<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________
Commission File Number 0-5965
NORTHERN TRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)630-6000
---------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
56,272,053 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on June 30, 1996)
================================================================================
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
June 30 December 31 June 30
-------------- ------------ ------------
($ In Millions) 1996 1995 1995
- ----------------------------------------------------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Assets
Cash and Due from Banks $ 1,232.9 $ 1,308.9 $ 1,092.8
Money Market Assets
Federal Funds Sold and Securities Purchased under Agreements to Resell 361.3 162.1 404.0
Time Deposits with Banks 1,905.4 1,567.6 1,654.5
Other 78.5 54.5 12.6
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total 2,345.2 1,784.2 2,071.1
- ----------------------------------------------------------------------- -------------- ------------ ------------
Securities (Fair value $6,323.1 at June 1996, $5,787.8 at December 1995
and $5,656.0 at June 1995) 6,303.3 5,760.3 5,624.6
Loans and Leases (Net of unearned income of $91.1 at June 1996, $89.6
at December 1995, and $75.6 at June 1995) 10,405.2 9,906.0 9,421.8
Reserve for Credit Losses (147.4) (147.1) (145.9)
Buildings and Equipment 289.2 281.5 278.2
Customers' Acceptance Liability 34.0 35.8 47.1
Trust Security Settlement Receivables 382.8 327.1 287.0
Other Assets 906.0 676.8 624.4
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Assets $ 21,751.2 $ 19,933.5 $ 19,301.1
- ----------------------------------------------------------------------- -------------- ------------ ------------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 2,892.6 $ 2,853.1 $ 2,543.5
Savings and Money Market Deposits 3,689.6 3,385.3 3,008.2
Savings Certificates 2,063.6 2,158.8 2,028.5
Other Time 456.7 384.3 367.0
Foreign Offices - Demand 382.4 459.8 327.8
- Time 3,782.9 3,246.9 2,972.3
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Deposits 13,267.8 12,488.2 11,247.3
Federal Funds Purchased 1,096.0 2,300.1 1,063.9
Securities Sold Under Agreements to Repurchase 1,699.0 1,858.7 1,066.3
Commercial Paper 144.2 146.7 147.3
Other Borrowings 3,077.2 875.9 3,415.9
Senior Notes 205.0 17.0 317.0
Notes Payable 332.1 334.6 241.1
Liability on Acceptances 34.0 35.8 47.1
Other Liabilities 402.2 423.9 364.9
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Liabilities 20,257.5 18,480.9 17,910.8
- ----------------------------------------------------------------------- -------------- ------------ ------------
Stockholders' Equity
Preferred Stock 120.0 170.0 170.0
Common Stock - $1.66 2/3 Par Value 95.0 93.6 93.4
June 1996 December 1995 June 1995
- -------------------------------------------------------------------
Shares authorized 140,000,000 140,000,000 140,000,000
Shares issued 56,979,579 56,158,064 56,035,628
Shares outstanding 56,272,053 55,664,412 55,870,628
Capital Surplus 329.5 306.1 307.2
Retained Earnings 1,016.4 928.8 847.0
Net Unrealized Gain (Loss) on Securities (1.1) 2.6 (2.1)
Common Stock Issuable - Performance Plan 10.4 14.7 16.7
Deferred Compensation - ESOP and Other (37.7) (39.4) (35.3)
Treasury Stock - (at cost, 707,526 shares at June 1996, 493,652 shares at
December 1995, and 165,000 shares at June 1995) (38.8) (23.8) (6.6)
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Stockholders' Equity 1,493.7 1,452.6 1,390.3
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Liabilities and Stockholders' Equity $ 21,751.2 $ 19,933.5 $ 19,301.1
- ----------------------------------------------------------------------- -------------- ------------ ------------
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
Second Quarter
Ended June 30 Six Months Ended June 30
---------------------------- ----------------------------
($ In Millions Except Per Share Information) 1996 1995 1996 1995
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income
Money Market Assets
Federal Funds Sold and Securities Purchased
under Agreements to Resell $ 3.4 $ 3.9 $ 7.2 $ 7.4
Time Deposits with Banks 20.9 20.8 43.7 47.5
Other .8 .3 1.6 .5
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Total 25.1 25.0 52.5 55.4
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Securities 91.7 89.1 185.3 174.2
Loans and Leases 169.3 157.0 333.2 302.7
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Total Interest Income 286.1 271.1 571.0 532.3
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Interest Expense
Deposits - Savings and Money Market Deposits 28.6 27.4 56.7 54.0
- Savings Certificates 29.3 30.6 60.2 55.1
- Other Time 6.2 8.0 14.6 14.4
- Foreign Offices 45.5 47.2 89.6 97.8
Federal Funds Purchased 22.5 16.1 51.2 32.2
Securities Sold under Agreements to Repurchase 28.0 25.0 54.1 49.1
Commercial Paper 2.0 2.2 3.9 4.3
Other Borrowings 18.7 15.9 31.5 26.4
Senior Notes 3.4 5.8 7.5 12.7
Notes Payable 6.4 4.9 12.8 9.8
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Total Interest Expense 190.6 183.1 382.1 355.8
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Net Interest Income 95.5 88.0 188.9 176.5
Provision for Credit Losses 4.0 1.5 9.0 3.0
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Net Interest Income after Provision for Credit Losses 91.5 86.5 179.9 173.5
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Noninterest Income
Trust Fees 148.7 123.3 292.6 244.1
Security Commissions and Trading Income 6.4 5.2 12.7 11.1
Other Operating Income 40.0 39.9 77.2 74.7
Investment Security Gains .1 .1 .4 .2
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Total Noninterest Income 195.2 168.5 382.9 330.1
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Income before Noninterest Expenses 286.7 255.0 562.8 503.6
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Noninterest Expenses
Salaries 90.0 84.4 177.7 166.9
Pension and Other Employee Benefits 18.4 20.8 38.8 42.3
Occupancy Expense 15.6 15.3 31.4 29.5
Equipment Expense 13.8 12.0 27.4 24.6
Other Operating Expenses 53.8 45.4 100.3 91.9
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Total Noninterest Expenses 191.6 177.9 375.6 355.2
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Income before Income Taxes 95.1 77.1 187.2 148.4
Provision for Income Taxes 31.7 24.0 62.3 46.0
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Net Income $ 63.4 $ 53.1 $ 124.9 $ 102.4
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Net Income Applicable to Common Stock $ 62.2 $ 50.9 $ 122.4 $ 98.1
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Net Income Per Common Share - Primary $ 1.08 $ .90 $ 2.13 $ 1.75
- Fully Diluted 1.08 .89 2.12 1.74
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
Average Number of Common Shares Outstanding - Primary 57,444,717 56,878,030 57,467,827 56,027,938
- Fully Diluted 57,585,575 58,178,442 57,804,774 57,340,009
- ------------------------------------------------------------ ------------ ------------ ------------ ------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION
Six Months
Ended June 30
-----------------------
(In Millions) 1996 1995
- ---------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Preferred Stock
Balance at January 1 $ 170.0 $ 170.0
Conversion of Preferred Stock, Series E (50.0) -
- ---------------------------------------------------------------- -----------------------
Balance at June 30 120.0 170.0
- ---------------------------------------------------------------- -----------------------
Common Stock
Balance at January 1 93.6 90.6
Stock Issued - Incentive Plan and Awards .1
Stock Issued in Acquisitions 2.7
Conversion of Preferred Stock, Series E 1.4 -
- ---------------------------------------------------------------- -----------------------
Balance at June 30 95.0 93.4
- ---------------------------------------------------------------- -----------------------
Capital Surplus
Balance at January 1 306.1 302.2
Stock Issued - Incentive Plan and Awards (5.8) (1.9)
Stock Issued in Acquisitions 6.9
Conversion of Preferred Stock, Series E 29.2 -
- ---------------------------------------------------------------- -----------------------
Balance at June 30 329.5 307.2
- ---------------------------------------------------------------- -----------------------
Retained Earnings
Balance at January 1 928.8 762.7
Net Income 124.9 102.4
Dividends Declared on Common Stock (35.0) (28.7)
Dividends Declared on Preferred Stock (2.3) (4.5)
Pooled Affiliates 15.1
- ---------------------------------------------------------------- -----------------------
Balance at June 30 1,016.4 847.0
- ---------------------------------------------------------------- -----------------------
Net Unrealized Gain (Loss) on Securities
Balance at January 1 2.6 (15.8)
Unrealized Gain (Loss), net (3.7) 13.7
- ---------------------------------------------------------------- -----------------------
Balance at June 30 (1.1) (2.1)
- ---------------------------------------------------------------- -----------------------
Common Stock Issuable - Performance Plan
Balance at January 1 14.7 17.9
Stock Issuable, net of Stock Issued (4.3) (1.2)
- ---------------------------------------------------------------- -----------------------
Balance at June 30 10.4 16.7
- ---------------------------------------------------------------- -----------------------
Deferred Compensation - ESOP and Other
Balance at January 1 (39.4) (38.8)
Compensation Deferred (1.9) (1.4)
Compensation Amortized 3.6 4.9
- ---------------------------------------------------------------- -----------------------
Balance at June 30 (37.7) (35.3)
- ---------------------------------------------------------------- -----------------------
Treasury Stock
Balance at January 1 (23.8) (8.1)
Stock Options and Awards 28.9 11.0
Stock Purchased (63.1) (9.5)
Conversion of Preferred Stock, Series E 19.2 -
- ---------------------------------------------------------------- -----------------------
Balance at June 30 (38.8) (6.6)
- ---------------------------------------------------------------- -----------------------
Total Stockholders' Equity at June 30 $1,493.7 $1,390.3
- ---------------------------------------------------------------- -----------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION
Six Months
Ended June 30
-----------------------
(In Millions) 1996 1995
- -------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 124.9 $ 102.4
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 9.0 3.0
Depreciation on Buildings and Equipment 23.7 21.3
Increase in Interest Receivable (7.9)
Increase in Interest Payable 3.0 9.7
Amortization and Accretion of Securities and Unearned Income (55.7) (88.6)
Amortization of Software, Goodwill and Other Intangibles 21.9 18.1
Net (Increase) Decrease in Trading Account Securities 85.6 (51.9)
Other Noncash, net (237.9) 2.6
- -------------------------------------------------------------------------- ------------ ----------
Net Cash Provided by (Used in) Operating Activities (25.5) 8.7
- -------------------------------------------------------------------------- ------------ ----------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell (199.2) 386.1
Net (Increase) Decrease in Time Deposits with Banks (337.8) 210.2
Net Increase in Other Money Market Assets (24.0) (3.1)
Purchases of Securities-Held to Maturity (6,400.3) (501.0)
Proceeds from Maturity and Redemption of Securities-Held to Maturity 6,434.7 594.3
Purchases of Securities-Available for Sale (20,273.3) (15,315.8)
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 19,648.2 14,889.6
Net Increase in Loans and Leases (510.5) (737.3)
Net Purchases of Buildings and Equipment (31.4) (20.2)
Net (Increase) Decrease in Trust Security Settlement Receivables (55.7) 18.7
Other, net (13.4) 2.4
- -------------------------------------------------------------------------- ------------ ----------
Net Cash Used in Investing Activities (1,762.7) (476.1)
- -------------------------------------------------------------------------- ------------ ----------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits 779.6 (666.5)
Net Increase (Decrease) in Federal Funds Purchased (1,204.1) 91.9
Net Decrease in Securities Sold under Agreement to Repurchase (159.7) (1,150.6)
Net Increase (Decrease) in Commercial Paper (2.5) 23.5
Net Increase in Short-Term Other Borrowings 2,358.2 2,346.0
Proceeds from Term Federal Funds Purchased 1,340.9 1,341.3
Repayments of Term Federal Funds Purchased (1,497.8) (1,349.3)
Proceeds from Senior Notes & Notes Payable 701.5 -
Repayments of Senior Notes & Notes Payable (516.0) (233.7)
Treasury Stock Purchased (58.8) (8.5)
Net Proceeds from Stock Options 5.2 1.7
Cash Dividends Paid on Common and Preferred Stock (37.3) (32.7)
Other, net 3.0 4.6
- -------------------------------------------------------------------------- ------------ ----------
Net Cash Provided by Financing Activities 1,712.2 367.7
- -------------------------------------------------------------------------- ------------ ----------
Decrease in Cash and Due from Banks (76.0) (99.7)
Cash and Due from Banks at Beginning of Year 1,308.9 1,192.5
- -------------------------------------------------------------------------- ------------ ----------
Cash and Due from Banks at June 30 $ 1,232.9 $ 1,092.8
- -------------------------------------------------------------------------- ------------ ----------
Schedule of Noncash Investing and Financing Activities:
Conversion of Preferred Stock, Series E to Common Stock $ 49.7 $ -
Acquisition of Affiliate for Stock 24.7
Supplemental Disclosures of Cash Flow Information:
Interest Paid on Deposits and Short- and Long-Term Borrowings $ 379.1 $ 345.7
Income Taxes Paid 34.9 31.3
- -------------------------------------------------------------------------- ------------ ----------
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of Northern Trust Corporation and its subsidiaries ("Northern
Trust"), all of which are wholly owned. Significant intercompany balances and
transactions have been eliminated. The consolidated financial statements as of
June 30, 1996 and 1995 have not been audited by independent public accountants.
