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-12
Investors Financial Services Corp.
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(Name of Registrant as Specified In Its Charter)
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(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)(4)
and 0-11.
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(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
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/ / 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:
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INVESTORS
FINANCIAL SERVICES CORP.
200 CLARENDON STREET
BOSTON, MA 02116
March 11, 2003
Dear Stockholder:
We cordially invite you to attend the 2003 Annual Meeting of
Stockholders of Investors Financial Services Corp. The meeting will be held in
the Board Room on the 17th Floor at 200 Clarendon Street, Boston, Massachusetts,
on Tuesday, April 15, 2003, at 11:00 a.m.
Details regarding admission to the meeting and the business to be
conducted are more fully described in the accompanying Notice of 2003 Annual
Meeting of Stockholders and Proxy Statement.
Your vote is very important. Whether or not you plan to attend the
meeting, please carefully review the enclosed proxy statement. Then complete,
sign, date and mail promptly the accompanying proxy in the enclosed return
envelope. To be sure that your vote will be received in time, please return the
proxy at your earliest convenience.
We look forward to seeing you at the Annual Meeting so that we can
update you on our progress. Your continuing interest is very much appreciated.
Sincerely,
/s/ Kevin J. Sheehan
Kevin J. Sheehan
Chairman and Chief Executive Officer
PLEASE NOTE: STOCKHOLDERS SHOULD BE AWARE OF THE INCREASED SECURITY AT PUBLIC
FACILITIES IN BOSTON. IF YOU PLAN TO ATTEND THE MEETING, PLEASE ALLOW ADDITIONAL
TIME FOR REGISTRATION AND SECURITY CLEARANCE. YOU WILL BE ASKED TO PRESENT A
VALID, PICTURE IDENTIFICATION SUCH AS A DRIVER'S LICENSE. IF YOU OWN YOUR SHARES
THROUGH A BROKERAGE ACCOUNT OR OTHER NOMINEE, YOU MUST BRING PROOF OF OWNERSHIP
(FOR DETAILS, SEE MEETING ADMISSION IN THE NOTICE OF 2003 ANNUAL MEETING OF
STOCKHOLDERS). PUBLIC PARKING IS AVAILABLE NEARBY INCLUDING IN THE JOHN HANCOCK
PARKING GARAGE, WHICH IS ONE BLOCK FURTHER UP CLARENDON STREET FROM OUR BUILDING
ON YOUR RIGHT.
INVESTORS
FINANCIAL SERVICES CORP.
200 CLARENDON STREET
BOSTON, MA 02116
---------------
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
--------------
TIME 11:00 a.m., Eastern Time
DATE Tuesday, April 15, 2003
PLACE 200 Clarendon Street, Seventeenth Floor, Boston, Massachusetts
PURPOSE 1. To elect two (2) Class II directors;
2. To approve the amendment of the Company's Certificate of
Incorporation limiting the indemnification of officers and
directors;
3. To ratify the selection of Deloitte & Touche LLP as
independent auditors for the fiscal year ending December
31, 2003.
RECORD DATE The directors have fixed the close of business on February 25,
2003 as the record date for determining stockholders entitled to
notice of and to vote at the meeting.
MEETING For security clearance at the meeting you will be asked to
ADMISSION present a valid picture identification such as a driver's
license or passport. If your Investors Financial Services Corp.
stock is held in a brokerage account or by another nominee, you
are considered the beneficial owner of shares held in street
name, and these proxy materials are being forwarded to you by
your broker or nominee. Your name does not appear on the list of
stockholders. If your stock is held in street name, you should
also bring with you a letter or account statement showing that
you were the beneficial owner of the stock on the record date in
order to be admitted to the meeting.
VOTING Please submit a proxy as soon as possible so your shares can be
BY PROXY voted at the meeting. You may submit your proxy by mail. If your
stock is held in the name of a broker, bank or other nominee,
you may have the choice of instructing the record holder as to
the voting of your shares over the Internet or by telephone.
Follow the instructions on the form you receive from your broker
or bank.
By Order of the Board of Directors,
/s/ John E. Henry
John E. Henry
March 11, 2003 SECRETARY
INVESTORS
FINANCIAL SERVICES CORP.
200 CLARENDON STREET
BOSTON, MA 02116
PROXY STATEMENT
GENERAL INFORMATION
WHEN WAS THIS PROXY STATEMENT AND THE ACCOMPANYING PROXY SCHEDULED TO BE SENT TO
STOCKHOLDERS?
This proxy statement and accompanying proxy are scheduled to be sent to
stockholders beginning on or about March 11, 2003.
WHO IS SOLICITING MY VOTE?
The Board of Directors of Investors Financial Services Corp. ("Investors
Financial" or the "Company") is soliciting your vote for the 2003 Annual Meeting
of Stockholders.
HOW MANY VOTES CAN BE CAST BY ALL STOCKHOLDERS?
64,892,525 shares of Common Stock of Investors Financial are outstanding and
entitled to be voted at the meeting. Each share of Common Stock is entitled to
one vote on each matter.
HOW DO I VOTE?
You may vote in person at the Annual Meeting or by proxy without attending the
meeting. To vote by proxy please mark, date, sign and return the enclosed proxy
in the enclosed envelope. If you vote by the enclosed proxy your shares will be
voted at the meeting in accordance with your instructions or as provided in the
proxy. If you do not give any instructions, your shares will be voted by the
persons named in the proxy in accordance with the recommendations of the Board
of Directors given below.
If your stock is held in the name of a broker, bank or other nominee, you may
have the choice of voting your shares over the Internet or by telephone. Follow
the instructions on the form you receive from your broker or bank.
To vote in person, bring a form of personal identification with you. If your
stock is held by a broker, bank or other nominee, bring an account statement or
a letter from the record holder indicating that you own the shares as of the
record date and first obtain from the record holder a proxy issued in your name.
WHAT ARE THE BOARD'S RECOMMENDATIONS ON HOW TO VOTE MY SHARES?
The Board of Directors recommends a vote:
- FOR election of the two directors (page 6)
- FOR the amendment to Investors Financial's Certificate of Incorporation
(page 20)
- FOR the ratification of Deloitte & Touche LLP as Investors Financial's
independent auditors (page 21)
1
WHO PAYS THE COST FOR SOLICITING PROXIES?
Investors Financial will pay the cost of soliciting proxies. The solicitation of
proxies will be made primarily by mail. Investors Financial has retained
Innisfree M&A Corporation to aid in the distribution of proxies for a fee of
$2,500, plus expenses. Proxies may be solicited personally, by telephone, fax
and e-mail by employees of Investors Financial and its principal subsidiary,
Investors Bank & Trust Company (the "Bank"), without any additional
remuneration. Investors Financial will reimburse brokers, banks, custodians,
other nominees and fiduciaries for forwarding these materials to their
principals and for obtaining the authorization for the execution of proxies.
CAN I CHANGE MY VOTE?
