<PAGE>
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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / 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
18, 2000 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 II directors, each to serve for a
three-year term and until his successor is elected and
qualified.
2. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
the Company's Common Stock.
3. To approve an amendment to the Company's Certificate of
Incorporation to decrease the number of affirmative votes
necessary to increase the number of authorized shares of the
Company's Common Stock.
4. To ratify the selection of Deloitte & Touche, LLP as
independent auditors for the fiscal year ending December 31,
2000.
5. 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 24,
2000 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 10, 2000
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
200 CLARENDON STREET
BOSTON, MA 02116
-----------------
PROXY STATEMENT
-----------------
MARCH 10, 2000
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 18, 2000, 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 24,
2000 will be entitled to receive notice of and to vote at the Annual Meeting and
any adjournments thereof. As of that date, _____________ 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, 1999, 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 10, 2000.
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 shares of 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.
On Proposal 1 - 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 each of Proposal 2 - Approval of
an amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of the Company's Common Stock, and Proposal 3 -
Approval of an amendment to the Company's Certificate of Incorporation to
decrease the number of affirmative votes necessary to increase the number of
authorized shares of the Company's Common Stock, an affirmative vote of
seventy-five percent (75%) of the voting power of all of the then outstanding
shares of the capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class. On Proposal 4 -
Ratification of Selection of Auditors, an affirmative vote of a majority of the
shares present or represented and voting on 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 a particular matter. For Proposal 1, abstentions and broker
"non-votes" will have no effect. For Proposal 2 and Proposal 3, abstentions and
broker "non-votes" will have the practical effect of votes "against." For
Proposal 4, abstentions and broker "non-
<PAGE>
votes" will 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 an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock; (ii) approve an amendment to the Company's Certificate
of Incorporation to decrease the number of affirmative votes necessary to
increase the number of authorized shares of the Company's Common Stock; and
(iii) 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 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-fact in the proxies.
On February 16, 1999, the Board of Directors of the Company 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. Share numbers in this proxy
statement have been restated to reflect the two-for-one stock split, where
applicable.
2
<PAGE>
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 24, 2000: (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) ............................ 1,051,200
720 East Wisconsin Avenue
Milwaukee, WI 53202
Entities associated with
The TCW Group, Inc (2) ....................................... 963,499
865 South Figueroa Street
Los Angeles, CA 90017
Entities associated with
PNC Bank Corp. (3) ........................................... 760,205
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15265
Frank B. Condon, Jr. (4)......................................
Robert B. Fraser (5)..........................................
Donald G. Friedl (6)..........................................
Thomas P. McDermott (7).......................................
James M. Oates (8)............................................
Phyllis S. Swersky (9) .......................................
Kevin J. Sheehan (10).........................................
Michael F. Rogers (11)........................................
Edmund J. Maroney (12)........................................
Robert D. Mancuso (13)........................................
Karen C. Keenan (14)..........................................
All officers and directors as a group (15 persons) (15).......
</TABLE>
- ------------------
* Less than 1%
3
<PAGE>
** Percentage ownership is based upon _____________ shares of Common Stock
outstanding as of February 24, 2000. Shares of Common Stock that may be
acquired within 60 days of February 24, 2000 are deemed outstanding for
purposes of computing the number of shares of Common Stock owned by 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) 492,400 shares held by The Northwestern Mutual Life
Insurance Company, (ii) 126,300 shares held by The Northwestern Mutual
Life Insurance Company Group Annuity Separate Account, (iii) 386,300
shares held by the Growth Stock Portfolio and 15,800 shares held by the
Small Cap Aggressive Growth Stock Portfolio of The Northwestern Mutual
Series Fund, Inc., a wholly-owned subsidiary of The Northwestern Mutual
Life Insurance Company, (iv) 4,500 shares held by the Asset Allocation
Fund, 21,100 shares held by the Aggressive Growth Stock Fund and 3,100
shares held by the Small Cap Growth Stock Fund of Mason Street Funds,
Inc., an affiliate of The Northwestern Mutual Life Insurance Company,
and (v) 1,700 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 January 27,
2000.