In the opinion of management, all adjustments necessary for a fair presentation
of the financial position and the results of operations for the interim periods
have been made. All such adjustments are of a normal recurring nature. For a
description of Northern Trust's significant accounting principles, refer to the
Notes to Consolidated Financial Statements in the 1995 Annual Report to
Stockholders.
2. SECURITIES - The following table summarizes the book and fair values of
securities.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
-------------------------------------------------------------------
Book Fair Book Fair Book Fair
(In Millions) Value Value Value Value Value Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity
U.S. Government $ 114.2 $ 114.1 $ 116.1 $ 116.3 $ 88.1 $ 88.2
Obligations of States and
Political Subdivisions 341.3 361.2 366.9 394.0 434.7 466.2
Federal Agency 18.2 18.2 22.2 22.4 22.7 22.6
Other 30.4 30.4 29.9 29.9 29.2 29.1
- ------------------------------------------------------------------------------------------------
Subtotal 504.1 523.9 535.1 562.6 574.7 606.1
- ------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 1,763.9 1,763.9 1,667.7 1,667.7 729.3 729.3
Obligations of States and
Political Subdivisions 79.5 79.5 70.2 70.2 - -
Federal Agency 3,779.9 3,779.9 3,152.8 3,152.8 3,936.4 3,936.4
Preferred Stock 110.7 110.7 147.8 147.8 188.0 188.0
Other 61.9 61.9 97.8 97.8 140.3 140.3
- ------------------------------------------------------------------------------------------------
Subtotal 5,795.9 5,795.9 5,136.3 5,136.3 4,994.0 4,994.0
- ------------------------------------------------------------------------------------------------
Trading Account 3.3 3.3 88.9 88.9 55.9 55.9
- ------------------------------------------------------------------------------------------------
Total Securities $6,303.3 $6,323.1 $5,760.3 $5,787.8 $5,624.6 $5,656.0
- ------------------------------------------------------------------------------------------------
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity June 30, 1996
- ------------------------------------------------------------------------------------------------
Gross Unrealized
Book ---------------- Fair
(In Millions) Value Gains Losses Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government $114.2 $ - $ .1 $114.1
Obligations of States and
Political Subdivisions 341.3 20.3 .4 361.2
Federal Agency 18.2 .1 .1 18.2
Other 30.4 - - 30.4
- ----------------------------------------------------------------------------------------------
Total $504.1 $20.4 $ .6 $523.9
- ----------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale June 30, 1996
- ------------------------------------------------------------------------------------------------
Gross Unrealized
Amortized ---------------- Fair
(In Millions) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Government $1,766.1 $ 1.7 $ 3.9 $1,763.9
Obligations of States and
Political Subdivisions 79.3 1.9 1.7 79.5
Federal Agency 3,780.0 2.6 2.7 3,779.9
Preferred Stock 111.0 - .3 110.7
Other 62.7 .8 1.6 61.9
- ------------------------------------------------------------------------------------------------
Total $5,799.1 $ 7.0 $10.2 $5,795.9
- ------------------------------------------------------------------------------------------------
</TABLE>
Unrealized gains and losses on off-balance sheet financial instruments used to
hedge available for sale securities totaled $4.6 million and $3.1 million,
respectively, as of June 30, 1996. Unrealized gains on these hedges are
reported as other assets in the consolidated balance sheet; unrealized losses
are reported as other liabilities. As of June 30, 1996, stockholders' equity
included a charge of $1.1 million, net of tax, to recognize the depreciation on
securities available for sale and the related hedges.
3. PLEDGED ASSETS - Securities and loans pledged to secure public and trust
deposits, repurchase agreements and for other purposes as required or permitted
by law were $6.3 billion on June 30, 1996, $3.9 billion on December 31, 1995 and
$5.2 billion on June 30, 1995.
4. CONTINGENT LIABILITIES - Standby letters of credit outstanding were $1.3
billion on June 30, 1996, $1.0 billion on December 31, 1995 and $848.0 million
on June 30, 1995.
5. LOANS AND LEASES - Amounts outstanding in selected loan categories are
shown below:
<TABLE>
<CAPTION>
June 30 December 31 June 30
-------------------------------------------------------
(In Millions) 1996 1995 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic
Commercial $ 3,293.8 $3,202.1 $3,185.6
Residential Real Estate 4,300.8 3,896.4 3,550.2
Commercial Real Estate 577.9 512.6 471.1
Broker 284.2 304.0 241.8
Consumer 803.4 758.9 734.2
Other 468.0 625.5 673.3
Lease Financing 209.3 202.3 163.4
- ----------------------------------------------------------------------------------------------
Total Domestic 9,937.4 9,501.8 9,019.6
International 467.8 404.2 402.2
- ----------------------------------------------------------------------------------------------
Total Loans and Leases $10,405.2 $9,906.0 $9,421.8
- ----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
At June 30, 1996, other domestic and international loans include $588.6 million
of overnight trust-related advances in connection with next day security
settlements, compared with $810.4 million at December 31, 1995 and $842.1
million at June 30, 1995.
At June 30, 1996, nonperforming loans totaled $38.9 million. Included in this
amount were loans with a recorded investment of $35.4 million which were also
classified as impaired. A loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Impaired loans
totaling $14.6 million had no portion of the reserve for credit losses allocated
to them, while $20.8 million had an allocated reserve of $1.0 million. For the
second quarter of 1996, the total recorded investment in impaired loans averaged
$27.8 million. Total interest income recorded on impaired loans for the quarter
ended June 30, 1996 was $166 thousand, recognized principally on the cash-basis
method of accounting.
At June 30, 1995, nonperforming loans totaled $33.3 million and included $30.0
million of impaired loans. $26.0 million of these impaired loans had no reserve
allocation while $4.0 million had an allocated reserve of $.7 million. Impaired
loans for the second quarter of 1995 averaged $26.4 million with $230 thousand
of interest income recognized principally on the cash-basis method.
6. RESERVE FOR CREDIT LOSSES - Changes in the reserve for credit losses were as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30
- ------------------------------------------------------------------
(In Millions) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Balance at Beginning of Period $147.1 $144.8
Charge-Offs (9.8) (5.6)
Recoveries 1.1 2.6
- ------------------------------------------------------------------
Net Charge-Offs (8.7) (3.0)
- ------------------------------------------------------------------
Provision for Credit Losses 9.0 3.0
Reserve Related to Acquisition - 1.1
- -----------------------------------------------------------------
Balance at End of Period $147.4 $145.9
- -----------------------------------------------------------------
</TABLE>
7. ACQUISITIONS - In August 1996, Northern Trust Corporation entered into a
definitive agreement to acquire Metroplex Bancshares, Inc., parent company of
Bent Tree National Bank in Dallas, Texas for approximately $14.6 million in
cash. Bent Tree's assets totaled $80.4 million at June 30, 1996 and net income
totaled $1.1 million for the first six months of the year. The agreement is
subject to the approval of Metroplex shareholders and to various regulatory
approvals, and is expected to close in the the fourth quarter of 1996.
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER EARNINGS HIGHLIGHTS
Net income for the second quarter totaled a record $63.4 million, an increase of
19% from the $53.1 million reported in the second quarter of 1995. Net income
per common share on a fully diluted basis increased 21% to $1.08 from $.89 in
1995. This earnings performance produced an annualized return on average common
equity (ROE) of 18.47% versus 17.09% reported last year, and an annualized
return on average assets (ROA) of 1.21% versus 1.13% in 1995. Total revenues on
a taxable equivalent basis in the quarter increased 13% to $299.5 million with
trust fees and net interest income at record levels, while noninterest expenses
increased 8%.
NONINTEREST INCOME
Noninterest income increased 16% and totaled $195.2 million for the quarter,
accounting for 65% of total taxable equivalent revenue. Trust fees of $148.7
million increased 21% or $25.4 million over the like period of 1995, and now
represent 76% of noninterest income and 50% of total taxable equivalent revenue.
Fees generated by RCB International, Inc. (RCB), an October 31, 1995
acquisition, accounted for $6.5 million of the trust fee growth. Exclusive of
these fees, trust fees increased 15% compared to the second quarter of last
year, driven by record new business, increased transaction volumes and higher
market values of trust assets. Trust assets under administration at June 30,
1996 increased 26% and totaled $692.9 billion compared to $549.3 billion a year
ago.
Trust fees from Corporate and Institutional Services (C&IS) increased $17.2
million to $76.4 million. Exclusive of the RCB contribution, C&IS trust fees
increased $10.7 million or 18% from the year-ago quarter. The increase in fees
reflects substantial new business, record securities lending results and strong
revenue growth in global custody, investment management and retirement services.
Net new business sold in the first half of the year has been strong and is
equivalent to all of the new business sold in 1995. The transition of this new
business sold to date is expected to continue through the third quarter of 1996.
Custody fees increased $3.4 million or 13% and totaled $30.4 million for the
quarter. The growth was particularly strong in global custody which was driven
by increased transaction-based fees and new business. Domestic securities
lending fees, up 63% versus last year, reflect a 46% increase in the volume of
securities loaned as well as a modest increase in the spread earned from the
investment of the cash collateral. International securities lending fees
increased 62% during the quarter, driven by a 58% increase in the volume of
securities loaned and an improved spread earned on the investment of the cash
collateral. Fees from retirement services generated by Hazlehurst & Associates,
Inc. increased 19%, principally from new business. Investment management fees
increased 41% driven by new business and growth in customized products tailored
to client needs.
9
<PAGE>
C&IS trust assets under administration grew 27% or $131.3 billion over last year
and now total $616.2 billion. C&IS trust assets under the management of Northern
Trust total $74.8 billion, up 43% from a year ago.
Trust fees from Personal Financial Services (PFS) increased 13% from the prior
year level of $64.1 million and totaled $72.3 million for the second quarter,
reflecting strong growth throughout Northern Trust's five-state network of PFS
offices. PFS trust fee growth resulted primarily from new business and higher
market values of the assets administered. Net new recurring business sold
through the first six months is up 25% from the year-ago period. During the
second quarter of 1996, Northern Trust expanded its distribution capabilities
for personal trust and private banking services with the opening of new offices
in Sun City West, Arizona, Stuart, Florida and Barrington, Illinois. At June 30,
1996, Northern Trust's network of PFS offices totaled 55 locations throughout
Illinois, Florida, California, Arizona and Texas. Trust fees from the four
states outside of Illinois now comprise about one-half of total PFS trust fees.
Total personal trust assets under administration increased $12.3 billion from
the prior year and totaled $76.7 billion at June 30, 1996, with $45.1 billion
under management.
Security commissions and trading income totaled $6.4 million compared with $5.2
million reported in the second quarter of 1995 due to higher brokerage
commission revenue at Northern Trust Securities, Inc. This increase resulted
primarily from a higher volume of trading activity by individual investors.
Other operating income totaled $40.0 million in the quarter, essentially
unchanged from the like quarter of 1995. The principal items included in other
operating income are foreign exchange trading profits and treasury management
fees. Foreign exchange trading profits were $15.1 million, an increase of 20%
from the first quarter of 1996 but down 3% from the strong performance in the
second quarter of 1995. Foreign exchange trading profits, generated in both
Chicago and London, are impacted by the level of cross-border investment
activities of Master Trust/Master Custody clients and market volatility. The fee
component of treasury management revenues rose 20% to $14.5 million compared to
the prior year. Total treasury management revenues, including both fees and the
computed value of compensating deposit balances, were $22.0 million,
representing a 13% increase from the second quarter of 1995. The compensating
deposit balances contributed to the increase in net interest income. The
improvement in treasury management revenues resulted from new business growth in
both paper- and electronic-based products. The year to year comparison of
treasury management revenues was also impacted by a $.7 million decrease in the
amount of FDIC insurance premiums that were passed through to clients in 1995
and included in treasury management results. Other operating income in the
second quarter of 1995 benefited by $1.3 million in gains from the sale of lease
residuals compared to nominal gains in the current quarter. In addition, other
operating income in the quarter reflected the elimination of float-related
compensation as a result of the Depository Trust Company's first quarter 1996
conversion to a same-day settlement basis for security transactions.