You may revoke your signed proxy at any time before it is voted by notifying the
Secretary in writing, by returning a signed proxy with a later date, or by
attending the meeting and voting in person. If your stock is held in street
name, you must contact your broker or nominee for instructions as to how to
change your vote.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
The two nominees for election as directors who receive a plurality of the shares
voted for election of directors shall be elected directors (Item 1). The
affirmative vote of 75% of all shares outstanding and entitled to vote is
necessary to approve the amendment to Investors Financial's Certificate of
Incorporation (Item 2). The affirmative vote of a majority of all shares present
in person or represented by proxy at the meeting and entitled to vote is
necessary to ratify the selection of Deloitte & Touche LLP as Investors
Financial's independent auditors (Item 3).
HOW IS THE VOTE COUNTED?
Votes cast by proxy or in person at the Annual Meeting will be counted by the
persons appointed by Investors Financial to act as tellers for the meeting. A
majority of the shares entitled to vote at the Annual Meeting constitutes a
quorum. The tellers will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director only as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. None of the withheld votes will be counted as votes "for" a director.
Shares properly voted to "abstain" on a particular matter are considered as
shares that are entitled to vote for the purpose of determining a quorum but are
treated as having voted against the matter.
If you hold shares through a broker, bank or other nominee, generally the
nominee may vote the shares for you in accordance with your instructions. Stock
exchange and NASD rules prohibit a broker from voting shares held in a brokerage
account on some proposals (a "broker non-vote") if the broker does not receive
voting instructions from you. Under these rules, a broker may not vote in its
discretion on Item 2. Shares that are subject to a broker non-vote are counted
for determining the quorum but as not entitled to vote on the particular matter,
so without voting instructions a broker non-vote could occur on Item 2. This
will have the effect of the shares being voted against approval of Item 2.
COULD OTHER MATTERS BE DECIDED AT THE ANNUAL MEETING?
We do not know of any other matters that may be presented for action at the
meeting. Should any other business come before the meeting, the persons named on
the enclosed proxy will have discretionary authority to vote the shares
represented by such proxies in accordance with their best judgment.
2
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 25, 2003: (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 executive officers,
directors and nominees as a group. Unless otherwise indicated below, each person
listed 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.
Name and Address Amount and Nature Percent
of Beneficial Owner of Ownership*** of Class**
------------------- ----------------- ----------
Entities associated with
FMR Corp. (1) ................................................ 6,452,167 9.94%
82 Devonshire Street
Boston, MA 02109
Entities associated with
Oakmont Corporation (2) ...................................... 3,580,764 5.52%
865 South Figueroa Street
Los Angeles, CA 90017
Frank B. Condon, Jr. (3)...................................... 66,752 *
Robert B. Fraser (4).......................................... 100,533 *
Donald G. Friedl (5).......................................... 34,598 *
Thomas P. McDermott (6)....................................... 30,814 *
James M. Oates (7)............................................ 53,579 *
Phyllis S. Swersky (8) ....................................... 22,488 *
Kevin J. Sheehan (9).......................................... 2,057,445 3.17%
Michael F. Rogers (10)........................................ 1,753,097 2.70%
Edmund J. Maroney (11)........................................ 587,642 *
Robert D. Mancuso (12)........................................ 566,273 *
John N. Spinney, Jr. (13)..................................... 17,954 *
All executive officers and directors
as a group (12 persons) (14) ................................. 5,453,337 8.40%
----------
* Less than 1%
** Percentage ownership is based upon shares of Common Stock outstanding
as of February 25, 2003. Shares of Common Stock that may be acquired by
a listed person within 60 days of February 25, 2003 are deemed
outstanding for purposes of computing the number of shares of Common
Stock owned by that person, but are not deemed outstanding for purposes
of computing the percentage ownership of any other person.
3
*** 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. On May 15, 2000, the Board
of Directors declared a two-for-one stock split in the form of a 100%
stock dividend payable June 15, 2000 to stockholders of record on May
31, 2000. On April 23, 2002, the Board of Directors declared a
two-for-one stock split in the form of a 100% stock dividend payable
June 14, 2002 to stockholders of record on May 24, 2002. Share numbers
in this proxy statement have been restated to reflect these stock
splits, where applicable.
(1) All shares may be deemed to be beneficially owned by members of the
Johnson family who may be deemed to control FMR Corp. Information with
respect to FMR Corp. and its affiliates is derived from the Schedule
13G/A filed jointly by FMR Corp., Edward C. Johnson 3d, Abigail P.
Johnson and Fidelity Management & Research Company with the Securities
and Exchange Commission on or about February 13, 2003.
(2) All shares may be deemed to be beneficially owned by Robert Day who may
be deemed to control Oakmont Corporation. Information with respect to
Oakmont Corporation and Robert Day is derived from the Schedule 13G/A
filed jointly by Robert Day and Oakmont Corporation with the Securities
and Exchange Commission on or about February 13, 2003. The reporting
herein of such shares shall not be construed as an admission by Mr. Day
that Mr. Day is the beneficial owner thereof for purposes of Section 16
of the Securities Exchange Act of 1934 or for any other purpose.
(3) Includes 26,512 shares of Common Stock which may be purchased within 60
days of February 25, 2003 upon the exercise of stock options granted
under the Company's 1995 Non-Employee Director Stock Option Plan (the
"Director Plan").
(4) Includes 52,380 shares of Common Stock which may be purchased within 60
days of February 25, 2003 upon the exercise of stock options granted
under the Director Plan and the Company's Amended and Restated
1995 Stock Plan (the "1995 Plan").
(5) Includes 22,954 shares of Common Stock which may be purchased within 60
days of February 25, 2003 upon the exercise of stock options granted
under the Director Plan.
(6) Includes 14,202 shares of Common Stock which may be purchased within 60
days of February 25, 2003 upon the exercise of stock options granted
under the Director Plan.
(7) Includes 6,699 shares of Common Stock which may be purchased within 60
days of February 25, 2003 upon the exercise of options granted under
the Director Plan.
(8) Includes 16,088 shares of Common Stock which may be purchased within 60
days of February 25, 2003 upon the exercise of stock options granted
under the Director Plan.
(9) Includes 935,755 shares of Common Stock which may be purchased within
60 days of February 25, 2003 upon the exercise of stock options granted
under the 1995 Plan.
(10) Includes 710,499 shares of Common Stock which may be purchased within
60 days of February 25, 2003 upon the exercise of stock options granted
under the 1995 Plan.
(11) Includes 363,051 shares of Common Stock which may be purchased within
60 days of February 25, 2003 upon the exercise of stock options granted
under the 1995 Plan.
(12) Includes 315,694 shares of Common Stock which may be purchased within
60 days of February 25, 2003 upon the exercise of stock options granted
under the 1995 Plan.
4
(13) Includes 14,999 shares of Common Stock which may be purchased within 60
days of February 25, 2003 upon the exercise of stock options granted
under the 1995 Plan.
(14) Includes 2,590,680 shares of Common Stock which may be purchased by
executive officers and directors within 60 days of February 25, 2003
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 25, 2003 upon the exercise of stock options granted
under the Director Plan.
5
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. Mr. Condon and Mr. Fraser are
Class II directors whose terms expire at the 2003 Annual Meeting of
Stockholders. The Board of Directors is also composed of (i) 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
2005 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 2004.