(2) Includes amounts held by Robert Day and Oakmont Corporation. All of the
above-referenced securities may be deemed to be beneficially owned by
Robert Day, who may be deemed to control The TCW Group, Inc. and other
entities which hold the above-referenced securities. Information with
respect to The TCW Group, Inc., Robert Day and Oakmont Corporation
is derived from the Schedule 13G filed jointly by The TCW Group, Inc.,
Robert Day and Oakmont Corporation with the Securities and Exchange
Commission on or about February 14, 2000. [Mr. Day disclaims
beneficial ownership with respect to 763,499 shares of the
above-referenced securities, and the reporting herein of such
securities shall not be construed as an admission by Mr. Day that
Mr. Day is the beneficial owner thereof for purposes of Section 16 or
for any other purpose.]
(3) Includes amounts held by PNC Bancorp, Inc., PNC Bank, NA, Blackrock
Advisors, Inc. and Blackrock Financial Management, Inc. Information
with respect to entities associated with PNC Bank Corp. is derived from
the Schedule 13G filed by PNC Bank Corp. with the Securities and
Exchange Commission on or about February 11,2000.
(4) Includes _____ shares of Common Stock which may be purchased within 60
days of February 24, 2000 upon the exercise of stock options granted
under the Company's 1995 Non-Employee Director Stock Option Plan (the
"Director Plan").
(5) Includes _______ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the Director Plan.
(6) Includes _______ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the Director Plan.
(7) Includes _______ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the Director Plan.
(8) Includes ______ shares of Common Stock which may be purchased within 60
days of February 24, 2000 upon the exercise of options granted under
the Director Plan.
(9) Includes _______ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the Director Plan.
4
<PAGE>
(10) Includes ______ shares of Common Stock which may be purchased within 60
days of February 24, 2000 upon the exercise of stock options granted
under the Company's Amended and Restated 1995 Stock Plan (the "1995
Plan").
(11) Includes _______ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the 1995 Plan.
(12) Includes ________ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the 1995 Plan.
(13) Includes ________ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the 1995 Plan.
(14) Includes _________ shares of Common Stock which may be purchased within
60 days of February 24, 2000 upon the exercise of stock options granted
under the 1995 Plan.
(15) Includes ________ shares of Common Stock which may be purchased by
officers and directors within 60 days of February 24, 2000 upon the
exercise of stock options granted under the 1995 Plan and _______
shares of Common Stock which may be purchased by directors within 60
days of February 24, 2000 upon the exercise of stock options granted
under the Director Plan.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation and 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. Messrs. Condon and Fraser are
Class II directors whose terms expire at the Annual Meeting of Stockholders. The
Board of Directors is also composed of (i) 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 and (ii) two Class I directors (Mr. Friedl and Ms. Swersky) whose terms
expire upon the election and qualification of directors at the Annual Meeting of
Stockholders to be held in 2002.
The Board of Directors has nominated and recommended that Messrs.
Condon and Fraser be elected Class II directors, to hold office until the Annual
Meeting of Stockholders to be held in the year 2003 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-fact 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 FRANK B. CONDON, JR. AND ROBERT B. FRASER
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:
Frank B. Condon, Jr. (1986) Director 2003 II
Robert B. Fraser (1996) Director 2003 II
CONTINUING DIRECTORS:
Donald G. Friedl (1996) Director 2002 I
Phyllis S. Swersky (1996) Director 2002 I
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>
6
<PAGE>
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 48 Chairman of the Board, President and Chief Executive Officer
Michael F. Rogers 42 Executive Vice President
Karen C. Keenan 37 Senior Vice President, Chief Financial Officer and Treasurer
Robert D. Mancuso 39 Senior Vice President - Marketing and Client Management
Edmund J. Maroney 43 Senior Vice President - Technology
David F. Flynn 53 Senior Vice President - Lending
Richard D. Bartony 54 Senior Vice President
Judy A. Murphy 38 Managing Director - Human Resources
John E. Henry 35 Managing Director, General Counsel and Secretary
James M. Oates 53 Director
Thomas P. McDermott 64 Director
Robert B. Fraser 71 Director
Frank B. Condon, Jr. 64 Director
Donald G. Friedl 67 Director
Phyllis S. Swersky 48 Director
</TABLE>
Mr. Sheehan is Chairman of the Executive Committee of which Messrs. Oates,
Condon and McDermott 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. Fraser and Ms. Swersky are also
members. Mr. Condon is Chairman of the Nominating Committee of which Mr.
McDermott and Mr. Oates 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.
7
<PAGE>
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. 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. BARTONY 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. Bartony 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 LLP 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,
8
<PAGE>
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, 1999. The Audit Committee of the Board of Directors, of which
Messrs. McDermott and Fraser 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, internal accounting, financial controls and Securities and Exchange
Commission filings. The Audit Committee met seven times during the fiscal year
ended December 31, 1999. 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 four times during the fiscal year ended December 31,
1999. 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, 1999. During
1999, 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).