10
<PAGE>
NET INTEREST INCOME
Net interest income for the second quarter totaled a record $95.5 million, 9%
higher than the $88.0 million reported in the second quarter of 1995. Net
interest income is defined as the total of interest income and amortized fees on
earning assets, less interest expense on deposits and borrowed funds, adjusted
for the impact of off-balance sheet hedging activity. When net interest income
is adjusted to a fully taxable equivalent (FTE) basis, yields on taxable,
nontaxable and partially taxable assets are comparable, although the adjustment
to a FTE basis has no impact on net income. Net interest income on a FTE basis
for the second quarter was $104.3 million, up 7% from the $97.5 million reported
in 1995. The increase in net interest income reflects growth in noninterest-
related funds and higher levels of earning assets, primarily in residential
mortgages, commercial and industrial loans and short-term U.S. Government and
federal agency securities. These factors were partially offset by a decline in
the net interest margin to 2.22% from 2.35% reported in the second quarter of
1995.
Earning assets for the second quarter averaged $18.9 billion, up 14% from the
$16.7 billion average for the second quarter of 1995. The $2.2 billion growth in
average earning assets reflected a 13% or $1.2 billion increase in average
loans, and a $.8 billion or 14% growth in average security holdings. Money
market assets totaled $2.0 billion on average for the quarter, up 13% from the
like period of 1995.
The loan growth was concentrated primarily in the domestic portfolio.
Residential mortgages increased 20% to average $4.2 billion and now comprise 41%
of the total average loan portfolio. Commercial and industrial loans averaged
$3.3 billion during the second quarter of 1996 compared to $3.1 billion last
year. Securities for the quarter increased $.8 billion on average to $6.7
billion, due primarily to a 21% increase in short-term U.S. Government and
federal agency securities.
Funding for the growth in earning assets came from several sources. Total
interest-bearing deposits averaged $10.0 billion, up $575 million from the
second quarter of 1995. This growth came principally from savings and money
market deposits (up $371 million), and foreign office time deposits (up $228
million). Short-term funds were also raised utilizing federal funds purchased,
repurchase agreements, and other borrowings. The growth in other borrowings was
concentrated primarily in higher treasury tax and loan account balances.
Noninterest-related funds increased $257 million and averaged $2.8 billion due
in large part to growth in common stockholders' equity. Common stockholders'
equity increased $159 million or 13% and averaged $1.35 billion due primarily to
growth in retained earnings. The remaining increase in noninterest-related funds
was concentrated in foreign demand and trust-related deposits. The net interest
margin decreased 13 basis points to 2.22% compared with 2.35% last year due
primarily to lower spreads earned on the higher volume of U.S. Government and
federal agency securities.
11
<PAGE>
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $4.0 million was up $2.5 million from the low
level reported in the second quarter of 1995. For a discussion of the provision
and reserve for credit losses, refer to the Asset Quality section.
NONINTEREST EXPENSES
Noninterest expenses totaled $191.6 million for the quarter, up $13.7 million or
8% from $177.9 million in the second quarter of 1995. Operating expenses of the
two businesses acquired in the second half of 1995 accounted for approximately
$7.5 million of this increase, while the reduction in FDIC insurance premiums
during the second half of 1995 lowered expenses by $4.2 million. Expenses for
the current quarter were adversely affected by $4.1 million in costs
attributable to errors in the processing of three transactions by the capital
structures unit of global custody operations. Excluding the increases
attributable to acquisitions and these processing costs and the decline due to
lower FDIC premiums, expense growth would have been 4%. The increase in
noninterest expenses also reflects the support necessary for higher levels of
trust new business and treasury management and global custody volumes, as well
as costs associated with PFS office expansion.
Salaries and benefits, which represent 57% of total noninterest expenses,
increased to $108.4 million from $105.2 million in the year-ago quarter. The
principal items contributing to the change were merit increases, incentive
compensation, and staff additions resulting from 1995 acquisitions and to
support Northern Trust's growing trust activities. These increases were
partially offset by a decline in staff levels in other areas and cost savings
from changes in several benefit plans effective January 1, 1996. Staff on a
full-time equivalent basis at June 30, 1996 totaled 6,698, up 3% from 6,531 at
the end of 1995.
Net occupancy expense totaled $15.6 million, up 2% from $15.3 million in the
second quarter of 1995, due in part to acquisitions and the opening of new
offices. The principal components of the increase were higher rent, real estate
taxes, and amortization and depreciation of leasehold improvements and
buildings, offset in part by lower levels of lease operating and building
maintenance costs.
Equipment expense, which includes depreciation, rental and maintenance costs,
totaled $13.8 million, up $1.8 million or 15% from the second quarter of 1995.
The principal components of the increase were higher levels of computer
equipment depreciation, maintenance and rental expenses.
Other operating expenses in the quarter totaled $53.8 million compared to $45.4
million last year. The $4.2 million reduction in FDIC insurance which took
effect in the second half of 1995 was offset by the $4.1 million in costs
attributable to processing errors within
12
<PAGE>
global custody operations. Other operating expenses were also impacted by the
addition of professional service fees paid to RCB's network of investment
managers, and higher levels of software amortization, transaction-based
depository fees, and amortization expense of goodwill and other intangibles.
The components of other operating expenses were as follows:
<TABLE>
<CAPTION>
Quarter Ended June 30
---------------------
(In Millions) 1996 1995
---- ----
<S> <C> <C>
Business Development $ 6.7 $ 6.1
Purchased Professional Services 18.3 14.0
Telecommunications 3.0 2.8
Postage and Supplies 5.3 5.3
FDIC Premium -- 4.2
Software Amortization 8.6 7.4
Goodwill and Other Intangibles Amortization
Amortization 2.4 1.6
Other Expense 9.5 4.0
_____ _____
Total Other Operating Expenses $53.8 $45.4
----- -----
</TABLE>
PROVISION FOR INCOME TAXES
The provision for income taxes was $31.7 million for the second quarter compared
with $24.0 million in the year-ago quarter. The higher tax provision in 1996
resulted from the growth in taxable earnings for both federal and state income
tax purposes and a decline in tax-exempt income from the prior year. The
effective tax rate was 33% for 1996 versus 31% in 1995.
SIX MONTHS EARNINGS HIGHLIGHTS
Net income totaled $124.9 million for the six months ended June 30, 1996
compared to $102.4 million last year, an increase of 22%. On a fully diluted
basis, net income per common share also increased 22% to $2.12. The ROE for the
six month period was 18.41% versus 16.97% one year ago, while the ROA improved
to 1.20% from 1.11% in the same period of last year.
Noninterest income increased 16% to $382.9 million from $330.1 million in the
like period of 1995. Noninterest income comprised 65% of total taxable
equivalent revenue. Trust fees totaled $292.6 million, up 20% from $244.1
million last year. Security commissions and trading income totaled $12.7
million, up $1.6 million or 15% from the $11.1 million earned last year. Foreign
exchange trading profits were at record levels and totaled $27.6 million. The
fee portion of treasury management revenues totaled $27.5 million, up 12% from
the $24.4 million reported in 1995. Total treasury management revenues, which,
in addition to fees, include the computed value of compensating deposit
balances, increased
13
<PAGE>
10% and totaled $42.5 million. These compensating deposit balances also
contributed to the improvement in net interest income.
Net interest income stated on a fully taxable equivalent basis totaled $206.3
million, up 5% from the $195.6 million in the like period of 1995. The provision
for credit losses increased $6.0 million to $9.0 million in 1996. Net loan
charge-offs increased to $8.7 million from $3.0 million in the prior year.
Noninterest expenses totaled $375.6 million, up 6% from $355.2 million in 1995.
BALANCE SHEET
Total assets at June 30, 1996 were $21.8 billion and averaged $20.9 billion for
the first six months, up 13% from last year's average of $18.6 billion. Due to
increased lending activity, in addition to the July 31, 1995 acquisition of
Tanglewood Bank, loans and leases grew to $10.4 billion at June 30, 1996, and
averaged $10.0 billion for the first six months. This compares with $9.4 billion
in total loans at June 30, 1995 and $8.8 billion on average for the first six
months of last year.
Driven primarily by continued strong earnings growth and the first quarter 1996
conversion of the Series E convertible preferred stock, common stockholders'
equity increased 15% to average $1.34 billion for the first six months, versus
$1.17 billion last year. Total stockholders' equity averaged $1.47 billion
compared with $1.34 billion in 1995.
During the quarter, the Northern Trust Corporation acquired 590,211 of its own
shares at a total cost of $32.6 million pursuant to the 4 million share buyback
program authorized by the Board of Directors in 1994. This brought the total
number of shares acquired in 1996 to 1,156,517 leaving an additional 1.1 million
shares remaining to be acquired under this program. Northern Trust's risk-based
capital ratios remained strong at 8.4% for tier 1 and 11.7% for total capital at
June 30, 1996. These capital ratios are well above the minimum regulatory
requirements of 4% for tier 1 and 8% for total risk-based capital ratios. The
leverage ratio (tier 1 capital to second quarter average assets) of 6.2% at June
30, 1996, also exceeded the regulatory requirement of 3%.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans, restructured loans and other
real estate owned (OREO). Nonperforming assets at June 30, 1996 totaled $40.5
million, compared with $33.7 million at December 31, 1995 and $34.5 million at
June 30, 1995. Nonaccrual and restructured loans and leases, consisting
primarily of commercial loans, totaled $38.9 million, or .37% of total loans and
leases at June 30, 1996. Included in this total are commercial real estate loans
of $29.0 million. At December 31, 1995 and June 30, 1995, nonaccrual and
restructured loans and leases totaled $31.9 million and $33.3 million,
respectively.
14
<PAGE>
The following Nonperforming Asset table presents the outstanding amounts of
nonaccrual loans and leases, restructured loans and OREO. Also shown are
loans that have interest or principal payments that are delinquent 90 days
or more and are still accruing interest. The balance in this category at
any quarter end can fluctuate widely based on the timing of cash
collections, renegotiations and renewals.
Nonperforming Assets and 90 Day Past Due Loans and Leases
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
(In Millions) 1996 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual Loans and Leases
Domestic $36.2 $27.9 $29.0 $29.8
International - - .2 .7
- ------------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans and Leases 36.2 27.9 29.2 30.5
Restructured Loans 2.7 2.7 2.7 2.8
OREO 1.6 1.5 1.8 1.2
- ------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $40.5 $32.1 $33.7 $34.5
- ------------------------------------------------------------------------------------------------------------------
Total 90 Day Past Due Loans
(still accruing) $14.6 $36.9 $22.0 $14.1
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION AND RESERVE FOR CREDIT LOSSES. The provision for credit losses
is the charge against current earnings that is determined by management
through a disciplined credit review process as the amount needed to
maintain a reserve that is sufficient to absorb credit losses inherent in
the loan and lease portfolios and other credit undertakings. While the
largest portion of this reserve is intended to cover loan and lease losses,
it is considered a general reserve that is available to cover all credit-
related exposures.
The 1996 second quarter provision for credit losses was $4.0 million,
compared with $1.5 million in the second quarter of 1995. Net charge-offs
totaled $3.8 million in the second quarter of 1996, versus $1.4 million
last year. The reserve for credit losses was $147.4 million or 1.42% of
outstanding loans at June 30, 1996. This compares with $147.1 million or
1.49% of outstanding loans at December 31, 1995 and $145.9 million or 1.55%
of outstanding loans at June 30, 1995. The lower reserve to outstanding
loans ratio at June 30, 1996 is attributable to loan growth, a significant
portion of which is in low-risk residential mortgage lending.
The overall credit quality of the domestic portfolio has remained good as
evidenced by the low level of nonperforming loans and relatively moderate
level of net charge-offs. Management's assessment of the current U.S.
economy and the financial condition of certain clients facing financial
difficulties together with the types of loans creating portfolio growth
were primary factors impacting management's decision to maintain the
reserve for credit losses at $147.4 million at June 30, 1996, essentially
unchanged from
15
<PAGE>
December 31, 1995 and slightly higher than June 30, 1995. Although difficult to
predict, management presently expects that the provision for credit losses for
the balance of 1996 will be somewhat above the very low level experienced in the
comparable period of 1995.
Management continues to monitor closely several credits, but the overall quality
of its loan portfolio remains sound and the reserve for credit losses is
adequate to cover credit-related uncertainties as they exist today. Established
credit review procedures ensure that close attention is given to commercial real
estate-related loans and other commercial loans, as well as other credit
exposures that might be adversely affected by significant increases in interest
rates or unexpected downturns in segments of the economies of the United States
or other countries.
