanding options under this Plan necessary to maintain the
proportionate interest of the optionee and preserve, without exceeding,
the value of such option, shall be made. Notwithstanding the foregoing, no
such adjustment shall be made which would, within the meaning of any
applicable provisions of
<PAGE>
-4-
the Internal Revenue Code of 1986, as amended, constitute a
modification, extension or renewal of any Option or a grant of
additional benefits to the holder of an Option.
(c) ISSUANCES OF SECURITIES. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
(d) ADJUSTMENTS. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in paragraphs
2, 4, 5 and 6 of this Plan that are subject to options which previously
have been or subsequently may be granted under this Plan shall also be
appropriately adjusted to reflect such events. The Board shall determine
the specific adjustments to be made under this paragraph 12 and its
determination shall be conclusive.
13. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the provisions of
paragraphs 4, 5, 6 and 12 of this Plan, the Company shall have no obligation to
deliver any certificate or certificates upon exercise of an option until one of
the following conditions shall be satisfied:
(i) The issuance of shares with respect to which the option has been
exercised is at the time of the issue of such shares effectively
registered under applicable Federal and state securities laws as now in
force or hereafter amended; or
(ii) Counsel for the Company shall have given an opinion that the
issuance of such shares is exempt from registration under Federal and
state securities laws as now in force or hereafter amended; and the
Company has complied with all applicable laws and regulations with respect
thereto, including without limitation all regulations required by any
stock exchange upon which the Company's outstanding Common Stock is then
listed.
14. LEGEND ON CERTIFICATES. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
15. REPRESENTATION OF OPTIONEE. If requested by the Company, the optionee
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
16. OPTION AGREEMENT. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
17. TERMINATION AND AMENDMENT OF PLAN. Options may no longer be granted
under this Plan after October 1, 2005, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; PROVIDED, HOWEVER, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and voting on such matter
at a meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan (except by adjustment pursuant to Section 12), (b)
materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the
Securities Exchange Act (or any successor or amended provision thereof) to
become inapplicable to this Plan; and PROVIDED FURTHER that the provisions of
this Plan specified in Rule 16b-
<PAGE>
-5-
3(c)(2)(ii)(A) (or any successor or amended provision thereof) under the
Securities Exchange Act of 1934 (including without limitation, provisions as to
eligibility, amount, price and timing of awards) may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder. Termination or any modification or amendment of this Plan shall not,
without consent of a participant, affect his or her rights under an option
previously granted to him or her.
18. WITHHOLDING OF INCOME TAXES. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.
19. COMPLIANCE WITH REGULATIONS. It is the Company's intent that the Plan
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended provision thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of this Plan
is deemed not to be in compliance with Rule 16b-3, the provision shall be null
and void.
20. GOVERNING LAW. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
<PAGE>
6461
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
WITHHOLD
AUTHORITY TO
VOTE FOR ALL
FOR ALL NOMINEES NOMINEES LISTED
LISTED ON REVERSE ON REVERSE
1. To elect two (2)
Class 1 Directors.
See reverse side / / / /
for instruction.
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve the Company's Amended
and Restated 1995 Non-Employee / / / / / /
Director Stock Option Plan.
FOR AGAINST ABSTAIN
3. To ratify the selection of
Deloitte & Touche LLP as auditors
for the fiscal year ending / / / / / /
December 31, 1999.
(PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
IF SIGNING AS ATTORNEY, EXECUTOR, TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL
TITLE AS SUCH.)
_____________________________________________________________________________
_____________________________________________________________________________
SIGNATURE(S) DATE
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kevin J. Sheehan and Karen C. Keenan and each
or either of them, proxies with full power of substitution to vote all shares
of stock of Investors Financial Services Corp. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on Tuesday, April 13, 1999, at 11:00 a.m. at the Company's
offices at 200 Clarendon Street, Boston, Massachusetts, and at any
adjournment thereof, upon matters set forth in the Notice of Annual Meeting
and Proxy Statement dated March 5, 1999, a copy of which has been received by
the undersigned.
The nominees for Class I Director are:
Phyllis S. Swersky and Donald G. Friedl
INSTRUCTION: To withhold your vote for any individual nominee, write that
nominee's name in the space provided below Proposal 1 on reverse side. To
vote for or against all nominees, see Proposal 1 on reverse side.
(To be signed on reverse side)