9
<PAGE>
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
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, 1999, 1998 and 1997 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 $100,000 in fiscal 1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
NAME AND ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(2) COMPENSATION
($)(3)
<S> <C> <C> <C> <C> <C>
Kevin J. Sheehan............. 1999 450,000 900,000 104,562 29,062
President, Chief Executive 1998 385,000 481,250 60,000 73,086
Officer, Chairman 1997 350,000 437,500 60,000 39,520
Michael F. Rogers............ 1999 350,000 700,000 58,859 27,247
Executive Vice President 1998 302,500 302,500 50,000 25,797
1997 275,000 275,000 50,000 15,421
Edmund J. Maroney............ 1999 265,000 530,000 32,591 23,720
Senior Vice President - 1998 225,000 225,000 30,000 13,360
Technology 1997 200,000 200,000 30,000 4,635
Robert D. Mancuso............ 1999 225,000 442,577(4) 24,906 5,089
Senior Vice President - 1998 200,000 227,358(4) 30,000 5,057
Marketing and Client Management 1997 180,000 210,326(4) 30,000 751
Karen C. Keenan.............. 1999 185,000 323,750 29,882 7,652
Senior Vice President, Chief 1998 160,000 120,000 30,000 5,005
Financial Officer and 1997 140,000 70,000 30,000 700
Treasurer
</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) Reflects the two-for-one stock split made by the Company with respect
to shares of its Common Stock with an issue/payable date of March 17,
1999.
(3) The amount shown for each Named Executive Officer for 1999, 1998 and
1997 includes the dollar value ($4,800, $4,800 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 ($578, $494 and $449), Rogers ($449, $388
and $353), Maroney ($340, $289 and $257), Mancuso ($289, $257 and $231)
and Ms. Keenan ($237, $205 and $180) in 1999, 1998 and 1997,
respectively. The amounts shown also include contributions to a
non-qualified supplemental retirement plan for Mr. Sheehan ($23,684,
$67,792 and $38,551), Mr. Rogers ($21,998, $20,609 and $14,548), Mr.
Maroney ($18,580, $8,271 and $3,858) and Ms. Keenan ($2,615, $0 and $0)
in 1999, 1998 and 1997, respectively.
(4) Amounts shown represent commission payments made during 1999, 1998 and
1997, some of which payments relate to revenues generated in 1998, 1997
and 1996, respectively.
10
<PAGE>
OPTION GRANTS IN 1999
The following table sets forth certain information regarding options to
purchase Common Stock granted during 1999 by the Company to the Named Executive
Officers. The Company did not grant any stock appreciation rights in 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED ANNUAL
SHARES OPTIONS PERCENTAGE RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION FOR OPTION TERM (1)(3)
NAME GRANTED (1) FISCAL YEAR ($/SHARE) (1)(2) DATE 5% ($) 10% ($)
- ---- ----------- ------------ ---------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Sheehan...... 6,612* 1.51% 29.6875 11/08/2005 79,911 186,227
11,770* 2.69% 30.0000 11/08/2005 143,747 334,992
14,150* 3.23% 30.0000 11/12/2006 202,680 485,453
12,614* 2.88% 30.0000 11/18/2007 208,634 513,875
1,994* 0.45% 30.0000 11/16/2008 37,620 95,338
57,422** 13.10% 43.5000 11/15/2009 1,570,889 3,980,941
Michael F. Rogers..... 5,506* 1.26% 29.6875 11/08/2005 66,544 155,077
6,500* 1.48% 30.0000 11/08/2005 79,385 185,000
5,224* 1.19% 30.0000 11/12/2006 74,827 179,223
2,107* 0.48% 43.0625 11/18/2005 30,859 70,008
39,522** 9.02% 43.5000 11/15/2009 1,081,200 2,739,973
Edmund J. Maroney..... 2,128* 0.49% 29.0625 11/08/2005 25,177 58,673
1,870* 0.43% 29.0625 11/12/2006 25,948 62,150
7,438* 1.70% 29.0625 11/18/2007 119,179 293,543
1,346* 0.31% 29.6875 11/12/2006 25,130 63,685
1,296* 0.30% 43.0630 11/12/2006 22,721 52,948
18,513** 4.22% 43.5000 11/15/2009 506,459 1,283,466
Robert D Mancuso...... 5,416* 1.24% 28.9375 11/08/2005 63,803 148,688
1,202* 0.27% 28.9375 11/12/2006 16,607 39,777
1,110* 0.25% 29.6875 11/08/2005 20,724 52,519
17,178** 3.92% 43.5000 11/15/2009 469,937 1,190,913
Karen C. Keenan....... 2,892* 0.66% 29.6875 11/08/2005 34,952 81,453
8,735* 1.99% 43.5000 11/18/2007 181,420 434,532
18,255** 4.16% 43.5000 11/15/2009 499,401 1,265,579
</TABLE>
- ---------------
* Grants are exercisable immediately.