16
<PAGE>
The following schedule should be read in conjunction with the Net Interest
Income section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<TABLE>
<CAPTION>
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME
Second Quarter
-------------------------------------------------------------------
(Interest and rate on a taxable equivalent basis) 1996 1995
---------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
($ in Millions) Interest Volume Rate Interest Volume Rate
- ----------------------------------------------------- ---------- ------------ ------ -------- ---------- ------
Average Earning Assets
Money Market Assets
Federal Funds Sold and Securities Purchased
under Agreements to Resell $ 3.4 $ 254.4 5.51% $ 3.9 $ 258.2 6.21%
Time Deposits with Banks 20.9 1,678.2 4.99 20.8 1,483.8 5.62
Other .8 54.6 5.80 .3 13.9 6.68
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Total Money Market Assets 25.1 1,987.2 5.08 25.0 1,755.9 5.72
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Securities
U.S. Government 29.8 2,123.9 5.64 12.8 915.4 5.59
Obligations of States and Political Subdivisions 10.4 419.7 9.88 12.0 440.4 10.95
Federal Agency 55.5 3,975.4 5.62 65.9 4,115.6 6.42
Other 3.4 227.6 5.93 5.9 376.8 6.25
Trading Account .1 9.1 7.60 1.0 57.5 6.77
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Total Securities 99.2 6,755.7 5.90 97.6 5,905.7 6.62
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Loans and Leases 170.6 10,176.7 6.74 158.0 8,973.7 7.06
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Total Earning Assets $294.9 $18,919.6 6.27% $280.6 $16,635.3 6.76%
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Average Source of Funds
Deposits
Savings and Money Market Deposits $ 28.6 $ 3,659.6 3.14% $ 27.4 $ 3,289.0 3.34%
Savings Certificates 29.3 2,053.6 5.75 30.6 2,000.9 6.12
Other Time 6.2 462.6 5.40 8.0 539.5 5.95
Foreign Offices Time 45.5 3,807.2 4.81 47.2 3,579.0 5.30
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Total Deposits 109.6 9,983.0 4.42 113.2 9,408.4 4.83
Federal Funds Purchased 22.5 1,717.9 5.27 16.1 1,068.6 6.04
Securities Sold Under Agreements to Repurchase 28.0 2,153.1 5.23 25.0 1,666.5 6.02
Commercial Paper 2.0 142.9 5.38 2.2 146.3 5.96
Other Borrowings 18.7 1,516.3 4.97 15.9 1,162.1 5.51
Senior Notes 3.4 254.5 5.26 5.8 379.7 6.04
Notes Payable 6.4 335.9 7.67 4.9 244.7 8.04
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Total Interest-Related Funds 190.6 16,103.6 4.76 183.1 14,076.3 5.22
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Interest Rate Spread - - 1.51% - - 1.54%
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Noninterest-Related Funds - 2,816.0 - - 2,559.0 -
- ----------------------------------------------------- ------ --------- ------ ------ --------- -----
Total Source of Funds $190.6 $18,919.6 4.05% $183.1 $16,635.3 4.41%
- ----------------------------------------------------- ------ --------- ----- ------ --------- -----
Net Interest Income/Margin $104.3 - 2.22% $ 97.5 - 2.35%
- ----------------------------------------------------- ------ --------- ----- ------ -------- -----
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
Second Quarter 1996/95 Six Months 1996/95
--------------------------------- -----------------------------
Change Due To Change Due To
----------------------- --------------------
(In Millions) Volume Rate Total Volume Rate Total
- ----------------------------------------------------- --------- ------------ ------ -------- --------- ------
Earning Assets $ 34.3 $ (20.0) $14.3 $ 68.6 $ (31.6) $37.0
Interest-Related Funds 24.6 (17.1) 7.5 50.0 (23.7) 26.3
- ----------------------------------------------------- ------ --------- ----- ------- -------- -----
Net Interest Income $ 9.7 $ (2.9) $ 6.8 $ 18.6 $ (7.9) $10.7
- ----------------------------------------------------- ------ --------- ----- ------- -------- -----
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NORTHERN TRUST CORPORATION
Six Months
- -------------------------------------------------------------------
1996 1995
- ---------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Interest Volume Rate Interest Volume Rate
- --------- ------------ ------ -------- --------- ------
$ 7.2 $ 260.8 5.59% $ 7.4 $ 245.9 6.11%
43.7 1,711.7 5.13 47.5 1,669.1 5.74
1.6 54.0 5.93 .5 14.1 6.47
- --------- ------------ ------ -------- --------- ------
52.5 2,026.5 5.21 55.4 1,929.1 5.79
- --------- ------------ ------ -------- --------- ------
59.4 2,104.2 5.67 25.8 953.7 5.45
20.9 420.9 9.94 24.5 446.7 11.00
112.7 3,966.0 5.71 127.6 3,997.6 6.44
7.3 245.0 5.98 11.9 379.5 6.30
.3 9.3 7.42 1.5 42.0 7.22
- --------- ------------ ------ -------- --------- ------
200.6 6,745.4 5.98 191.3 5,819.5 6.62
- --------- ------------ ------ -------- --------- ------
335.3 9,977.0 6.76 304.7 8,756.0 7.02
- --------- ------------ ------ -------- --------- ------
$588.4 $18,748.9 6.31% $551.4 $16,504.6 6.74%
- --------- ------------ ------ -------- --------- ------
$ 56.7 $ 3,618.6 3.15% $ 54.0 $ 3,276.1 3.32%
60.2 2,081.9 5.82 55.1 1,860.0 5.97
14.6 537.0 5.47 14.4 498.3 5.82
89.6 3,692.3 4.88 97.8 3,744.5 5.27
- --------- ------------ ------ -------- --------- ------
221.1 9,929.8 4.48 221.3 9,378.9 4.76
51.2 1,930.7 5.34 32.2 1,095.4 5.92
54.1 2,065.1 5.27 49.1 1,681.6 5.89
3.9 143.3 5.42 4.3 145.1 5.90
31.5 1,247.2 5.08 26.4 986.0 5.41
7.5 284.4 5.25 12.7 424.4 5.97
12.8 335.4 7.65 9.8 244.8 8.09
- --------- ------------ ------ -------- --------- ------
382.1 15,935.9 4.82 355.8 13,956.2 5.14
- --------- ------------ ------ -------- --------- ------
- - 1.49% - - 1.60%
- --------- ------------ ------ -------- --------- ------
- 2,813.0 - - 2,548.4 -
- --------- ------------ ------ -------- --------- ------
$382.1 $18,748.9 4.10% $355.8 $16,504.6 4.35%
- --------- ------------ ------ -------- --------- ------
$206.3 - 2.21% $195.6 - 2.39%
- --------- ------------ ------ -------- --------- ------
</TABLE>
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
--------
Exhibit (10) (i) Form of Employment Security Agreement dated
March 1, 1996 entered or to be entered into
between Northern Trust Corporation and each of
7 officers - as amended.
(ii) Form of Employment Security Agreement dated
May 21, 1996 entered or to be entered into
between Northern Trust Corporation and each of
30 officers - supersedes Form of Agreement
dated March 23, 1986.
(iii) Form of Employment Security Agreement dated
May 21, 1996 entered or to be entered into
between Northern Trust Corporation and each of
8 officers.
(iv) Form of Employment Security Agreement dated
May 21, 1996 entered or to be entered into
between Northern Trust Corporation and each of
16 officers -supersedes Form of Agreement
dated March 23, 1986.
(v) Implementation Agreement dated June 26, 1996
between the Registrant, The Northern Trust
Company, the ESOP Trust and NationsBank
(South) N.A. as Trustee.
(vi) Term Loan Agreement between the ESOP Trust
and the Registrant dated June 28, 1996.
Exhibit (11) Computation of Per Share Earnings
Exhibit (27) Financial Data Schedule
(b.) Reports on Form 8-K
-------------------
In a report on Form 8-K dated April 17, 1996, Northern Trust
incorporated by reference in Item 5 its April 16, 1996 press
release, reporting on its earnings for first quarter of 1996. The
press release, with summary financial information, was filed
pursuant to Item 7.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN TRUST CORPORATION
--------------------------
(Registrant)
Date: August 12, 1996 By: Perry R. Pero
-----------------
Perry R. Pero
Senior Executive Vice President
and Chief Financial Officer
Date: August 12, 1996 By: Harry W. Short
------------------
Harry W. Short
Senior Vice President and Controller
(Chief Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
The following exhibits have been filed herewith:
Exhibit
Number Description
- ------ -----------
<C> <S>
(10) (i) Form of Employment Security Agreement dated March 1, 1996
entered or to be entered into between Northern Trust Corporation
and each of 7 officers - as amended.
(ii) Form of Employment Security Agreement dated May 21, 1996 entered
or to be entered into between Northern Trust Corporation and
each of 30 officers - supersedes Form of Agreement dated March
23, 1986.
(iii) Form of Employment Security Agreement dated May 21, 1996 entered
or to be entered into between Northern Trust Corporation and
each of 8 officers.
(iv) Form of Employment Security Agreement dated May 21, 1996 entered
or to be entered into between Northern Trust Corporation and
each of 16 officers -supersedes Form of Agreement dated March
23, 1986.
(v) Implementation Agreement dated June 26, 1996 between the
Registrant, The Northern Trust Company, the ESOP Trust and
NationsBank (South) N.A. as Trustee.
(vi) Term Loan Agreement between the ESOP Trust and the Registrant
dated June 28, 1996.
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
</TABLE>
21
<PAGE>
EXHIBIT NUMBER (10)(i)
To 6/30/96 FORM 10-Q
EMPLOYMENT SECURITY AGREEMENT
-----------------------------
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this ____________ day of
__________________, 1996, between NORTHERN TRUST CORPORATION, a Delaware
corporation (the "Company"), and
____________________________________________________ (the "Executive").
WITNESSETH THAT:
---------------
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company; and
WHEREAS, the Company and the Executive entered into an Employment Security
Agreement dated as of ________________, 19__ with respect to the Executive's
employment following a change in control of the Company (which agreement, as it
has been amended from time to time and supplemented by subsequent letter
agreements, is referred to in this Agreement as the "Prior Agreement"); and
WHEREAS, the Executive and the Company wish to supersede the Prior
Agreement with this Agreement;
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon a Change in Control. If within two (2) years
after a Change in Control (as defined below) or during the Period Pending a
Change in Control (as defined below), (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined
below), or (ii) Executive shall voluntarily terminate such employment with
Good Reason (as defined below), the Company shall, within 30 days of
Executive's Employment Termination (as defined below), make the payments
and provide the benefits described below.
(a) Cash Payment. The Company shall make a lump sum cash payment to
Executive equal to three times the Executive's Annual Compensation
(as defined below).
(b) Short-Year Bonus. The Company shall make a lump sum cash payment to
Executive equal to a pro rata portion (based on the date on which
Executive's Employment Termination occurs) of the average of the
annual amounts paid to Executive under the Management Performance Plan
or any successor plan (the "MPP"), the Annual Performance Plan or any
successor plan (the "APP"), the Specialized Incentive Plans or any
successor plans (the "SIP") and any other cash-based incentive or
bonus plans, with respect to the last three full fiscal years of
Executive's participation in such plans prior to Employment
Termination or, if higher, prior to the Change in Control. For
purposes of the preceding sentence, if Executive's number of full
fiscal years of participation in the MPP, APP, SIP, and other cash-
based plan prior to the Change in Control is less than three, the
average amount shall be calculated as the average of the annual
amounts paid to Executive over the number of full fiscal years of
Executive's participation in the MPP, APP, SIP, and other plans prior
to the
-1-
<PAGE>
Change in Control, or the number of full fiscal years of Executive's
participation in the MPP, APP, SIP, and other plans prior to
Employment Termination, whichever produces a higher average annual
amount. The provisions of this paragraph (b) shall supersede any
provisions of the APP relating to bonus amounts in the event of a
Change in Control, and the amount paid to the Executive under this
paragraph shall be in lieu of any amount that would be payable in the
event of a Change in Control under the APP.
(c) Welfare Benefit Plans. With respect to each Welfare Benefit Plan (as
defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of (i) three years following
Executive's Employment Termination, or (ii) the date Executive becomes
covered by a welfare benefit plan or program maintained by an entity
other than the Company which provides coverage or benefits at least
equal, in all respects, to such Welfare Benefit Plan, Executive shall
continue to participate in such Welfare Benefit Plan on the same basis
and at the same cost to Executive as was the case immediately prior to
the Change in Control (or, if more favorable to Executive, as was the
case at any time hereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable law or
contractual provisions, Executive shall be provided with substantially
similar benefits and coverage for such period. Immediately following
the expiration of the continuation period required by the preceding
sentence, Executive shall be entitled to continued group health
benefit plan coverage (so-called "COBRA coverage") in accordance with
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), it being intended that COBRA coverage shall be consecutive to
the benefits and coverage provided for in the preceding sentence.
Executive's eligibility for, and premium contribution level under, The
Northern Trust Retiree Medical Care Plan and The Northern Trust
Medicare Supplemental Plan and any similar or successor plans or
programs maintained or contributed to by the Company, shall be
determined by adding three years to Executive's age and years of
service at Executive's Employment Termination.
(d) Supplemental Retirement Plans. All amounts accrued or accumulated on
behalf of Executive under the Supplemental Pension Plan for Employees
of The Northern Trust Company (the "SERP"), the Supplemental Thrift-
Incentive Plan for Employees of The Northern Trust Company (the
"Supplemental TIP") and the Supplemental Employee Stock Ownership Plan
for Employees of The Northern Trust Company (the "Supplemental ESOP")
will immediately be fully vested upon the Change in Control, and the
Company shall promptly pay or distribute all such amounts to Executive
in accordance with the terms of such plans as in effect on the date of
this Agreement (or as of Executive's Employment Termination, if more
favorable to Executive).