The Board of Directors has nominated and recommended that Mr. Condon
and Mr. Fraser be elected Class II directors, to hold office until the Annual
Meeting of Stockholders to be held in the year 2006 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 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:
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
-------------------------------- ---------------- ----------- --------
NOMINEES:
Frank B. Condon, Jr. (1986) Director 2006 II
Robert B. Fraser (1996) Director 2006 II
CONTINUING DIRECTORS:
Donald G. Friedl (1996) Director 2005 I
Phyllis S. Swersky (1996) Director 2005 I
Kevin J. Sheehan (1990) Chairman and
Chief Executive Officer 2004 III
James M. Oates (1995) Director 2004 III
Thomas P. McDermott (1995) Director 2004 III
6
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and the executive officers
of the Company as of February 25, 2003, 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.
NAME AGE POSITION
---- --- --------
Kevin J. Sheehan 51 Chairman of the Board and Chief Executive Officer
Michael F. Rogers 45 President
John N. Spinney, Jr. 37 Senior Vice President and Chief Financial Officer
Robert D. Mancuso 42 Senior Vice President - Marketing and Client Management
Edmund J. Maroney 46 Senior Vice President - Technology
John E. Henry 38 Senior Vice President, General Counsel and Secretary
James M. Oates 56 Director
Thomas P. McDermott 67 Director
Robert B. Fraser 74 Director
Frank B. Condon, Jr. 67 Director
Donald G. Friedl 70 Director
Phyllis S. Swersky 51 Director
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 and Corporate Governance
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 the Bank and for
periods prior to that date, references to the Company mean the Bank.
MR. SHEEHAN has served as a director since 1990. He has been Chief
Executive Officer and Chairman of the Board of Directors since June 1995. Mr.
Sheehan served as President from June 1992 to August 2001. 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 President since August 2001, and has had responsibility
for all operating areas since 1990. He served as Executive Vice President from
September 1993 to August 2001. 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 a Vice President at the Bank of New England.
MR. SPINNEY has been Senior Vice President since August 2001 and Chief
Financial Officer since January 2002. Prior to joining the Company in August
2001, Mr. Spinney was an audit partner in the Financial Services Practice of
KPMG LLP, 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.
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, Mr. Maroney was Vice President at the Bank of New England.
7
MR. HENRY has been General Counsel of the Company since February 1996,
Secretary of the Company since January 1997 and Senior Vice President since
April 2000. 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 Hudson Castle Group, Inc., since 1995 and has been the managing
director of the Wydown Group, a consulting firm specializing in start-ups and
turn-arounds, since 1994. Mr. Oates served as President and Chief Executive
officer of Neworld Bancorp Incorporated from 1984 to 1994. Mr. Oates is a
Director and Chairman of the Investment Committee and Member of the Audit and
Personnel Committees of Connecticut River Bancorp, Inc., and Connecticut River
Bank. Mr. Oates is also a Director and Member of the Executive and Compensation
Committees of Stifel Financial Corporation; Director of the New Hampshire Trust
Co., as well as twenty-five Phoenix Mutual Funds. He serves as a Member of the
Consulting Committee of the Phoenix-Kayne Mutual Fund Board. Mr. Oates is
Chairman of the Board of Directors and a Member of the Executive and
Compensation Committees of Emerson Investment Management, Inc. Mr. Oates is also
Treasurer, Director and the Chair of the Finance and Investment Committees of
the Endowment for Health, a New Hampshire non-profit corporation; a member of
the Investment Committee of the New Hampshire Charitable Foundation; and Trustee
Emeritus for Middlesex School.
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, the Pioneer
Institute of Public Policy Research, Massachusetts Eye & Ear Infirmary and
Harvard University - LASPAU.
MR. FRASER has been a director of the Company since June 1996. Mr. Fraser
was Chairman of the Boston law firm of Goodwin Procter LLP from 1984 to 1997. He
is also Chairman of The Arts & Business Council of Greater Boston and a Director
of the Massachusetts Institute for a New Commonwealth (MassINC).
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 and Manager of
Coal, Energy Investments & Management, LLC.
MR. FRIEDL has been a director of the Company since February 1996. 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. He
served as a Director of Classic Foods, Inc. from June of 1999 to March of 2002.
Mr. Friedl currently serves as a director of Marical, Inc., a marine
biotechnology company and Custom Foods, Inc.
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, from 1992 through 1995. Prior to
1992, she was Executive Vice President and Chief Financial Officer of AICorp,
Inc., a computer software company. Ms. Swersky also serves as a Director of Art
Technology Corp., 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
8
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 seven times during the fiscal year ended
December 31, 2002. The membership of the Audit Committee of the Board of
Directors is currently comprised of Messrs. McDermott and Fraser and Ms.
Swersky. The functions and responsibilities of the Audit Committee are set forth
below in the Report of the Audit Committee. The Audit Committee met ten times
during the fiscal year ended December 31, 2002.
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 five
times during the fiscal year ended December 31, 2002.
The Nominating and Corporate Governance Committee, whose members
currently are Messrs. Condon, McDermott and Oates, is responsible for oversight
of corporate governance at the Company and recommending to the Board of
Directors persons to be nominated for election or appointment as directors of
the Company. The Nominating and Corporate Governance 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 and Corporate Governance Committee met four
times during the fiscal year ended December 31, 2002.
During 2002, other than Mr. Friedl who missed three meetings of the
Board of Directors due, in part, to illness, 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).
REPORT OF THE AUDIT COMMITTEE
The functions of the Audit Committee (the "Audit Committee") are
focused on the following areas:
- the reliability and integrity of the Company's accounting and
financial reporting practices;
- the quality and integrity of the Company's financial
statements and reports;
- the independence and performance of the Company's internal
auditors and independent auditors;
- the Company's compliance with legal and regulatory
requirements and internal policies; and
- the soundness of the Company's internal controls.
The directors who serve on the Audit Committee are all "Independent"
for purposes of Section 4200(a)(14) of the National Association of Securities
Dealers' listing standards. That is, the Board of Directors has determined that
none of the members of the Audit Committee has a relationship to the Company
that may interfere with his or her independence from the Company and its
management.
9
The Audit Committee met ten times during 2002.
The Board has adopted a written charter setting out the authority and
responsibilities of the Audit Committee. A copy of the current Audit Committee
Charter is attached to this report as APPENDIX A and provides greater detail
regarding the activities of the Audit Committee.
Management has primary responsibility for the Company's consolidated
financial statements and the overall reporting process, including the Company's
system of internal controls.
The independent auditors audit the annual consolidated financial
statements prepared by management, express an opinion as to whether those
consolidated financial statements fairly present the financial position, results
of operations and cash flows of the Company in conformity with generally
accepted accounting principles and discuss with the Audit Committee any issues
they believe should be raised with the Audit Committee.
For 2002, the Audit Committee reviewed the Company's audited
consolidated financial statements and met with both management and Deloitte &
Touche, the Company's independent auditors, to discuss those consolidated
financial statements. Management has represented to the Audit Committee that the
consolidated financial statements were prepared in accordance with generally
accepted accounting principles and fairly represent the financial condition and
results of operations of the Company.
The Audit Committee has received from and discussed with Deloitte &
Touche the written disclosures and the letter required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees). These
items relate to Deloitte & Touche's independence from the Company. The Audit
Committee also discussed with Deloitte & Touche the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
Based on these reviews and discussions, the Audit Committee recommended
to the Board that the Company's audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002. The Audit Committee also engaged Deloitte & Touche to act as
the Company's independent auditors for the 2003 fiscal year.