** Of the number shown, (i) a portion of the grant becomes exercisable in
48 equal monthly installments beginning November 15, 1999 and includes
a reload feature (30,000 for Mr. Sheehan, 25,000 for Mr. Rogers, 15,000
for Mr. Maroney, 15,000 for Mr. Mancuso and 15,000 for Ms. Keenan,
respectively), and (ii) a portion of the grant is exercisable
immediately (27,422 for Mr. Sheehan, 14,522 for Mr. Rogers, 3,513 for
Mr. Maroney, 2,178 for Mr. Mancuso and 3,255 for Ms. Keenan,
respectively). The reload feature provides that on an exercise of
options in which the optionee makes payment through the delivery of
previously owned shares of the Company's Common Stock, the optionee
shall receive an
11
<PAGE>
additional option to purchase that number of shares of the Company's
Common Stock as was delivered in payment for such exercise.
(1) Reflects the two-for-one stock split made by the Company with respect
to shares of its Common Stock with an issue/payable date of March 17,
1999.
(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. None of the Named Executive Officers sold during
1999 any of the shares acquired by such Named Executive Officer during
1999 upon exercise by such Named Executive Officer of options
previously held by such Named Executive Officer.
AGGREGATED OPTION EXERCISES IN 1999
AND OPTION VALUES AT DECEMBER 31, 1999
The following table sets forth certain information regarding stock
option exercises by the Named Executive Officers in 1999 and the number and
value of the Named Executive Officers' unexercised stock options at December 31,
1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT DECEMBER 31, 1999(1)(#) DECEMBER 31, 1999 ($)(1)(3)
SHARES ACQUIRED VALUE
NAME ON EXERCISE (1)(#) REALIZED (1)(2)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------ ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Sheehan......... 119,098 2,153,258 137,477 111,257 2,647,726 2,091,511
Michael F. Rogers........ 60,640 1,400,483 117,106 92,713 2,701,947 1,742,899
Edmund J. Maroney........ 25,937 425,328 55,306 53,548 1,373,576 977,189
Robert D. Mancuso........ 25,662 521,062 51,332 52,922 1,271,337 956,569
Karen C. Keenan.......... 20,830 312,410 46,546 52,506 1,017,051 942,866
</TABLE>
- ---------------
(1) Reflects the two-for-one stock split made by the Company with respect
to shares of its Common Stock with an issue/payable date of March 17,
1999.
(2) 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.
(3) 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,
1999 ($46.00 per share, the last reported sales price of the Company's
Common Stock on the Nasdaq National Market on December 31, 1999)
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. None of the Named Executive Officers sold during 1999 any of
the shares
12
<PAGE>
acquired by such Named Executive Officer during 1999 upon exercise by
such Named Executive Officer of options previously held by such Named
Executive Officer.
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 (the "1997 Plan").
BONUSES
The Company from time to time awards certain key employees bonuses
based on both individual and Company performance. The Company's 1999 Bonus Plan
was put in place in December 1998 and expired on December 31, 1999. The plan
established a target level for 1999 operating earnings per share and cash bonus
pools for executive officers based on achieving target levels. Bonuses were
allocated to management based on contributions to operating results. Payments to
Named Executive Officers in 1999 were made in the following amounts: Mr. Sheehan
$900,000; Mr. Rogers $700,000; Mr. Maroney $530,000; Ms. Keenan $323,750; and
all executive officers as a group $2,717,771.
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, 2002.
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 stockholders 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 a 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
13
<PAGE>
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 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
such participant's total eligible compensation (I.E., salary, annual bonus and
other cash earnings) in such participant's highest paid five consecutive full
calendar years of employment in such participant's last 10 consecutive full
calendar years of employment, subject to certain limits on eligible compensation
set by Federal law. For 1999, 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.