(e) Stock Incentive Plans. All stock options granted under the Northern
Trust Corporation Amended 1985 Incentive Stock Plan (the "1985 ISP"),
the Northern Trust Corporation 1992 Incentive Stock Plan (the "1992
ISP"), the Northern Trust Corporation Amended 1992 Incentive Stock
Plan (the "1995 ISP") and any other stock plan or program
(collectively referred to as the "ISPs"), will immediately become
fully vested and exercisable upon the Change in Control. All
restricted stock granted under the ISPs will immediately be fully
vested and distributed to Executive upon the Change in Control. With
respect to performance shares granted under the ISPs pursuant to the
Northern Trust Corporation Long Term Incentive Plan ("LTIP") or
otherwise, upon the Change in Control: (i) all performance shares
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credited to Executive's performance share account will be immediately
distributed to Executive (together with any other amounts then
credited to Executive's performance share account); (ii) a pro rata
portion of all performance shares awarded to Executive but not then
credited to Executive's performance share account will be immediately
distributed to Executive; and (iii) Executive will remain eligible for
crediting to Executive's performance share account as of the end of
the performance period, in accordance with the provisions of the LTIP
in effect as of the Change in Control, any remaining performance
shares awarded to Executive but not distributed in accordance with
this paragraph.
(f) Salary to Date of Employment Termination. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned
with respect to any period prior to Executive's Employment Termination
and a lump sum cash payment for accumulated but unused vacation earned
through such Employment Termination.
2. Definitions. For purposes of this Agreement:
(a) "Good Cause" shall mean: (i) Executive's conviction of any criminal
violation involving dishonesty, fraud, or breach of trust; (ii)
Executive's willful engagement in any misconduct in the performance of
Executive's duty that materially injures the Company; (iii)
Executive's performance of any act which, if known to the customers,
clients, stockholders or regulators of the Company or any of its
subsidiaries, would materially and adversely impact on the business of
the Company or any of its subsidiaries; (iv) any act or omission by
Executive that causes a regulatory body with jurisdiction over the
Company or any of its subsidiaries, to demand, request, or recommend
that Executive be suspended or removed from any position in which
Executive serves with the Company or any of its subsidiaries; or (v)
Executive's willful and substantial nonperformance of assigned duties,
provided that such nonperformance has continued more than ten days
after the Company has given written notice of such nonperformance and
of its intention to terminate Executive's employment because of such
nonperformance.
(b) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope, level or
extent of Executive's responsibilities from the nature, scope,
level or extent of such responsibilities prior to the Change in
Control, or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities;
(ii) The Company shall reduce Executive's salary below that in
effect as of the date of this Agreement (or as of the Change in
Control, if greater);
(iii) The Company shall require Executive to relocate Executive's
principal business office or his principal place of residence
outside the ______________, ______________ Standard
Metropolitan Statistical Area (the "Geographical Employment
Area"), or assign to Executive duties that would reasonably
require such relocation;
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(iv) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to spend
more than fifty normal working days away from the Geographical
Employment Area during any consecutive twelve-month period; or
(v) The Company shall fail to continue in effect any cash or stock-
based incentive or bonus plan, retirement plan, welfare benefit
plan, or other benefit plan, program or arrangement, unless the
aggregate value (as computed by an independent employee
benefits consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs and
arrangements provided to Executive is not materially less than
their aggregate value as of the date of this Agreement (or as
of the Change in Control, if greater).
(c) "Change in Control" shall be deemed to occur on the earliest of:
(i) The receipt by the Company of a Schedule 13D or other statement
filed under Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), indicating that any
entity, person, or group has acquired beneficial ownership, as
that term is defined in Rule 13d-3 under the Exchange Act, of
more than 30% of the outstanding capital stock of the Company
entitled to vote for the election of directors ("voting
stock");
(ii) The commencement by an entity, person, or group (other than the
Company or a subsidiary of the Company) of a tender offer or an
exchange offer for more than 20% of the outstanding voting
stock of the Company;
(iii) The effective time of (A) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or consolidation hold
less than 60% of the voting stock of the surviving or resulting
corporation, or (B) a transfer of substantially all of the
property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock; or
(iv) The election to the Board of Directors of the Company, without
the recommendation or approval of the incumbent Board of
Directors of the Company, of the lesser of: (A) three
directors; or (B) directors constituting a majority of the
number of directors of the Company then in office.
(d) "Annual Compensation" shall mean the sum of: (i) Executive's salary
at the greater of (A) Executive's salary rate in effect on the date of
the Change in Control, or (B) Executive's salary rate in effect on
Executive's Employment Termination; and (ii) the Amounts Payable Under
Any Cash Bonus Plans (as defined below) in which Executive
participates.
(e) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the Company with
Good Reason; or (ii) the termination of Executive's employment by the
Company without Good Cause.
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(f) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained
or contributed to by the Company, including, but not limited to a plan
that provides health (including medical and dental), life, accident or
disability benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in Control.
(g) "Amounts Payable Under Any Cash Bonus Plans" shall mean the sum of
whichever of the following are applicable to Executive: (i) the amount
that would be awarded to Executive under the MPP, assuming the target
award percentage was applicable and Executive was employed for the
full fiscal year in which Executive's Employment Termination occurs;
(ii) the average of the annual amounts paid to Executive under the APP
with respect to the last three full fiscal years of Executive's
participation in the APP prior to Employment Termination or, if
higher, prior to the Change in Control; (iii) the average of the
annual amounts paid to Executive under the SIPs with respect to the
last three full fiscal years of Executive's participation in the SIPs
prior to Employment Termination or, if higher, prior to the Change in
Control; and (iv) the average of the annual amounts paid to Executive
under any other cash-based incentive or bonus plans in which Executive
participates after the date of this Agreement with respect to the last
three full fiscal years of Executive's participation in such plans
prior to Employment Termination or, if higher, prior to the Change in
Control. For purposes of the preceding sentence, if Executive's number
of full fiscal years of participation in the APP, SIP, or other cash-
based plan prior to the Change in Control is less than three, the
amount under clause (ii), (iii) or (iv) of this paragraph shall be
calculated as the average of the annual amounts paid to Executive over
the number of full fiscal years of Executive's participation in the
APP, SIP, or other plans prior to the Change in Control, or the number
of full fiscal years of Executive's participation in the APP, SIP, or
other plans prior to Employment Termination, whichever produces a
higher average annual amount.
(h) "Period Pending a Change in Control" shall mean the period after the
approval by the Company's stockholders and prior to the effective time
of (A) a merger or consolidation of the Company with one or more other
corporations as a result of which the holders of the outstanding
voting stock of the Company immediately prior to such merger or
consolidation hold less than 60% of the voting stock of the surviving
or resulting corporation, or (B) a transfer of substantially all of
the property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock.
3. Certain Additional Payments by the Company.
(a) Gross-Up. Anything in this Agreement to the contrary notwithstanding,
in the event that any payment or distribution by or on behalf of the
Company to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments
required under this Section 3) (the "Payments") is determined to be an
"excess parachute payment" pursuant to Code Section 280G or any
successor or substitute provision of the Code, with the effect that
Executive is liable for the payment of the excise tax described in
Code Section 4999 or any successor or substitute provision of the
Code, or any interest or penalties are
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incurred by Executive with respect to such Payments (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Executive shall be
entitled to receive an additional payment (the "Gross-Up Payment") in
an amount such that after payment by Executive of all taxes imposed
upon the Gross-Up Payment, including, without limitation, federal,
state, local or other income taxes, FICA taxes, and additional Excise
Tax (and any interest and penalties imposed with respect to such
taxes), Executive retains a portion of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
(b) Determination of Gross-Up. Subject to the provisions of Section 3(c),
all determinations required to be made under this Section 3, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the public accounting firm that
serves as the Company's auditors (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and
Executive within 15 business days of the receipt of notice from the
Company or Executive that there have been Payments, or such earlier
time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, Executive shall designate
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 3, shall be
paid by the Company to Executive within five days after the receipt by
the Company and Executive of the Accounting firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by
Executive, it shall furnish Executive with a written opinion that
failure to report the Excise Tax on Executive's applicable federal
income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and Executive, except as provided in
paragraph (c) below.
(c) IRS Claims. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that the Internal
Revenue Service or other agency will claim that a greater Excise Tax
is due, and thus a greater amount of Gross-Up Payment should have been
made by the Company than that determined pursuant to paragraph (b)
above (an "Underpayment"). In the event that Executive is required to
make a payment of any such Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred, if any,
and such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. Executive shall notify the Company in
writing of any claim by the Internal Revenue Service or other agency
that, if successful, would require the payment by the Company of the
Gross-Up Payment or an Underpayment.
4. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The
Company's obligations under this Agreement shall not be reduced in any way
by reason of any compensation or benefits received (or foregone) by
Executive from sources other than the Company after Executive's Employment
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<PAGE>
Termination, or any amounts that might have been received by Executive in
other employment had Executive sought such other employment. Executive's
entitlement to benefits and coverage under this Agreement shall continue
after, and shall not be affected by, Executive's obtaining other employment
after his Employment Termination, provided that any such benefit or
coverage shall not be furnished if Executive expressly waives the specific
benefit or coverage by giving written notice of waiver to the Company.
5. Litigation Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including attorneys' fees, incurred by Executive in the event
Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
6. Assignment; Successors. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the Company
under this Agreement shall be the binding legal obligations of any
successor to the Company by merger, consolidation or otherwise, and in the
event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of the Company, the
Company will cause the transferee to assume the obligations of the Company
under this Agreement. This Agreement may not be assigned by Executive
during Executive's life, and upon Executive's death will inure to the
benefit of Executive's heirs, legatees and legal representatives of
Executive's estate.
7. Interpretation. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Illinois,
without regard to the conflict of law principles thereof. The invalidity
or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
8. Withholding. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
9. Amendment or Termination. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may
terminate this Agreement by written notice given to Executive at least two
years prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination, the
termination of this Agreement shall not be effective and Executive shall be
entitled to the full benefits of this Agreement. Any such amendment or
termination shall be made pursuant to a resolution of the Board.
10. Financing. Cash and benefit payments under this Agreement shall constitute
general obligations of the Company. Executive shall have only an unsecured
right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or
more trustees to be selected by the Company, create a trust on such terms
as the Company shall determine to make payments to Executive in accordance
with the terms of this Agreement.
11. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
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12. Other Agreements. This Agreement supersedes and cancels the Prior
Agreement, and all prior written or oral agreements and understandings
relating to the terms of this Agreement or the Prior Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
NORTHERN TRUST CORPORATION
By:_________________________
______________________________
Its:_______________________ Executive
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Exhibit Number (10)(ii)
To 6/30/96 Form 10-Q
EMPLOYMENT SECURITY AGREEMENT
-----------------------------
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this 21st day of May,
1996, between NORTHERN TRUST CORPORATION, a Delaware corporation (the
"Company"), and (NAME) (the "Executive").
WITNESSETH THAT:
---------------
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company; and
WHEREAS, the Company and the Executive entered into an Employment Security
Agreement dated as of (DATE) with respect to the Executive's employment
following a change in control of the Company (which agreement, as it has been
supplemented by subsequent letter agreements, is referred to in this Agreement
as the "Prior Agreement"); and
WHEREAS, the Executive and the Company wish to supersede the Prior
Agreement with this Agreement;
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon a Change in Control. If within two (2) years
after a Change in Control (as defined below) or during the Period Pending a
Change in Control (as defined below), (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined
below), or (ii) Executive shall voluntarily terminate such employment with
Good Reason (as defined below), the Company shall, within 30 days of
Executive's Employment Termination (as defined below), make the payments
and provide the benefits described below.
(a) Cash Payment. The Company shall make a lump sum cash payment to
Executive equal to two times the Executive's Annual Compensation (as
defined below).
(b) Short-Year Bonus. The Company shall make a lump sum cash payment to
Executive equal to a pro rata portion (based on the date on which
Executive's Employment Termination occurs) of the average of the
annual amounts paid to Executive under the Management Performance Plan
or any successor plan (the "MPP"), the Annual Performance Plan or any
successor plan (the "APP"), the
<PAGE>
Specialized Incentive Plans or any successor plans (the "SIP") and any
other cash-based incentive or bonus plans, with respect to the last
three full fiscal years of Executive's participation in such plans
prior to Employment Termination or, if higher, prior to the Change in
Control. For purposes of the preceding sentence, if Executive's number
of full fiscal years of participation in the MPP, APP, SIP, and other
cash-based plan prior to the Change in Control is less than three, the
average amount shall be calculated as the average of the annual
amounts paid to Executive over the number of full fiscal years of
Executive's participation in the MPP, APP, SIP, and other plans prior
to the Change in Control, or the number of full fiscal years of
Executive's participation in the MPP, APP, SIP, and other plans prior
to Employment Termination, whichever produces a higher average annual
amount. The provisions of this paragraph (b) shall supersede any
provisions of the APP relating to bonus amounts in the event of a
Change in Control, and the amount paid to the Executive under this
paragraph shall be in lieu of any amount that would be payable in the
event of a Change in Control under the APP.