RESPECTFULLY SUBMITTED BY THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Thomas McDermott (Chairman)
Robert Fraser
Phyllis Swersky
10
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, 2002, 2001 and 2000 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 $100,000 in fiscal 2002 (the "Named Executive Officers").
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------- ------------
ALL OTHER
NAME AND BONUS OR COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) COMMISSION($) OPTIONS(#)(2) ($)(3)
----------------------------- ---- ------------------------ ------------- ------------
Kevin J. Sheehan............. 2002 750,000 1,687,500 33,428 6,840
Chief Executive Officer and 2001 650,000 1,462,500 70,557 5,940
Chairman 2000 550,000 1,100,000 129,704 5,742
Michael F. Rogers............ 2002 650,000 1,462,500 77,767 6,840
President 2001 550,000 1,237,500 103,962 5,940
2000 450,000 900,000 137,806 5,679
Edmund J. Maroney............ 2002 425,000 956,250 20,000 6,714
Senior Vice President - 2001 365,000 821,250 46,199 5,713
Technology 2000 315,000 630,000 53,170 5,504
Robert D. Mancuso............ 2002 350,000 675,654(4) 24,759 6,588
Senior Vice President - ... 2001 325,000 579,438(4) 45,048 5,646
Marketing and Client 2000 275,000 562,312(4) 61,336 5,454
Management
John N. Spinney, Jr.......... 2002 250,000 375,000 70,000 6,420
Senior Vice President and 2001(5) 72,115 150,000 20,000 123
Chief Financial Officer
----------
(1) Excludes 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) Adjusted to reflect the two-for-one stock split of the Company's Common
Stock on June 14, 2002.
(3) The amount shown for each Named Executive Officer for 2002, 2001 and
2000 includes the dollar value ($6,000, $5,100 and $5,100) of matching
contributions made pursuant to the Company's 401(k) plan, a qualified
employee benefit defined contribution plan, for 2002, 2001 and 2000,
respectively. Also included are net premiums paid by the Company for
term life insurance for the benefit of Messrs. Sheehan ($840, $840 and
$642), Rogers ($840, $840 and $579), Maroney ($714, $613 and $404),
Mancuso ($588, $546 and $354) and Spinney ($420, $123 and $0) in 2002,
2001 and 2000, respectively.
(4) Amounts shown represent commission payments made during 2002, 2001 and
2000 and relate in part to revenues generated in 2001, 2000 and 1999,
respectively.
(5) Mr. Spinney joined the Company in September 2001.
11
OPTION GRANTS IN 2002
The following table sets forth certain information regarding options to
purchase Common Stock granted during 2002 by the Company to the Named Executive
Officers. The Company did not grant any stock appreciation rights in 2002.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL PERCENTAGE RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) (1) DATE 5% ($) 10% ($)
---- ---------- ------------- -------------- ---------- ------------ ----------
Kevin J. Sheehan...... 3,428(a) 0.51% 29.0290 11/16/08 33,843 76,779
30,000(b) 4.45% 31.0900 11/12/12 586,570 1,486,484
Michael F. Rogers..... 3,324(a) 0.49% 31.0900 11/16/08 35,147 79,736
66,513(c) 9.86% 31.0900 11/12/12 1,300,484 3,295,683
3,476(a) 0.52% 36.2150 11/18/07 42,812 97,127
4,454(a) 0.66% 36.2150 11/16/08 65,666 153,030
Edmund J. Maroney..... 20,000(b) 2.97% 31.0900 11/12/12 391,047 990,989
Robert D. Mancuso..... 20,000(b) 2.97% 31.0900 11/12/12 391,047 990,989
2,722(a) 0.40% 36.9700 11/18/07 27,803 61,437
2,037(a) 0.30% 36.9700 11/16/08 25,612 58,105
John N. Spinney, Jr... 20,000(b) 2.97% 31.0900 11/12/12 391,047 990,989
50,000(d) 7.41% 36.9700 6/18/12 1,162,512 2,946,033
----------
(a) Grants are exercisable immediately.
(b) Grants become exercisable in 48 equal monthly installments beginning
November 12, 2002 and include a reload feature. 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 additional
option to purchase that number of shares of the Company's Common
Stock as was delivered in payment for such exercise.
(c) Of the number shown, (i) a portion of the grant (25,000) becomes
exercisable in 48 equal monthly installments beginning November 12,
2002 and includes a reload feature, and (ii) the remainder of the
grant (41,513) is exercisable immediately.
(d) Grant becomes exercisable in four annual installments beginning June
18, 2002 and includes a reload feature.
(1) 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.
(2) 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.
12
AGGREGATED OPTION EXERCISES IN 2002
AND OPTION VALUES AT DECEMBER 31, 2002
The following table sets forth certain information regarding stock
option exercises by the Named Executive Officers in 2002 and the number and
value of the Named Executive Officers' unexercised stock options at December 31,
2002.
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, 2002(#) DECEMBER 31, 2002 ($)(2)
SHARES ACQUIRED VALUE ------------------------------- ------------------------
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------------- ----------- ------------- ----------- -------------
Kevin J. Sheehan..... 16,704 387,125 903,255 193,759 14,045,129 412,941
Michael F. Rogers.... 66,704 1,918,004 683,418 161,465 6,869,835 344,107
Edmund J. Maroney.... 0 -- 356,445 106,673 5,485,357 206,504
Robert D. Mancuso.... 50,144 1,384,854 303,042 106,673 4,251,097 206,504
John N. Spinney, Jr.. 0 -- 13,333 76,667 245,050 --
----------
(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,
2002 ($27.39 per share, the last reported sales price of the Company's
Common Stock on the Nasdaq National Market on December 31, 2002)
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 1995 Plan, the
Director Plan and the 1997 Employee Stock Purchase Plan (the "1997 Plan"). Each
of the 1995 Plan, the Director Plan and the 1997 Plan have been approved by
stockholders. The Company does not have any equity compensation plans that have
not been approved by stockholders.
The following table provides aggregate information, as of December 31,
2002, regarding outstanding options and the number of shares of Common Stock
available for future issuance under the 1995 Plan, the Director Plan and the
1997 Plan.
Number of securities to Weighted-average exercise price of Number of securities
be issued upon exercise of outstanding options, warrants and remaining available for future
outstanding options, warrants and rights issuance
rights
--------------------------------------- -------------------------------------- ----------------------------------
6,621,152 $ 22 4,811,185*
--------------------------------------- -------------------------------------- ----------------------------------
*Includes shares available for issuance under the 1997 Plan.
13
BONUSES
The Company from time to time awards certain key employees bonuses
based on both individual and Company performance. The Company's 2002 Senior
Executive Bonus Plan was put in place in December 2001 and expired on December
31, 2002. The 2002 Senior Executive Bonus Plan established a target level for
2002 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 2002
were made in the following amounts: Mr. Sheehan $1,687,500; Mr. Rogers
$1,462,500; Mr. Maroney $956,250; Mr. Spinney $375,000; and all executive
officers as a group $4,825,000.