14
<PAGE>
The following table shows the estimated annual benefits payable upon
retirement in specified compensation and years of service classifications.
Amounts listed in the table are not subject to deductions for social security
or other offset amounts.
<TABLE>
<CAPTION>
Years of Service at Retirement (Age 65 in 1999)
---------------------------------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 8,935 $13,403 $ 17,870 $ 22,338 $ 24,213 $ 26,088
$100,000 $19,685 $29,528 $ 39,370 $ 49,213 $ 52,963 $ 56,713
$150,000 $30,435 $45,653 $ 60,870 $ 76,088 $ 81,713 $ 87,338
$200,000 $32,585 $48,878 $ 65,170 $ 81,463 $ 87,463 $ 93,463
$250,000 $32,585 $48,878 $ 65,170 $ 81,463 $ 87,463 $ 93,463
</TABLE>
The Named Executive Officers have the following credited years of
service under the Pension Plan: Mr. Sheehan, 24 years; Mr. Rogers, 17 years; Mr.
Maroney, 14 years; Ms. Keenan, 10 years; and Mr. Mancuso, 7 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:
o To enhance profitability of the Company and increase stockholder value.
o To reward executives in accordance with the Company's annual and
long-term performance goals.
o To recognize individual initiative and achievement.
o 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 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 1999
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 the fall of 1999, the Compensation Committee engaged Hewitt
Associates to perform an independent evaluation of executive compensation at the
Company. The Hewitt report looked at each compensation component as well as the
relative mix of compensation for both executive officers and directors of the
Company. The report compared executive compensation at the Company to
compensation at competitors of the Company and also used a number of third party
compensation surveys. The Compensation Committee used the information and
analysis contained in the Hewitt report in determining 2000 executive
compensation levels at the Company.
In November 1999, the Compensation Committee set the terms for the 2000
Executive Compensation Plan. This plan established (i) base salaries for 2000;
(ii) proposed option grant levels for 2000; and (iii) a target level for
operating earnings per share for 2000 and cash bonus pools for executive
officers based on achieving target levels. If 2000 operating earnings per share
equal the target, executive officers will receive bonuses ranging from 50% to
15
<PAGE>
125% of their salary, depending on their position and individual performance,
with the Chief Executive Officer receiving 125% of his salary. If 2000 operating
earnings per share exceed the target level, additional bonus amounts are
available. No bonuses will be payable to executive officers if 2000 operating
earnings per share are less than or equal to 1999 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 1999 base salary for Mr. Sheehan, the Company's Chief Executive
Officer and President, was established by the Board of Directors in December
1998. Under the terms of the 1999 Bonus Plan, Mr. Sheehan's bonus eligibility
was set forth on a matrix under which Mr. Sheehan would receive no bonus if 1999
operating earnings per share did not exceed 1998 operating earnings per share.
Mr. Sheehan's bonus eligibility increased incrementally with each $.05 per share
(prior to adjustment for the two-for-one stock split effective March 17, 1999)
by which 1999 operating earnings exceeded 1998 operating earnings. In accordance
with the terms of the 1999 Bonus Plan, at the Company's operating earnings level
of $1.43 per share for 1999, Mr. Sheehan was eligible for a bonus equal to 200%
of his 1999 salary, or $900,000. Accordingly, approximately 67% of his
$1,350,000 in 1999 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 104,562 shares of Common
Stock. Of this number 30,000 were granted under the Company's 1999 Executive
Compensation Plan, 47,140 were granted in place of shares surrendered in payment
of the exercise price for exercised stock options, and 27,422 were granted as
tax reimbursement options. 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 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.
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
16
<PAGE>
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 1999, non-employee directors received
an annual fee of $10,000 and an additional $1,100 for each meeting of the Board
of Directors they attended. During 2000, non-employee directors will receive
$1,700 for each meeting of the Board of Directors that they attend. Eleven Board
of Director Meetings were planned for 1999 and seven are planned for 2000.
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.
17
<PAGE>
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, 1999,
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 $8.25 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>
11/8/1995 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investors Financial Services Corp. 100 125.76 168.36 279.27 362.10 558.55
Nasdaq Stock Market Index 100 100.58 123.75 151.63 213.67 386.02
Nasdaq Financial Stocks Index 100 105.03 134.84 206.28 200.23 198.00
</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.