(c) Welfare Benefit Plans. With respect to each Welfare Benefit Plan (as
defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of (i) two years following
Executive's Employment Termination, or (ii) the date Executive becomes
covered by a welfare benefit plan or program maintained by an entity
other than the Company which provides coverage or benefits at least
equal, in all respects, to such Welfare Benefit Plan, Executive shall
continue to participate in such Welfare Benefit Plan on the same basis
and at the same cost to Executive as was the case immediately prior to
the Change in Control (or, if more favorable to Executive, as was the
case at any time hereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable law or
contractual provisions, Executive shall be provided with substantially
similar benefits and coverage for such period. Immediately following
the expiration of the continuation period required by the preceding
sentence, Executive shall be entitled to continued group health
benefit plan coverage (so-called "COBRA coverage") in accordance with
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), it being intended that COBRA coverage shall be consecutive to
the benefits and coverage provided for in the preceding sentence.
Executive's eligibility for, and premium contribution level under, The
Northern Trust Retiree Medical Care Plan and The Northern Trust
Medicare Supplemental Plan and any similar or successor plans or
programs maintained or contributed to by the Company, shall be
determined by adding two years to Executive's age and years of service
at Executive's Employment Termination.
(d) Supplemental Retirement Plans. All amounts accrued or accumulated on
behalf of Executive under the Supplemental Pension Plan for Employees
of The Northern Trust Company (the "SERP"), the Supplemental Thrift-
Incentive Plan for Employees of The Northern Trust Company (the
"Supplemental TIP") and the Supplemental Employee Stock Ownership Plan
for Employees of The
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Northern Trust Company (the "Supplemental ESOP") will immediately be
fully vested upon the Change in Control, and the Company shall
promptly pay or distribute all such amounts to Executive in accordance
with the terms of such plans as in effect on the date of this
Agreement (or as of Executive's Employment Termination, if more
favorable to Executive).
(e) Stock Incentive Plans. All stock options granted under the Northern
Trust Corporation Amended 1985 Incentive Stock Plan (the "1985 ISP"),
the Northern Trust Corporation 1992 Incentive Stock Plan (the "1992
ISP"), the Northern Trust Corporation Amended 1992 Incentive Stock
Plan (the "1995 ISP") and any other stock plan or program
(collectively referred to as the "ISPs"), will immediately become
fully vested and exercisable upon the Change in Control. All
restricted stock granted under the ISPs will immediately be fully
vested and distributed to Executive upon the Change in Control. With
respect to performance shares granted under the ISPs pursuant to the
Northern Trust Corporation Long Term Incentive Plan ("LTIP") or
otherwise, upon the Change in Control: (i) all performance shares
credited to Executive's performance share account will be immediately
distributed to Executive (together with any other amounts then
credited to Executive's performance share account); (ii) a pro rata
portion of all performance shares awarded to Executive but not then
credited to Executive's performance share account will be immediately
distributed to Executive; and (iii) Executive will remain eligible for
crediting to Executive's performance share account as of the end of
the performance period, in accordance with the provisions of the LTIP
in effect as of the Change in Control, any remaining performance
shares awarded to Executive but not distributed in accordance with
this paragraph.
(f) Salary to Date of Employment Termination. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned
with respect to any period prior to Executive's Employment Termination
and a lump sum cash payment for accumulated but unused vacation earned
through such Employment Termination.
2. Definitions. For purposes of this Agreement:
-----------
(a) "Good Cause" shall mean: (i) Executive's conviction of any criminal
violation involving dishonesty, fraud, or breach of trust; (ii)
Executive's willful engagement in any misconduct in the performance of
Executive's duty that materially injures the Company; (iii)
Executive's performance of any act which, if known to the customers,
clients, stockholders or regulators of the Company or any of its
subsidiaries, would materially and adversely impact on the business of
the Company or any of its subsidiaries; (iv) any act or omission by
Executive that causes a regulatory body with jurisdiction over the
Company or any of its subsidiaries, to demand, request, or recommend
that Executive be suspended or removed from any position in which
Executive serves with the Company or any of its subsidiaries; or (v)
Executive's willful and substantial nonperformance
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of assigned duties, provided that such nonperformance has continued
more than ten days after the Company has given written notice of such
nonperformance and of its intention to terminate Executive's
employment because of such nonperformance.
(b) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope, level or
extent of Executive's responsibilities from the nature, scope,
level or extent of such responsibilities prior to the Change in
Control, or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities;
(ii) The Company shall reduce Executive's salary below that in
effect as of the date of this Agreement (or as of the Change in
Control, if greater);
(iii) The Company shall require Executive to relocate Executive's
principal business office or his principal place of residence
outside the (LOCATION) Standard Metropolitan Statistical Area
(the "Geographical Employment Area"), or assign to Executive
duties that would reasonably require such relocation;
(iv) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to spend
more than fifty normal working days away from the Geographical
Employment Area during any consecutive twelve-month period; or
(v) The Company shall fail to continue in effect any cash or stock-
based incentive or bonus plan, retirement plan, welfare benefit
plan, or other benefit plan, program or arrangement, unless the
aggregate value (as computed by an independent employee
benefits consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs and
arrangements provided to Executive is not materially less than
their aggregate value as of the date of this Agreement (or as
of the Change in Control, if greater).
(c) "Change in Control" shall be deemed to occur on the earliest of:
(i) The receipt by the Company of a Schedule 13D or other statement
filed under Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), indicating that any
entity, person, or group has acquired beneficial ownership, as
that term is defined in Rule 13d-3 under the Exchange Act, of
more than 30% of the outstanding capital stock of the Company
entitled to vote for the election of directors ("voting
stock");
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(ii) The commencement by an entity, person, or group (other than the
Company or a subsidiary of the Company) of a tender offer or an
exchange offer for more than 20% of the outstanding voting
stock of the Company;
(iii) The effective time of (A) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or consolidation hold
less than 60% of the voting stock of the surviving or resulting
corporation, or (B) a transfer of substantially all of the
property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock; or
(iv) The election to the Board of Directors of the Company, without
the recommendation or approval of the incumbent Board of
Directors of the Company, of the lesser of: (A) three
directors; or (B) directors constituting a majority of the
number of directors of the Company then in office.
(d) "Annual Compensation" shall mean the sum of: (i) Executive's salary at
the greater of (A) Executive's salary rate in effect on the date of
the Change in Control, or (B) Executive's salary rate in effect on
Executive's Employment Termination; and (ii) the Amounts Payable Under
Any Cash Bonus Plans (as defined below) in which Executive
participates.
(e) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the Company with
Good Reason; or (ii) the termination of Executive's employment by the
Company without Good Cause.
(f) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained
or contributed to by the Company, including, but not limited to a plan
that provides health (including medical and dental), life, accident or
disability benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in Control.
(g) "Amounts Payable Under Any Cash Bonus Plans" shall mean the sum of
whichever of the following are applicable to Executive: (i) the
amount that would be awarded to Executive under the MPP, assuming the
target award percentage was applicable and Executive was employed for
the full fiscal year in which Executive's Employment Termination
occurs; (ii) the average of the annual amounts paid to Executive under
the APP with respect to the last three full fiscal years of
Executive's participation in the APP prior to Employment Termination
or, if higher, prior to the Change in Control; (iii) the average of
the
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annual amounts paid to Executive under the SIPs with respect to the
last three full fiscal years of Executive's participation in the SIPs
prior to Employment Termination or, if higher, prior to the Change in
Control; and (iv) the average of the annual amounts paid to Executive
under any other cash-based incentive or bonus plans in which Executive
participates after the date of this Agreement with respect to the last
three full fiscal years of Executive's participation in such plans
prior to Employment Termination or, if higher, prior to the Change in
Control. For purposes of the preceding sentence, if Executive's number
of full fiscal years of participation in the APP, SIP, or other cash-
based plan prior to the Change in Control is less than three, the
amount under clause (ii), (iii) or (iv) of this paragraph shall be
calculated as the average of the annual amounts paid to Executive over
the number of full fiscal years of Executive's participation in the
APP, SIP, or other plans prior to the Change in Control, or the number
of full fiscal years of Executive's participation in the APP, SIP, or
other plans prior to Employment Termination, whichever produces a
higher average annual amount.
(h) "Period Pending a Change in Control" shall mean the period after the
approval by the Company's stockholders and prior to the effective time
of (A) a merger or consolidation of the Company with one or more other
corporations as a result of which the holders of the outstanding
voting stock of the Company immediately prior to such merger or
consolidation hold less than 60% of the voting stock of the surviving
or resulting corporation, or (B) a transfer of substantially all of
the property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock.
3. Certain Additional Payments by the Company.
------------------------------------------
(a) Gross-Up. Anything in this Agreement to the contrary notwithstanding,
in the event that any payment or distribution by or on behalf of the
Company to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments
required under this Section 3) (the "Payments") is determined to be an
"excess parachute payment" pursuant to Code Section 280G or any
successor or substitute provision of the Code, with the effect that
Executive is liable for the payment of the excise tax described in
Code Section 4999 or any successor or substitute provision of the
Code, or any interest or penalties are incurred by Executive with
respect to such Payments (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then Executive shall be entitled to receive an
additional payment (the "Gross-Up Payment") in an amount such that
after payment by Executive of all taxes imposed upon the Gross-Up
Payment, including, without limitation, federal, state, local or other
income taxes, FICA taxes, and additional Excise Tax (and any interest
and penalties imposed with respect to such taxes), Executive retains a
portion of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
6
<PAGE>
(b) Determination of Gross-Up. Subject to the provisions of Section 3(c),
all determinations required to be made under this Section 3, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the public accounting firm that
serves as the Company's auditors (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and
Executive within 15 business days of the receipt of notice from the
Company or Executive that there have been Payments, or such earlier
time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, Executive shall designate
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 3, shall be
paid by the Company to Executive within five days after the receipt by
the Company and Executive of the Accounting firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by
Executive, it shall furnish Executive with a written opinion that
failure to report the Excise Tax on Executive's applicable federal
income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and Executive, except as provided in
paragraph (c) below.
(c) IRS Claims. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that the Internal
Revenue Service or other agency will claim that a greater Excise Tax
is due, and thus a greater amount of Gross-Up Payment should have been
made by the Company than that determined pursuant to paragraph (b)
above (an "Underpayment"). In the event that Executive is required to
make a payment of any such Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred, if any,
and such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. Executive shall notify the Company in
writing of any claim by the Internal Revenue Service or other agency
that, if successful, would require the payment by the Company of the
Gross-Up Payment or an Underpayment.
4. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The Company's
obligations under this Agreement shall not be reduced in any way by reason
of any compensation or benefits received (or foregone) by Executive from
sources other than the Company after Executive's Employment Termination, or
any amounts that might have been received by Executive in other employment
had Executive sought such other
7
<PAGE>
employment. Executive's entitlement to benefits and coverage under
this Agreement shall continue after, and shall not be affected by,
Executive's obtaining other employment after his Employment
Termination, provided that any such benefit or coverage shall not be
furnished if Executive expressly waives the specific benefit or
coverage by giving written notice of waiver to the Company.
5. Litigation Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including attorneys' fees, incurred by Executive in the event
Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
6. Assignment; Successors. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the Company
under this Agreement shall be the binding legal obligations of any
successor to the Company by merger, consolidation or otherwise, and in the
event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of the Company, the
Company will cause the transferee to assume the obligations of the Company
under this Agreement. This Agreement may not be assigned by Executive
during Executive's life, and upon Executive's death will inure to the
benefit of Executive's heirs, legatees and legal representatives of
Executive's estate.
7. Interpretation. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Illinois,
without regard to the conflict of law principles thereof. The invalidity
or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
8. Withholding. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
9. Amendment or Termination. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may
terminate this Agreement by written notice given to Executive at least two
years prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination, the
termination of this Agreement shall not be effective and Executive shall be
entitled to the full benefits of this Agreement. Any such amendment or
termination shall be made pursuant to a resolution of the Board.
10. Financing. Cash and benefit payments under this Agreement shall constitute
general obligations of the Company. Executive shall have only an unsecured
right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or
more trustees to be selected by the Company, create a trust on such terms
as the Company shall determine to make payments to Executive in accordance
with the terms of this Agreement.