EMPLOYMENT AGREEMENTS
The Company entered into amended and restated employment agreements
with Kevin J. Sheehan, Michael F. Rogers, Robert D. Mancuso and Edmund J.
Maroney on May 16, 2000, and with John N. Spinney, Jr. on November 12, 2002,
each with a term of three years, subject to annual renewal and earlier
termination. The agreements with Messrs. Sheehan, Rogers, Mancuso, Maroney and
Spinney currently have a term that expires on December 31, 2005.
Messrs. Sheehan's, Rogers', Maroney's and Mancuso's and Mr. Spinney's
agreements provide that the Company will employ Messrs. Sheehan, Rogers,
Maroney, Mancuso and Spinney as Chief Executive Officer, President, Senior Vice
President - Technology and Senior Vice President - Marketing and Client
Management, and Senior Vice President and Chief Financial Officer, 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 a 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 a majority of the Board of Directors that an individual
has performed his or her duties inadequately, in which case the agreements
provide for a lump sum payment equal to nine months of annual salary at the 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 Messrs. Sheehan, Rogers, Mancuso, Maroney or Spinney 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 and the amount
equal to the highest of their three most recent annual bonuses, or the salary
and bonus due to be paid under the remaining term of the agreement. Mr.
Mancuso's agreement bases the foregoing payment on the highest of his three most
recent annual sales commission payments, rather than bonus. 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, Rogers, Mancuso, Maroney and Spinney 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.
The Company also entered into change of control employment agreements
with Kevin J. Sheehan, Michael F. Rogers, Robert D. Mancuso, and Edmund J.
Maroney on May 16, 2000, and with John N. Spinney, Jr. on August 23, 2001. The
agreements with Messrs. Sheehan, Rogers, Mancuso, Maroney and Spinney currently
have a term of three years, subject to automatic annual renewal and earlier
termination.
14
The change of control employment agreements become effective upon 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 that if any of Messrs. Sheehan, Rogers, Mancuso,
Maroney or Spinney is terminated during the term of his or her agreement, he or
she shall receive a lump sum severance payment equal to three times the
employee's most recent annual salary plus a payment equal to three times the
highest of the employee's three most recent annual bonuses, or, in the case of
Mr. Mancuso, the highest of his three most recent annual sales commission
payments, as well as an actuarial payment under any existing defined benefit
plan and continuing benefits and medical coverage for three years.
PENSION PLANS
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. The Pension Plan was amended
in December 2001 to freeze benefit accruals for certain highly compensated
participants as of December 31, 2002, as well as change the maximum allowable
compensation projected for future years. Such highly compensated participants
will receive their full benefit accrual under the Company's non-qualified
retirement plan, as described below. 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., basic cash remuneration
excluding incentive compensation) during the 60 consecutive months in the last
120 months of employment affording the highest such average subject to certain
limits on eligible compensation set by Federal law. For 2002, this limit was
$200,000. The Pension Plan's benefit formula described above became effective in
1991, but applies to all periods of benefit service.
In 1994, the Company adopted the Investors Bank & Trust Supplemental
Executive Retirement Plan (as amended, the "SERP") covering certain employees.
The SERP is a non-qualified supplemental retirement plan and pays benefits for
certain participants in addition to benefits paid under the Pension Plan.
Benefits under the SERP are based on an employee's total compensation or the
portion of such employee's total compensation not included in the calculation of
benefits to be paid under the Pension Plan. Payments under the SERP are based on
years of service and the employee's final total compensation, including
incentive compensation (i.e. bonus and commissions) for certain participants.
The following table shows the estimated annual benefits payable to
employees covered by both the Pension Plan and the SERP or exclusively by the
SERP upon retirement in specified total compensation and years of service
classifications. Amounts listed in the table are not subject to deduction for
social security or other offset amounts.
Years of Service at Retirement (Age 65 in 2002)
------------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ -- --------- --------- ----------- ----------- -----------
$ 200,000 $ 40,953 $ 61,430 $ 81,907 $ 102,383 $ 109,883 $ 117,383
$ 500,000 $ 105,453 $ 158,180 $ 210,907 $ 263,633 $ 282,383 $ 301,133
$ 1,000,000 $ 212,953 $ 319,430 $ 425,907 $ 532,383 $ 569,883 $ 607,383
$ 1,500,000 $ 320,453 $ 480,680 $ 640,907 $ 801,133 $ 857,383 $ 913,633
$ 2,000,000 $ 427,953 $ 641,930 $ 855,907 $ 1,069,883 $ 1,144,883 $ 1,219,883
15
The following Named Executive Officers have the specified credited
years of service under the Pension Plan and the SERP as of December 31, 2002:
Mr. Sheehan, 26.6 years; Mr. Rogers, 20.3 years; Mr. Maroney, 17.3 years; and
Mr. Mancuso, 10.3 years. Mr. Spinney has 1.3 credited years of service under
the SERP as of December 31, 2002. The summary compensation table previously
presented does not reflect the payment to any of the Named Executive Officers
of compensation pursuant to either the Pension Plan or the SERP, as payment
obligations pursuant to each of the Pension Plan and the SERP are contingent
on retirement.
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 independent
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
Compensation Committee then recommends those compensation packages to the full
Board for its approval.
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
primary 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 pre-determined
financial objectives of the Company; 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. Annual incentive compensation for Mr. Mancuso is in the
form of sales commission payments based on revenue received by the Company from
new sales.
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 2002
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 spring of 2002, 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 executive officers of the Company. The report
compared executive compensation at the Company to compensation at various other
companies, including competitors of the Company. The report also used a number
of third party compensation surveys. The report adjusted comparative
compensation levels according to size of company and other factors. The
Compensation Committee met independently with officials from Hewitt and used the
information and analysis contained in the Hewitt report in developing the 2003
Executive Compensation Plan. The Compensation Committee met in executive session
regularly while developing the 2003 Compensation Plan.
16
In November 2002, the Compensation Committee set the terms for the 2003
Executive Compensation Plan, and recommended those terms to the full Board for
approval. The full Board approved the 2003 Executive Compensation Plan at their
November 2002 regular meeting. This plan established (i) base salaries for 2003;
(ii) proposed option grant levels for 2003; (iii) target levels for operating
earnings per share for 2003 and bonus amounts payable to executive officers
under the Senior Executive Bonus Plan, based on achieving such targets and (iv)
sales commission parameters for Mr. Mancuso. If 2003 operating earnings per
share equal the minimum target, certain executive officers will receive bonuses
ranging from 100% to 125% of their annual base pay, depending on their
positions, with the Chief Executive Officer and the President each receiving
125% of their respective annual base pay. If 2003 operating earnings per share
exceed the minimum target level, additional bonus amounts are available to the
executive officers under the bonus plan, up to a maximum amount equal to 225% of
their respective annual base pay. The actual level of bonus earned is based upon
achievement of specific predetermined performance targets established by the
Compensation Committee. No bonuses will be payable to executive officers if 2003
operating earnings per share are less than or equal to 2002 operating earnings
per share. Mr. Mancuso receives commissions, subject to various eligibility
requirements, on revenue received by the Company from sales to new clients and
sales of new products to existing clients.