18
<PAGE>
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
GENERAL
The Board of Directors has voted to recommend to stockholders that the
Company amend its Certificate of Incorporation (the "Certificate of
Incorporation") to increase the number of authorized shares of the Company's
Common Stock from 20,000,000 to 40,000,000. Shares of the Company's Common
Stock, including the additional shares proposed for authorization, do not have
preemptive or similar rights. The full text of the Certificate of Amendment (the
"Certificate of Amendment") to the Certificate of Incorporation that will effect
the aforementioned amendment (the "Number Amendment") to the Certificate of
Incorporation is attached hereto as EXHIBIT A. As of February 24, 2000, the
record date for the Annual Meeting, __________ shares of Common Stock were
outstanding, with an additional ___________ shares reserved for issuance under
the 1995 Plan, the 1997 Plan and the Director Plan.
The Board of Directors believes that the authorized number of shares
of the Company's Common Stock should be increased to provide sufficient
shares for such corporate purposes as may be determined by the Board of
Directors to be necessary or desirable. These purposes may include, without
limitation: facilitating broader ownership of the Company's Common Stock by
effecting a stock split or issuing a stock dividend; acquiring other
businesses in exchange for shares of the Company's Common Stock; and raising
capital through the sale of the Company's Common Stock. The Board of
Directors considers the authorization of additional shares of the Company's
Common Stock advisable to ensure availability of shares for issuance should
the occasion arise, without the delay and expense incident to the holding of
a special meeting of stockholders to consider any specific issuance, as may
be required by Rule 4460(i)(1)(c) of the Marketplace Rules of the Nasdaq
Stock Market. Authorized but unissued shares may be issued at such time or
times, to such person or persons and for such consideration as the Board of
Directors determines to be in the best interests of the Company, without
further authorization from stockholders except as may be required by the
rules of Nasdaq. If the Number Amendment is approved, the Board will have the
authority to issue approximately [23,000,000] shares of Common Stock which
are not otherwise reserved for issuance.
The authorization of additional shares of Common Stock will not, by
itself, have any effect on the rights of the holders of existing shares. Any new
shares of Common Stock, when issued, would have the same rights and privileges
as the shares of Common Stock presently outstanding, and would be available for
issuance at such times and on such terms as the Board of Directors may consider
appropriate. Depending on the circumstances, issuance of additional shares of
Common Stock could affect the existing holders of shares by diluting the voting
power of the outstanding shares. Stockholders do not have pre-emptive rights to
purchase additional shares of Common Stock nor will they as a result of this
proposal.
There are no current negotiations, plans, commitments, agreements or
understandings relating to the issuance of any additional shares of Common
Stock. The timing of the actual issuance of additional shares will depend upon
market conditions, the specific purpose for which the stock is to be issued and
other similar factors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF THE AMENDMENT
The authorization of additional shares of Common Stock may be deemed to
have an anti-takeover effect since such shares may be used, under certain
circumstances, to create voting impediments to frustrate persons seeking to
effect a takeover or otherwise gain control of the Company. The increase in
authorized Common Stock may also be viewed as having the effect of discouraging
an attempt by another person or entity, through the acquisition of a substantial
number of shares of Common Stock, to acquire control of the Company, since the
issuance of additional shares may be used to dilute such person's ownership of
shares of the Company's voting stock.
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The Number Amendment has not been proposed as an anti-takeover measure
nor is the Board aware of any offers to acquire control of the Company. It
should be noted that any action taken by the Company to discourage an attempt to
acquire control of the Company may result in stockholders not being able to
participate in any possible premiums which may be obtained in the absence of
anti-takeover provisions. Any transaction which may be so discouraged or avoided
could be a transaction that the Company's stockholders might consider to be in
their best interests. However, the Board has a fiduciary duty to act in the best
interests of the Company's stockholders at all times.
BOARD OF DIRECTORS' RESERVATION OF RIGHTS
If the Number Amendment is approved by the stockholders, the Number
Amendment will become effective upon the filing of the Certificate of Amendment
to the Certificate of Incorporation of the Company with the Delaware Secretary
of State. The Board reserves the right, notwithstanding stockholder approval and
without further action by the stockholders, to elect not to proceed with the
Number Amendment, if at any time prior to filing the Certificate of Amendment to
the Certificate of Incorporation with the Secretary of State of the State of
Delaware the Board in its sole discretion, determines that the Number Amendment
is no longer in the best interests of the Company and its stockholders. In
addition, the Board reserves the right to delay filing the Certificate of
Amendment to the Certificate of Incorporation for up to 12 months following
stockholder approval of the Number Amendment at the Annual Meeting. However, at
the present time, the Board intends to proceed with the Number Amendment as
presented without delay.
Approval of the Number Amendment will require an affirmative vote of
seventy-five percent (75%) of the voting power of all of the then outstanding
shares of the capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class. Abstention from voting
on this proposal will have the same effect as a vote "against" this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE PROPOSED NUMBER AMENDMENT.
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
DECREASE THE NUMBER OF AFFIRMATIVE VOTES NECESSARY TO EFFECT AN INCREASE IN
THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S CAPITAL STOCK FROM
SEVENTY-FIVE PERCENT OF THE SHARES OUTSTANDING TO A MAJORITY OF THE
SHARES OUTSTANDING
The Company's Certificate of Incorporation presently requires the
affirmative vote of at least seventy-five percent (75%) of the voting power of
all of the then outstanding shares of the capital stock of the Company entitled
to vote generally in the election of directors, voting together as a single
class to effectuate an amendment to the Certificate of Incorporation increasing
the number of authorized shares of the Company's capital stock. The Board of
Directors has voted to recommend to stockholders that the Company's Certificate
of Incorporation be amended (the "Voting Amendment") to decrease the affirmative
vote required to effectuate an increase in the number of authorized shares of
the Company's Common Stock from seventy-five percent (75%) of the voting power
of all of the then outstanding shares of the capital stock of the Company
entitled to vote generally in the election of directors, voting together as a
single class to a majority of the outstanding shares of the Company entitled to
vote on the proposal. The full text of the Certificate of Amendment to the
Certificate of Incorporation that will effect the Voting Amendment is attached
hereto as EXHIBIT A.
Prior to the adoption of the Certificate of Incorporation by the Board
at the time of the Company's formation, certain drafting changes were made to
the Certificate of Incorporation that had the unintended result of imposing a
higher than normal stockholder voting requirement for increasing the number of
authorized shares. The
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Board of Directors believes the adoption of the Voting Amendment is advisable
because it will bring the Company in line with other public companies, which
typically require a vote of a majority of outstanding shares to amend their
charters to increase the number of authorized shares. Approval of the Voting
Amendment will also bring the Company in line with the Delaware General
Corporation Law, which generally requires the minimum vote of only a majority of
outstanding shares entitled to vote to increase the number of authorized shares.
Approval of the Voting Amendment will require an affirmative vote of
seventy-five percent (75%) of the voting power of all of the then outstanding
shares of the capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class. Abstention from voting
on this proposal will have the same effect as a vote "against" this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSED
VOTING AMENDMENT.
PROPOSAL 4
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, 2000. 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, 2000 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(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (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 Securities and Exchange Commission (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 year ended December
31, 1999, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in the year ended December 31, 1999, except
that Donald G. Friedl filed late one Form 4 with respect to a sale of shares of
the Company.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Company's proxy
materials to be furnished to all stockholders entitled to vote at the 2001
Annual Meeting of Stockholders pursuant to Rule 14a-8 promulgated by the
Commission under the Exchange Act must be received at the Company's principal
executive offices not later than November 20, 2000. Under the Company's By-laws,
stockholders who wish to make a proposal at the 2001 Annual Meeting - other than
one that will be included in the Company's proxy materials - must notify the
Company
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no earlier than October 21, 2000 and no later than November 20, 2000. If a
stockholder who wished to present a proposal fails to notify the Company by
November 20, 2000, the stockholder would not be entitled to present the proposal
at the meeting. If, however, notwithstanding the requirements of the Company's
By-laws, the proposal is brought before the meeting, then under the Commission's
proxy rules the proxies solicited by management with respect to the 2001 Annual
Meeting will confer discretionary voting authority with respect to the
stockholder's proposal on the persons selected by management to vote the
proxies. If a stockholder makes a timely notification, the proxies may still
exercise discretionary voting authority under circumstances consistent with the
Commission's proxy rules. All stockholder proposals must comply with the
applicable requirements of the Company's By-laws, a copy of which is on file
with the Commission. 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. The Company has retained Innisfree M&A Corporation of New
York, New York to assist in the solicitation of proxies at a cost estimated not
to exceed $12,500.
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EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INVESTORS FINANCIAL SERVICES CORP.