Federal law and regulations provide generally that in order to qualify
for a tax deduction (as further explained later in this report), compensation in
excess of $1 million paid to a public corporation's top executive officers must
qualify as performance-based compensation. In order to qualify as
performance-based compensation, bonuses must be earned under a plan, the
material terms of which have been approved by stockholders. In general, the
performance measures under such a plan must be reapproved by stockholders every
five years. The Senior Executive Bonus Plan was last approved by stockholders in
April 2001.
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 1995 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 2002 base salary for Mr. Sheehan, the Company's Chief Executive
Officer, was established by the Board of Directors in December 2001. Under
the terms of the 2002 Senior Executive Bonus Plan, Mr. Sheehan's bonus
eligibility was set forth on a matrix under which Mr. Sheehan would receive
no bonus if 2002 operating earnings per share did not exceed 2001 operating
earnings per share. Mr. Sheehan's bonus eligibility increased incrementally
in relation to the amount by which 2002 operating earnings exceeded 2001
operating earnings. In accordance with the terms of the 2002 Senior Executive
Bonus Plan, at the Company's operating earnings per share level of $1.04 for
2002, Mr. Sheehan was eligible for a bonus equal to 225% of his 2002 salary,
or $1,687,500. Accordingly, approximately 69% of Mr. Sheehan's $2,437,500 in
2002 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 under
the Company's 2002 Executive Compensation Plan. The Board of Directors
believes that Mr. Sheehan has led the Company toward achieving its goals of
growth in revenue and the client base and expansion in the breadth of
services provided. The Board specifically noted the Company's overall
performance under Mr. Sheehan's leadership, especially through the difficult
economic and market conditions experienced in 2002.
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
17
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
objectives, 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
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, who were
the only members of the Compensation Committee during 2002. 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 2002, non-employee directors received
a retainer fee of $15,000, paid quarterly, and an additional $2,142.86 for each
meeting of the Board of Directors they attended. During 2003, each non-employee
director will receive a retainer fee of $20,000 and additional meeting fees for
each meeting attended totaling $15,000 if all regular meetings are attended.
During 2003, each member of the Audit Committee will receive additional fees
equal to $4,000. Seven Board of Director Meetings were planned for 2002 and
seven are planned for 2003. 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 his or her annual fee in the form of stock options. Pursuant
to the Director Plan, immediately following the 2002 Annual Meeting of
Shareholders, each of Messrs. Condon, Fraser, Friedl, McDermott, Oates and Ms.
Swersky received an option to purchase 5,000 shares of Common Stock at an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant. In addition, under the Director Plan, directors may elect to
receive their retainer fee in the form of stock options. Pursuant to this
election, Messrs. Condon, Fraser, Friedl and McDermott were granted options to
purchase a total of 2,728 shares of the Company's common stock. In each such
case, the exercise price per share of each option was determined to be equal to
the fair market value per share of the Common Stock on the date of grant.
STOCK PERFORMANCE
The following graph compares the change in the cumulative total
stockholder return on the Company's Common Stock for the period from January 1,
1998 through December 31, 2002, with the cumulative total return on the Center
for Research in Securities Prices Index for the Nasdaq Stock Market
18
("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 December 31, 1997 in the Company's
Common Stock at the $5.75 closing price on that day and in each of the
foregoing indices and assumes reinvestment of dividends, if any.
[CHART]
Comparison of Five Year( )Cumulative Total Return Among
Investors Financial Services Corp., Nasdaq Stock Market Index
and Nasdaq Financial Stocks Index
12/31/97 12/31/98 12/31/99 12/29/00 12/31/01 12/31/02
-------- -------- -------- -------- -------- --------
Investors Financial Services Corp. 100.00 129.88 200.35 748.35 576.43 477.22
Nasdaq Stock Market Index 100.00 140.99 261.48 157.42 124.89 86.33
Nasdaq Financial Stocks Index 100.00 97.99 96.50 104.23 114.53 117.69
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.
19
PROPOSAL 2
APPROVAL OF AN AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION
GENERAL
The Board of Directors has voted to recommend to stockholders that the
Company amend its Certificate of Incorporation (the "Certificate of
Incorporation") to limit the ability of the Company to indemnify its officers
and directors. The full text of the Certificate of Amendment (the "Certificate
of Amendment") to the Certificate of Incorporation that will effect the
aforementioned amendment (the "Charter Amendment") is attached hereto as
EXHIBIT B.
The Board of Directors approved the Charter Amendment largely in
response to industry guidance given by the Federal Reserve Board to bank holding
companies concerning indemnification agreements and payments. The purpose of the
guidance was to remind bank holding companies of the limitations upon
indemnification imposed by section 18(K) of the Federal Deposit Insurance Act
and the regulations issued thereunder (the "Indemnification Limits"). The
Indemnification Limits apply to preserve the deterrent effects of administrative
enforcement action by ensuring that individuals subject to final enforcement
actions bear the cost of any judgments, fines and associated legal expenses, and
to safeguard the assets of financial institutions. The Indemnification Limits
prohibit a bank holding company from paying or reimbursing an "Institution
Affiliated Party" (an "IAP" i.e., an officer, director, employee, controlling
stockholder or one who participates in the affairs of the bank holding company)
for any liability or legal expense derived from a bank regulatory administrative
proceeding that results in a final order or settlement in which the IAP is
assessed a civil money penalty, is removed or prohibited from banking, or is
required to cease an action or take any affirmative action, including making
restitution. The Indemnification Limits allow reasonable payments to purchase
liability insurance, but the insurance may not pay or reimburse an IAP for any
final judgment or civil money penalty assessed against the IAP.
The Charter Amendment is intended to clarify that the indemnification
provisions of the Certificate of Incorporation comply with the Indemnification
Limits by explicitly limiting indemnification such that no indemnification or
insurance coverage provided shall exceed that permitted by applicable law.
BOARD OF DIRECTORS' RESERVATION OF RIGHTS
If the Charter Amendment is approved by the stockholders, the Charter
Amendment will become effective upon the filing of the Certificate of Amendment
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 Charter Amendment, if at any time
prior to filing the Certificate of Amendment with the Secretary of State of the
State of Delaware the Board, in its sole discretion, determines that the Charter
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 for up to 12 months following stockholder approval of
the Charter Amendment at the Annual Meeting. However, at the present time, the
Board intends to proceed with the Charter Amendment as presented without delay.
Approval of the Charter 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 CHARTER AMENDMENT.
20
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, 2003. 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.
The following table details aggregate fees billed for 2002 and 2001 by
Deloitte & Touche to the Company.
Aggregate Fees Billed for
Fiscal Year Ended
Services 2002 2001
-------- ---- ----
Audit Fees $ 417,150 $ 356,500
Audit-Related Fees $ 0 $ 0
Tax Fees $ 0 $ 0
Other Fees $ 49,500 $ 99,400
----------
The Audit Committee of the Board of Directors has considered whether
the provision of the services by Deloitte & Touche covered by the caption "Other
Fees" in the above-table is compatible with Deloitte & Touche's independence and
has concluded that it is.
Ratification of the selection of Deloitte & Touche to serve as auditors
for the fiscal year ending December 31, 2003 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, 2002, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in the year ended December 31, 2002, except
that Phyllis S. Swersky filed late one Form 4 with respect to one sale of shares
of the Company.