Investors Financial Services Corp. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware ("GCL"), does hereby certify as follows, pursuant to Section
242 of the GCL:
FIRST: That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors, at a meeting held on February 15, 2000, in accordance with Section
242 of the GCL, duly adopted a resolution (i) proposing an amendment to the
Certificate of Incorporation of the Corporation, (ii) declaring said amendment
to be advisable and in the best interests of the Corporation's stockholders and
(iii) directing that the matter be submitted to the stockholders of the
Corporation for the approval of said amendment.
SECOND: The amendment to the Certificate of Incorporation of the
Corporation was duly adopted at the Annual Meeting of Stockholders of the
Corporation held on April 18, 2000, in accordance with Section 242 of the GCL.
THIRD: That in accordance with the aforementioned resolution, the
Corporation's Certificate of Incorporation is hereby amended by amending and
restating in its entirety Article FOURTH(A) thereof and substituting in lieu
thereof the following new Article FOURTH(A):
(A) The total number of shares of all classes of
capital stock which the Corporation shall have authority to
issue is 41,650,000 shares, consisting of 40,000,000 shares
of Common Stock with a par value of One Cent ($.01) per share
(the "Common Stock"), 650,000 shares of Class A Common Stock
with a par value of One Cent ($.01) per share (the "Class A
Stock"), and 1,000,000 shares of Preferred Stock with a par
value of One Cent ($.01) per share, the designations of which
are to be determined by the Board of Directors.
A description of the respective classes of stock and
a statement of the designations, preferences, voting powers
(or no voting powers), relative, participating, optional or
other special rights and privileges and the qualifications,
limitations and restrictions of the Common Stock, Class A
Stock and Preferred Stock are as follows:
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FOURTH: That in accordance with the aforementioned resolution, the
Corporation's Certificate of Incorporation is hereby amended by amending and
restating in its entirety Article ELEVENTH thereof and substituting in lieu
thereof the following new Article ELEVENTH:
ELEVENTH. The Corporation reserves the right to amend
or repeal any provision contained in this Certificate of
Incorporation in the manner prescribed by the laws of the
State of Delaware and all rights conferred upon stockholders
are granted subject to this reservation, PROVIDED, HOWEVER,
that in addition to the vote of the holders of any class or
series of stock of the Corporation required by law or by this
Certificate of Incorporation, but in addition to any vote of
the holders of any class or series of stock of the
Corporation required by law, this Certificate of
Incorporation or a Certificate of Designation, the
affirmative vote of the holders of shares of voting stock of
the Corporation representing at least seventy-five percent
(75%) of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together
as a single class, shall be required to (i) reduce or
eliminate the number of authorized shares of Common Stock and
Class A Stock set forth in Article Fourth or (ii) amend or
repeal, or adopt any provision inconsistent with, Parts B and
C of Article FOURTH and Articles FIFTH, SIXTH, SEVENTH,
EIGHTH, NINTH, TENTH and this Article ELEVENTH of this
Certificate of Incorporation.
FIFTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the GCL.
IN WITNESS WHEREOF, Investors Financial Services Corp. has caused this
certificate to be signed by Kevin J. Sheehan, its President, as of this ____ day
of ________, 2000.
INVESTORS FINANCIAL SERVICES CORP.
By:____________________________
Name: Kevin J. Sheehan
Title: President
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<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 II Directors.
See reverse side / / / /
for instruction.
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve an amendment to
the Company's Certificate of
Incorporation to increase
the number of authorized
shares of the Company's / / / / / /
Common Stock.
FOR AGAINST ABSTAIN
3. To approve an amendment to
the Company's Certificate of
Incorporation to decrease
the number of affirmative votes
necessary to increase the number
of authorized shares of the Company's
Common Stock. / / / / / /
FOR AGAINST ABSTAIN
4. To ratify the selection of
Deloitte & Touche LLP as auditors
for the fiscal year ending / / / / / /
December 31, 2000.
(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 18, 2000, 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 10, 2000, a copy of which has been received by
the undersigned. The proxies are further authorized to vote, in their
judgment, upon such other business as may properly come before the meeting or
any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AS DESCRIBED
IN ITEM 1, FOR THE PROPOASALS IN ITEMS 2, 3 AND 4, AND IN THE JUDGEMENT OF
THE PROXIES NAMED HEREIN WITH RESPECT TO ANY OTHER MATTERS.
The nominees for Class II Director are:
Frank B. Condon, Jr. and Robert B. Fraser
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)