21
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 2004
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 15, 2003. Under the Company's By-laws,
stockholders who wish to make a proposal at the 2004 Annual Meeting - other than
one that will be included in the Company's proxy materials - must notify the
Company no earlier than October 16, 2003 and no later than November 15, 2003. If
a stockholder who wishes to present a proposal fails to notify the Company by
November 15, 2003, 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 consistent with the
Commission's proxy rules the proxies solicited by management with respect to the
2004 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.
22
APPENDIX A
INVESTORS FINANCIAL SERVICES CORP.
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee (Committee) shall provide assistance to the Boards
of Directors of Investors Financial Services Corp. ("IFSC") and its subsidiaries
(collectively, the "Company"), including Investors Bank & Trust Company (the
"Bank"), in fulfilling their oversight responsibilities to shareholders relating
to (i) the reliability and integrity of corporate accounting and financial
reporting practices; (ii) the quality and integrity of financial statements and
reports; (iii) the performance of the Company's internal audit function and
independent auditors; (iv) compliance with laws, regulations and Company
policies; and (v) maintenance of a sound system of internal controls. In doing
so, it is the responsibility of the Audit Committee to maintain free and open
means of communication among the Directors, the independent auditors, and the
Company's internal auditors and management.
COMMITTEE MEMBERSHIP AND ORGANIZATION
The Committee shall be composed of a minimum of three members. Each
Committee member shall meet any independence requirements promulgated by the
Securities and Exchange Commission (the "SEC"), the National Association of
Securities Dealers, any exchange upon which securities of the Company are
traded, and any governmental or regulatory body exercising authority over the
Company (each a "Regulatory Body"). Each member of the Committee shall be free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee. At
least one member of the Committee shall be a "financial expert" as defined by
the rules of the SEC, and all members of the Committee shall have a strong level
of business or financial acumen (as determined in the reasonable discretion of
the Board).
The members of the Committee shall be appointed by the Board on the
recommendation of the Nominating and Corporate Governance Committee. Committee
members may be replaced by the Board.
The Committee shall meet as often as the Committee or the Committee
Chair determines, but not less frequently than quarterly. If circumstances
warrant, an unscheduled meeting of the Committee can be called with or without
the presence of the Company's management. The Committee strongly supports
confidential exchanges with internal auditors and independent auditors.
Therefore, no less frequently than annually, the Committee shall meet with the
Director of Internal Audit without the presence of management. In addition, at
all meetings where independent auditors are present, the Committee will ensure
that sufficient opportunity is made available for the independent auditors to
meet with the Committee without management present.
The Committee shall have the authority to retain independent legal,
accounting or other consultants to advise the Committee. The Committee shall
also have the authority, to the extent it deems necessary or appropriate, to ask
the Company to provide the Committee with the support of one or more Company
employees to assist it in carrying out its duties. The Company shall provide for
appropriate funding, as determined by the Committee, for payment of compensation
to the independent auditors for the purpose of rendering or issuing an audit
report and to any advisors employed by the Committee. The Committee may request
that any officer or employee of the Company or the Company's outside counsel or
independent auditors attend a meeting of the Committee or meet with any members
of, or consultants to, the Committee.
A-1
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The following activities are set forth as a guide with the understanding
that the Committee may diverge from this guide as it considers appropriate.
CHARTER REVIEW
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
INDEPENDENT AUDITORS
2. Appoint and compensate the independent auditors in connection with the
preparation and issuance of an audit report regarding the Company's
financial statements. The Committee shall receive regular reports
regarding the work of the independent auditors, and may obtain the
assistance of Company management in the negotiation of the terms of the
independent auditors' engagement and the oversight of the independent
auditors' performance.
3. Review the experience and qualifications of the senior members of the
independent auditors' team.
4. Monitor the independence, qualifications and performance of the
independent auditors by, among other things
- Obtaining and reviewing a report from the independent auditors at
least annually regarding (a) the auditors' internal quality-control
procedures, (b) any material issues raised by the most recent
quality control review or peer review of the firm, or by any inquiry
or investigation by governmental or professional authorities within
the preceding five years respecting one or more independent audits
carried out by the firm, (c) any steps taken to deal with any such
issues, and (d) all relationships between the independent auditors
and the Company.
- If so determined by the Committee, taking additional action to
satisfy itself of the qualifications, performance and independence
of the auditors.
5. Oversee the rotation, at least once every five years, of the lead (or
coordinating) audit partner having primary responsibility for the audit
and the audit partner responsible for reviewing the audit.
6. Meet with the independent auditors and management of the Company to
review the scope, planning and staffing of the proposed audit
activities for the coming year.
7. Preapprove all auditing services and permitted non-audit services to be
performed for the Company by the independent auditors, except as
otherwise permitted by applicable law. In no event shall the
independent auditors perform any non-audit services for the Company
which are prohibited by Section 10A(g) of the Securities Exchange Act
of 1934 (the "Exchange Act") or the rules of the SEC or the Public
Corporation Accounting Oversight Board.
8. Ensure that the Company's management cooperates with the independent
auditors and provides access to all appropriate Company resources
requested by the independent auditors in the course of their audit.
FINANCIAL REPORTING AND INTERNAL CONTROLS
9. At the conclusion of the annual audit, meet with the independent
auditors and management of the Company and review any related report or
opinion issued by the independent auditors and any comments or
recommendations stemming from the annual audit. Prior to the release of
the Company's audited and interim financial statements, review the
financial statements with the independent auditors and financial
management of the Company. Determine that the independent auditors are
satisfied with the disclosure and content of the financial statements.
10. Review any changes in accounting principles, changes in the accounting
treatment of significant transactions, and changes in financial
reporting policies. Additionally, review the independent auditor's
judgments regarding the quality and appropriateness of the Company's
accounting
A-2
principles, as applied in the Company's financial reporting, and the
clarity of the Company's financial disclosure practices. Inquire as to
the auditors' judgments regarding the degree of aggressiveness or
conservatism of the Company's accounting principles and underlying
estimates and other significant decisions made by management in
preparing the financial disclosure. Review any significant disagreement
or difficulty encountered during the course of the audit.
11. Annually discuss with the independent auditors the matters required to
be discussed by Statement on Accounting Standards 61.
12. Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management
policies.
13. Discuss with management, either specifically or by discussion of the
types of information to be disclosed and the types of presentation to
be made, the Company's earnings press releases, including the use of
"pro forma" or "adjusted" non-GAAP information and any earnings
guidance, as well as financial information provided to rating agencies.
14. Based on the reviews and discussions of the Committee pursuant to its
responsibilities under this charter, determine on an annual basis
whether to recommend to the full Board of Directors that the audited
financial statements of the Company be included in the Company's Annual
Report on Form 10-K.
15. Review with management and the independent auditor the Company's
quarterly financial statements prior to the filing of its Form 10-Q,
including the results of the independent auditors' reviews of the
quarterly financial statements.
16. Review and approve Audit Committee disclosures to be contained in the
Company's proxy statement for its annual meeting of stockholders,
including the Audit Committee Report and disclosure regarding the
independence of members of the Committee. The Committee shall ensure
that this Charter is attached as an appendix to the Company's proxy
statement at least once every three years.
17. Review with the independent auditors, the Company's internal auditor,
and the Company's financial management, the effectiveness and integrity
of the accounting, financial and other internal controls of the
Company, and elicit any recommendations for the improvement of such
internal control procedures or particular areas where new or more
detailed controls are desirable. In this regard, the Committee shall
review management's annual statement of responsibilities for preparing
financial statements, establishing and maintaining an adequate internal
control structure for financial reporting and major financial risk
exposures, and complying with designated safety and soundness laws. The
Committee shall also review management's assessments of the
effectiveness of the Company's internal control structure and
procedures for financial reporting as of the fiscal year-end and
compliance with designated laws and regulations during the fiscal year.
In addition, the Committee shall review the independent auditors'
attestations on the aforementioned management assertions.
18. Monitor the Company's progress in promptly addressing and correcting
any and all identified weaknesses or deficiencies in financial
reporting, internal controls or related matters.
19. Receive periodic reports from the independent auditors and appropriate
officers of the Company on significant accounting or reporting
developments proposed by the Financial Accounting Standards Board or
the SEC that may impact the Company.
20. Review with management and the independent auditors any effects of
regulatory and accounting initiatives as well as any off-balance sheet
structures on the Company's financial statements.
21. Review material regulatory inquiries and significant findings and
recommendations of all regulatory reports of examination and
management's responses thereto.
A-3
INTERNAL AUDIT FUNCTION
22. Review and approve the appointment of the Director of Internal Audit.
23. Review and approve the Internal Audit Department's annual audit plans
and budget and review the sufficiency of internal audit resources.
Review the independence and authority of the internal audit function's
reporting obligations and the coordination of efforts with the
independent auditors.
24. At each meeting, but no less than quarterly, review significant
internal audit reports containing management's responses completed
since the previous Committee meeting, the status of the annual audit
plan, and a progress report on the extent to which internal audit
recommendations have been implemented by management. Any deviations
from or modifications to the original audit plan will be reviewed with
the Committee, as will be any changes in internal audit policies.
COMPLIANCE OVERSIGHT
25. Discuss with management and the internal auditors the Company's
processes regarding compliance with applicable laws and regulations and
obtain verbal or written reports from management and internal audit
regarding compliance by the Company and its affiliated entities with
applicable legal requirements.
26. Review annually the program established to monitor compliance with the
Company's Code of Conduct.
27. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations and with the
Company's Code of Conduct.
28. Obtain from the independent auditors any reports required to be
furnished to the Committee under Section 10A of the Exchange Act or
other applicable laws or regulations.
29. Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and (ii) the confidential,
anonymous submissions by employees of the Company of concerns regarding
questionable accounting, auditing or compliance matters.
30. Discuss with management and the independent auditors any correspondence
with regulators or governmental agencies and any employee complaints or
published reports which raise material issues regarding the Company's
financial statements or accounting policies or compliance with the
Company's Code of Conduct.
31. Review with the Company's general counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators
or governmental agencies.
SUBSIDIARIES OF IFSC
32. Perform the duties required to be performed by the audit committee of
the Bank to the extent permitted, and in the manner required, by
applicable laws and regulations.
GENERAL
33. Under the direction of the Chairperson of the Committee, report on the
Committee's activities at the next Board of Directors meeting or, if
deemed necessary by the Committee Chair, earlier.
34. Investigate any matter brought to the Committee's attention within the
scope of its duties.
35. Meet at least annually with the chief financial officer, the general
counsel, the senior internal auditing executive and the independent
auditor in separate executive sessions.
36. Annually review the performance of the Committee.
A-4
General
The Committee's role is one of oversight as set forth in this charter. It
is not the duty of the Committee to plan or conduct audits or to determine that
the Company's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. The Company's
management is responsible for preparing the Company's financial statements and
for maintaining internal controls, and the independent auditors are responsible
for auditing the financial statements. Nor is it the duty of the Committee to
conduct investigations, to resolve disagreements, if any, between management and
the independent auditors or to assure compliance with laws and regulations and
the Company's Code of Conduct.
Any duty or action of the Committee may be undertaken and fulfilled by the
Board as a whole in place of the Committee.
With respect to joint sessions of the Committee:
- The Committee may meet simultaneously as a committee of IFSC
and the Bank, though it should hold separate sessions if necessary
to consider transactions between the two entities or other matters
where IFSC and the Bank may have different interests; and
- The Committee should consult with internal or outside counsel
if, in the opinion of the Committee, any matter under consideration
by the Committee has the potential for any conflict between the
interests of IFSC and those of the Bank or IFSC's other subsidiaries
in order to ensure that appropriate procedures are established for
addressing any such potential conflict and for ensuring compliance
with the Company's policies regarding Sections 23A and 23B of the
Federal Reserve Act.
IN PERFORMING THEIR RESPONSIBILITIES, COMMITTEE MEMBERS ARE ENTITLED TO
RELY IN GOOD FAITH ON INFORMATION, OPINIONS, REPORTS OR STATEMENTS PREPARED OR
PRESENTED BY:
1. One or more officers or employees of the Company whom the Committee
members reasonably believe to be reliable and competent in the
matters presented;
2. Counsel, independent auditors, or other persons as to matters which
the Committee members reasonably believe to be within the
professional or expert competence of such person; or
3. Another committee of the Board as to matters within such other
committee's designated authority which other committee the Committee
members reasonably believe to merit confidence.
A-5
APPENDIX B
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 August 13, 2002, 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 15, 2003, 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 inserting at the
end of Article NINTH thereof, the following new Article NINTH, paragraph 16:
16. LIMITATION OF INDEMNIFICATION. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS ARTICLE NINTH, NO INDEMNIFICATION
OR INSURANCE COVERAGE PROVIDED FOR HEREUNDER SHALL EXCEED THAT
PERMITTED BY APPLICABLE LAW.
FOURTH: 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 Chief Executive Officer, as of
this 15th day of April, 2003.
INVESTORS FINANCIAL SERVICES CORP.
By:
-------------------------------
Name: Kevin J. Sheehan
Title: Chief Executive Office
B-1
P
R INVESTORS FINANCIAL SERVICES CORP.
O
X
Y PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kevin J. Sheehan and John N. Spinney, Jr. 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 15, 2003, at 11:00 a.m., local time,
at the Company's offices at 200 Clarendon Street, Boston, Massachusetts, and
at any adjournment thereof, upon matters set forth in the Notice of 2003
Annual Meeting of Stockholders and Proxy Statement dated March 11, 2003, a
copy of which has been received by the undersigned. The proxies are further
authorized to vote, in their judgement, 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 PROPOSALS IN ITEMS 2 AND 3 AND IN THE JUDGMENT 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)
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/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 the amendment of the Company's
Certificate of Incorporation limiting the
indemnification of officers and directors
as described in the Proxy Statement. / / / / / /
3. To ratify the selection of Deloitte &
Touche LLP as independent auditors for
the fiscal year ending December 31,
2003. / / / / / /
SIGNATURE ____________________________________________ DATE ___________________
NOTE: Please sign exactly as name appears herein, joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
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