8
<PAGE>
11. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
12. Other Agreements. This Agreement supersedes and cancels the Prior
Agreement, and all prior written or oral agreements and understandings
relating to the terms of this Agreement or the Prior Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
NORTHERN TRUST CORPORATION
By:
----------------------- -------------------------
Its: Executive
---------------------
9
<PAGE>
Exhibit Number (10)(iii)
To 6/30/96 Form 10-Q
EMPLOYMENT SECURITY AGREEMENT
-----------------------------
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this 21st day of May,
1996, between NORTHERN TRUST CORPORATION, a Delaware corporation (the
"Company"), and (NAME) (the "Executive").
WITNESSETH THAT:
---------------
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company; and
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon a Change in Control. If within two (2) years
after a Change in Control (as defined below) or during the Period Pending a
Change in Control (as defined below), (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined
below), or (ii) Executive shall voluntarily terminate such employment with
Good Reason (as defined below), the Company shall, within 30 days of
Executive's Employment Termination (as defined below), make the payments
and provide the benefits described below.
(a) Cash Payment. The Company shall make a lump sum cash payment to
Executive equal to two times the Executive's Annual Compensation (as
defined below).
(b) Short-Year Bonus. The Company shall make a lump sum cash payment to
Executive equal to a pro rata portion (based on the date on which
Executive's Employment Termination occurs) of the average of the
annual amounts paid to Executive under the Management Performance Plan
or any successor plan (the "MPP"), the Annual Performance Plan or any
successor plan (the "APP"), the Specialized Incentive Plans or any
successor plans (the "SIP") and any other cash-based incentive or
bonus plans, with respect to the last three full fiscal years of
Executive's participation in such plans prior to Employment
Termination or, if higher, prior to the Change in Control. For
purposes of the preceding sentence, if Executive's number of full
fiscal years of participation in the MPP, APP, SIP, and other cash-
based plan prior to the Change in Control is less than three, the
average amount shall be calculated as the average of the annual
amounts paid to Executive over the number of full fiscal years of
Executive's participation in the MPP, APP, SIP, and other plans prior
to the Change in Control, or the number of full fiscal years of
Executive's participation in the MPP, APP, SIP, and other plans prior
to Employment Termination, whichever produces a higher average annual
amount. The provisions of this paragraph (b)
<PAGE>
shall supersede any provisions of the APP relating to bonus amounts in
the event of a Change in Control, and the amount paid to the Executive
under this paragraph shall be in lieu of any amount that would be
payable in the event of a Change in Control under the APP.
(c) Welfare Benefit Plans. With respect to each Welfare Benefit Plan (as
defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of (i) two years following
Executive's Employment Termination, or (ii) the date Executive becomes
covered by a welfare benefit plan or program maintained by an entity
other than the Company which provides coverage or benefits at least
equal, in all respects, to such Welfare Benefit Plan, Executive shall
continue to participate in such Welfare Benefit Plan on the same basis
and at the same cost to Executive as was the case immediately prior to
the Change in Control (or, if more favorable to Executive, as was the
case at any time hereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable law or
contractual provisions, Executive shall be provided with substantially
similar benefits and coverage for such period. Immediately following
the expiration of the continuation period required by the preceding
sentence, Executive shall be entitled to continued group health
benefit plan coverage (so-called "COBRA coverage") in accordance with
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), it being intended that COBRA coverage shall be consecutive to
the benefits and coverage provided for in the preceding sentence.
Executive's eligibility for, and premium contribution level under, The
Northern Trust Retiree Medical Care Plan and The Northern Trust
Medicare Supplemental Plan and any similar or successor plans or
programs maintained or contributed to by the Company, shall be
determined by adding two years to Executive's age and years of service
at Executive's Employment Termination.
(d) Supplemental Retirement Plans. All amounts accrued or accumulated on
behalf of Executive under the Supplemental Pension Plan for Employees
of The Northern Trust Company (the "SERP"), the Supplemental Thrift-
Incentive Plan for Employees of The Northern Trust Company (the
"Supplemental TIP") and the Supplemental Employee Stock Ownership Plan
for Employees of The Northern Trust Company (the "Supplemental ESOP")
will immediately be fully vested upon the Change in Control, and the
Company shall promptly pay or distribute all such amounts to Executive
in accordance with the terms of such plans as in effect on the date of
this Agreement (or as of Executive's Employment Termination, if more
favorable to Executive).
(e) Stock Incentive Plans. All stock options granted under the Northern
Trust Corporation Amended 1985 Incentive Stock Plan (the "1985 ISP"),
the Northern Trust Corporation 1992 Incentive Stock Plan (the "1992
ISP"), the Northern Trust Corporation Amended 1992 Incentive Stock
Plan (the "1995 ISP") and any other stock plan or program
(collectively referred to as the "ISPs"), will immediately become
fully vested and exercisable upon the Change in Control. All
restricted stock granted under the ISPs will immediately be fully
vested and distributed to Executive upon the Change in Control. With
respect to
2
<PAGE>
performance shares granted under the ISPs pursuant to the Northern
Trust Corporation Long Term Incentive Plan ("LTIP") or otherwise, upon
the Change in Control: (i) all performance shares credited to
Executive's performance share account will be immediately distributed
to Executive (together with any other amounts then credited to
Executive's performance share account); (ii) a pro rata portion of all
performance shares awarded to Executive but not then credited to
Executive's performance share account will be immediately distributed
to Executive; and (iii) Executive will remain eligible for crediting
to Executive's performance share account as of the end of the
performance period, in accordance with the provisions of the LTIP in
effect as of the Change in Control, any remaining performance shares
awarded to Executive but not distributed in accordance with this
paragraph.
(f) Salary to Date of Employment Termination. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned
with respect to any period prior to Executive's Employment Termination
and a lump sum cash payment for accumulated but unused vacation earned
through such Employment Termination.
2. Definitions. For purposes of this Agreement:
-----------
(a) "Good Cause" shall mean: (i) Executive's conviction of any criminal
violation involving dishonesty, fraud, or breach of trust; (ii)
Executive's willful engagement in any misconduct in the performance of
Executive's duty that materially injures the Company; (iii)
Executive's performance of any act which, if known to the customers,
clients, stockholders or regulators of the Company or any of its
subsidiaries, would materially and adversely impact on the business of
the Company or any of its subsidiaries; (iv) any act or omission by
Executive that causes a regulatory body with jurisdiction over the
Company or any of its subsidiaries, to demand, request, or recommend
that Executive be suspended or removed from any position in which
Executive serves with the Company or any of its subsidiaries; or (v)
Executive's willful and substantial nonperformance of assigned duties,
provided that such nonperformance has continued more than ten days
after the Company has given written notice of such nonperformance and
of its intention to terminate Executive's employment because of such
nonperformance.
(b) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope, level or
extent of Executive's responsibilities from the nature, scope,
level or extent of such responsibilities prior to the Change in
Control, or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities;
(ii) The Company shall reduce Executive's salary below that in
effect as of the date of this Agreement (or as of the Change in
Control, if greater);
3
<PAGE>
(iii) The Company shall require Executive to relocate Executive's
principal business office or his principal place of residence
outside the (LOCATION) Standard Metropolitan Statistical Area
(the "Geographical Employment Area"), or assign to Executive
duties that would reasonably require such relocation;
(iv) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to spend
more than fifty normal working days away from the Geographical
Employment Area during any consecutive twelve-month period; or
(v) The Company shall fail to continue in effect any cash or stock-
based incentive or bonus plan, retirement plan, welfare benefit
plan, or other benefit plan, program or arrangement, unless the
aggregate value (as computed by an independent employee
benefits consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs and
arrangements provided to Executive is not materially less than
their aggregate value as of the date of this Agreement (or as
of the Change in Control, if greater).
(c) "Change in Control" shall be deemed to occur on the earliest of:
(i) The receipt by the Company of a Schedule 13D or other statement
filed under Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), indicating that any
entity, person, or group has acquired beneficial ownership, as
that term is defined in Rule 13d-3 under the Exchange Act, of
more than 30% of the outstanding capital stock of the Company
entitled to vote for the election of directors ("voting
stock");
(ii) The commencement by an entity, person, or group (other than the
Company or a subsidiary of the Company) of a tender offer or an
exchange offer for more than 20% of the outstanding voting
stock of the Company;
(iii) The effective time of (A) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or consolidation hold
less than 60% of the voting stock of the surviving or resulting
corporation, or (B) a transfer of substantially all of the
property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock; or
(iv) The election to the Board of Directors of the Company, without
the recommendation or approval of the incumbent Board of
Directors of the Company, of the lesser of: (A) three
directors; or (B) directors constituting a majority of the
number of directors of the Company then in office.
4
<PAGE>
(d) "Annual Compensation" shall mean the sum of: (i) Executive's salary at
the greater of (A) Executive's salary rate in effect on the date of
the Change in Control, or (B) Executive's salary rate in effect on
Executive's Employment Termination; and (ii) the Amounts Payable Under
Any Cash Bonus Plans (as defined below) in which Executive
participates.
(e) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the Company with
Good Reason; or (ii) the termination of Executive's employment by the
Company without Good Cause.
(f) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained
or contributed to by the Company, including, but not limited to a plan
that provides health (including medical and dental), life, accident or
disability benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in Control.
(g) "Amounts Payable Under Any Cash Bonus Plans" shall mean the sum of
whichever of the following are applicable to Executive: (i) the amount
that would be awarded to Executive under the MPP, assuming the target
award percentage was applicable and Executive was employed for the
full fiscal year in which Executive's Employment Termination occurs;
(ii) the average of the annual amounts paid to Executive under the APP
with respect to the last three full fiscal years of Executive's
participation in the APP prior to Employment Termination or, if
higher, prior to the Change in Control; (iii) the average of the
annual amounts paid to Executive under the SIPs with respect to the
last three full fiscal years of Executive's participation in the SIPs
prior to Employment Termination or, if higher, prior to the Change in
Control; and (iv) the average of the annual amounts paid to Executive
under any other cash-based incentive or bonus plans in which Executive
participates after the date of this Agreement with respect to the last
three full fiscal years of Executive's participation in such plans
prior to Employment Termination or, if higher, prior to the Change in
Control. For purposes of the preceding sentence, if Executive's number
of full fiscal years of participation in the APP, SIP, or other cash-
based plan prior to the Change in Control is less than three, the
amount under clause (ii), (iii) or (iv) of this paragraph shall be
calculated as the average of the annual amounts paid to Executive over
the number of full fiscal years of Executive's participation in the
APP, SIP, or other plans prior to the Change in Control, or the number
of full fiscal years of Executive's participation in the APP, SIP, or
other plans prior to Employment Termination, whichever produces a
higher average annual amount.
5
<PAGE>
(h) "Period Pending a Change in Control" shall mean the period after the
approval by the Company's stockholders and prior to the effective time
of (A) a merger or consolidation of the Company with one or more other
corporations as a result of which the holders of the outstanding
voting stock of the Company immediately prior to such merger or
consolidation hold less than 60% of the voting stock of the surviving
or resulting corporation, or (B) a transfer of substantially all of
the property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock.
3. Certain Additional Payments by the Company.
------------------------------------------
(a) Gross-Up. Anything in this Agreement to the contrary notwithstanding,
in the event that any payment or distribution by or on behalf of the
Company to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments
required under this Section 3) (the "Payments") is determined to be an
"excess parachute payment" pursuant to Code Section 280G or any
successor or substitute provision of the Code, with the effect that
Executive is liable for the payment of the excise tax described in
Code Section 4999 or any successor or substitute provision of the
Code, or any interest or penalties are incurred by Executive with
respect to such Payments (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then Executive shall be entitled to receive an
additional payment (the "Gross-Up Payment") in an amount such that
after payment by Executive of all taxes imposed upon the Gross-Up
Payment, including, without limitation, federal, state, local or other
income taxes, FICA taxes, and additional Excise Tax (and any interest
and penalties imposed with respect to such taxes), Executive retains a
portion of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Determination of Gross-Up. Subject to the provisions of Section 3(c),
all determinations required to be made under this Section 3, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the public accounting firm that
serves as the Company's auditors (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and
Executive within 15 business days of the receipt of notice from the
Company or Executive that there have been Payments, or such earlier
time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, Executive shall designate
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 3, shall be
paid by the Company to Executive within five days after the receipt by
the Company and Executive of the Accounting firm's determination. If
the Accounting Firm determines that no Excise Tax is payable
6
<PAGE>
by Executive, it shall furnish Executive with a written opinion that
failure to report the Excise Tax on Executive's applicable federal
income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and Executive, except as provided in
paragraph (c) below.
(c) IRS Claims. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that the Internal
Revenue Service or other agency will claim that a greater Excise Tax
is due, and thus a greater amount of Gross-Up Payment should have been
made by the Company than that determined pursuant to paragraph (b)
above (an "Underpayment"). In the event that Executive is required to
make a payment of any such Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred, if any,
and such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. Executive shall notify the Company in
writing of any claim by the Internal Revenue Service or other agency
that, if successful, would require the payment by the Company of the
Gross-Up Payment or an Underpayment.
4. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The Company's
obligations under this Agreement shall not be reduced in any way by reason
of any compensation or benefits received (or foregone) by Executive from
sources other than the Company after Executive's Employment Termination, or
any amounts that might have been received by Executive in other employment
had Executive sought such other employment. Executive's entitlement to
benefits and coverage under this Agreement shall continue after, and shall
not be affected by, Executive's obtaining other employment after his
Employment Termination, provided that any such benefit or coverage shall
not be furnished if Executive expressly waives the specific benefit or
coverage by giving written notice of waiver to the Company.
5. Litigation Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including attorneys' fees, incurred by Executive in the event
Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
6. Assignment; Successors. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the Company
under this Agreement shall be the binding legal obligations of any
successor to the Company by merger, consolidation or otherwise, and in the
event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of the Company, the
Company will cause the transferee to assume the obligations of the Company
under this Agreement. This Agreement may not be assigned by Executive
during Executive's life, and upon Executive's death will inure to the
benefit of Executive's heirs, legatees and legal representatives of
Executive's estate.
7
<PAGE>
7. Interpretation. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Illinois,
without regard to the conflict of law principles thereof. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
8. Withholding. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
9. Amendment or Termination. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may
terminate this Agreement by written notice given to Executive at least two
years prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination, the
termination of this Agreement shall not be effective and Executive shall be
entitled to the full benefits of this Agreement. Any such amendment or
termination shall be made pursuant to a resolution of the Board.
10. Financing. Cash and benefit payments under this Agreement shall constitute
general obligations of the Company. Executive shall have only an unsecured
right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or
more trustees to be selected by the Company, create a trust on such terms
as the Company shall determine to make payments to Executive in accordance
with the terms of this Agreement.
11. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
NORTHERN TRUST CORPORATION
By:_____________________
____________________
Its:___________________ Executive
8
<PAGE>
Exhibit Number (10)(iv)
To 6/30/96 Form 10-Q
EMPLOYMENT SECURITY AGREEMENT
-----------------------------
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this 21st day of
May, 1996, between NORTHERN TRUST CORPORATION, a Delaware corporation (the
"Company"), and (NAME) (the "Executive").
WITNESSETH THAT:
---------------
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company; and
WHEREAS, the Company and the Executive entered into an Employment Security
Agreement dated as of (DATE) with respect to the Executive's employment
following a change in control of the Company (which agreement, as it has been
supplemented by subsequent letter agreements, is referred to in this Agreement
as the "Prior Agreement"); and
WHEREAS, the Executive and the Company wish to supersede the Prior
Agreement with this Agreement;
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon a Change in Control. If within two (2) years
after a Change in Control (as defined below) or during the Period Pending a
Change in Control (as defined below), (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined
below), or (ii) Executive shall voluntarily terminate such employment with
Good Reason (as defined below), the Company shall, within 30 days of
Executive's Employment Termination (as defined below), make the payments
and provide the benefits described below.
(a) Cash Payment. The Company shall make a lump sum cash payment to
Executive equal to two times the Executive's annual salary at the
greater of (i) Executive's salary rate in effect on the date of the
Change in Control or (ii) Executive's salary rare in effect on
Executive's Employment Termination.
(b) Welfare Benefit Plans. With respect to each Welfare Benefit Plan (as
defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of (i) two years following
Executive's Employment Termination, or (ii) the date Executive becomes
covered by a welfare benefit plan or program maintained by an entity
other than the Company which provides coverage or benefits at least
equal, in all respects, to such Welfare Benefit Plan, Executive shall
continue to participate in such Welfare Benefit Plan on the same basis
and at the same cost to Executive as was the case immediately prior to
the Change in Control (or, if more favorable to Executive, as was the
<PAGE>
case at any time hereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable law or
contractual provisions, Executive shall be provided with substantially
similar benefits and coverage for such period. Immediately following
the expiration of the continuation period required by the preceding
sentence, Executive shall be entitled to continued group health
benefit plan coverage (so-called "COBRA coverage") in accordance with
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), it being intended that COBRA coverage shall be consecutive to
the benefits and coverage provided for in the preceding sentence.
Executive's eligibility for, and premium contribution level under, The
Northern Trust Retiree Medical Care Plan and The Northern Trust
Medicare Supplemental Plan and any similar or successor plans or
programs maintained or contributed to by the Company, shall be
determined by adding two years to Executive's age and years of service
at Executive's Employment Termination.
(c) Salary to Date of Employment Termination. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned
with respect to any period prior to Executive's Employment Termination
and a lump sum cash payment for accumulated but unused vacation earned
through such Employment Termination.
2. Definitions. For purposes of this Agreement:
(a) "Good Cause" shall mean: (i) Executive's conviction of any criminal
violation involving dishonesty, fraud, or breach of trust; (ii)
Executive's willful engagement in any misconduct in the performance of
Executive's duty that materially injures the Company; (iii)
Executive's performance of any act which, if known to the customers,
clients, stockholders or regulators of the Company or any of its
subsidiaries, would materially and adversely impact on the business of
the Company or any of its subsidiaries; (iv) any act or omission by
Executive that causes a regulatory body with jurisdiction over the
Company or any of its subsidiaries, to demand, request, or recommend
that Executive be suspended or removed from any position in which
Executive serves with the Company or any of its subsidiaries; or (v)
Executive's willful and substantial nonperformance of assigned duties,
provided that such nonperformance has continued more than ten days
after the Company has given written notice of such nonperformance and
of its intention to terminate Executive's employment because of such
nonperformance.
(b) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope, level or
extent of Executive's responsibilities from the nature, scope,
level or extent of such responsibilities prior to the Change in
Control, or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities;
<PAGE>
(ii) The Company shall reduce Executive's salary below that in
effect as of the date of this Agreement (or as of the Change in
Control, if greater);
(iii) The Company shall require Executive to relocate Executive's
principal business office or his principal place of residence
outside the (LOCATION) Standard Metropolitan Statistical Area
(the "Geographical Employment Area"), or assign to Executive
duties that would reasonably require such relocation;
(iv) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to spend
more than fifty normal working days away from the Geographical
Employment Area during any consecutive twelve-month period; or
(v) The Company shall fail to continue in effect any cash or stock-
based incentive or bonus plan, retirement plan, welfare benefit
plan, or other benefit plan, program or arrangement, unless the
aggregate value (as computed by an independent employee
benefits consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs and
arrangements provided to Executive is not materially less than
their aggregate value as of the date of this Agreement (or as
of the Change in Control, if greater).
(c) "Change in Control" shall be deemed to occur on the earliest of:
(i) The receipt by the Company of a Schedule 13D or other statement
filed under Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), indicating that any
entity, person, or group has acquired beneficial ownership, as
that term is defined in Rule 13d-3 under the Exchange Act, of
more than 30% of the outstanding capital stock of the Company
entitled to vote for the election of directors ("voting
stock");
(ii) The commencement by an entity, person, or group (other than the
Company or a subsidiary of the Company) of a tender offer or an
exchange offer for more than 20% of the outstanding voting
stock of the Company;
(iii) The effective time of (A) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or consolidation hold
less than 60% of the voting stock of the surviving or resulting
corporation, or (B) a transfer of substantially all of the
property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock; or
<PAGE>
(iv) The election to the Board of Directors of the Company, without
the recommendation or approval of the incumbent Board of
Directors of the Company, of the lesser of: (A) three
directors; or (B) directors constituting a majority of the
number of directors of the Company then in office.
(d) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the Company with
Good Reason; or (ii) the termination of Executive's employment by the
Company without Good Cause.
(e) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained
or contributed to by the Company, including, but not limited to a plan
that provides health (including medical and dental), life, accident or
disability benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in Control.
(f) "Period Pending a Change in Control" shall mean the period after the
approval by the Company's stockholders and prior to the effective time
of (A) a merger or consolidation of the Company with one or more other
corporations as a result of which the holders of the outstanding
voting stock of the Company immediately prior to such merger or
consolidation hold less than 60% of the voting stock of the surviving
or resulting corporation, or (B) a transfer of substantially all of
the property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock.
3. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The
Company's obligations under this Agreement shall not be reduced in any way
by reason of any compensation or benefits received (or foregone) by
Executive from sources other than the Company after Executive's Employment
Termination, or any amounts that might have been received by Executive in
other employment had Executive sought such other employment. Executive's
entitlement to benefits and coverage under this Agreement shall continue
after, and shall not be affected by, Executive's obtaining other employment
after his Employment Termination, provided that any such benefit or
coverage shall not be furnished if Executive expressly waives the specific
benefit or coverage by giving written notice of waiver to the Company.
4. Litigation Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including attorneys' fees, incurred by Executive in the event
Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
5. Assignment; Successors. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the Company
under this Agreement shall be the binding legal obligations of any
successor to the Company by merger, consolidation or otherwise, and in the
event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of
<PAGE>
the Company, the Company will cause the transferee to assume the
obligations of the Company under this Agreement. This Agreement may not be
assigned by Executive during Executive's life, and upon Executive's death
will inure to the benefit of Executive's heirs, legatees and legal
representatives of Executive's estate.
6. Interpretation. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Illinois,
without regard to the conflict of law principles thereof. The invalidity
or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
7. Withholding. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
8. Amendment or Termination. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may
terminate this Agreement by written notice given to Executive at least two
years prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination, the
termination of this Agreement shall not be effective and Executive shall be
entitled to the full benefits of this Agreement. Any such amendment or
termination shall be made pursuant to a resolution of the Board.
9. Financing. Cash and benefit payments under this Agreement shall constitute
general obligations of the Company. Executive shall have only an unsecured
right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or
more trustees to be selected by the Company, create a trust on such terms
as the Company shall determine to make payments to Executive in accordance
with the terms of this Agreement.
10. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
11. Other Agreements. This Agreement supersedes and cancels the Prior
Agreement, and all prior written or oral agreements and understandings
relating to the terms of this Agreement or the Prior Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
NORTHERN TRUST CORPORATION
By:_____________________________ _______________________________
Its:____________________________ Executive
<PAGE>
Exhibit Number (10)(v)
To 6/30/96 Form 10-Q
IMPLEMENTATION AGREEMENT
This IMPLEMENTATION AGREEMENT dated June 26, 1996, by and among (i)
NationsBank (South) N.A., f/k/a/ Citizens and Southern Trust Company (Georgia),
N.A., not in its corporate capacity but solely as trustee (the "Trustee") of the
Northern Trust Employee Stock Ownership Trust (the "Trust"), which forms a part
of the Northern Trust Employee Stock Ownership Plan (the "Plan"), (ii) Northern
Trust Corporation, a Delaware corporation (the "Parent Corporation"), and (iii)
The Northern Trust Company, an Illinois state bank (the "Company").
W I T N E S S E T H:
WHEREAS, the Company and the Trustee entered into an agreement dated January
26, 1989, which forms the Trust (the "Trust Agreement");
WHEREAS, the Trust borrowed an original aggregate principal amount of
$64,296,000 under a Note Agreement dated January 26, 1989 (the "Original Loan"),
the proceeds of which were used to acquire shares of Common Stock of the Parent
Corporation;
WHEREAS, the Parent Corporation has agreed to make a series of loans to the
Trust and the Trustee has agreed to borrow from the Parent Corporation (the
"Proposed Loan Restructuring") pursuant to the terms of the term loan agreement
dated as of the date hereof (the "Term Loan Agreement") and the Trustee will use
the proceeds of the loans under the Term Loan Agreement to repay a portion of
certain installments due on the Original Loan (the "Proposed Refinancing");
WHEREAS, the parties hereto intend that the loans made under the Term Loan
Agreement shall be primarily for the benefit of the Plan participants and
beneficiaries and shall constitute "exempt loans" within the meaning of Section
4975(d)(3) of the Code, Treasury Regulation (S)54.4975-7(b), Section 408(b)(3)
of ERISA, and Department of Labor Regulation (S)2550.408b-3 and as described in
Section 6.1 of the Plan; and
WHEREAS, the Company engaged the Trustee under an agreement dated December
22, 1995 to make a determination with respect to the Proposed Loan Restructuring
in its independent discretion, and the parties agree that the Trust Agreement
must be amended to reflect the terms of that engagement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained and other good and valuable consideration (the
receipt, adequacy and sufficiency of which each party hereto respectively
acknowledges by its execution hereof), the parties hereto
<PAGE>
intending legally to be bound do hereby agree to the implementation of their
understanding as follows:
1. Representation. The Company represents that the execution, delivery
and performance of this Agreement are within Company's powers and have been duly
authorized by all necessary action by the Company.
2. The Company and the Trustee agree that Section 4.2 of the Trust
Agreement is hereby amended as follows:
(A) By substituting for the introductory clause the following
provision:
"As directed by the Committee, except as otherwise provided in
subparagraph (b), the Trustee shall have the authority and power to:";
and
(B) By substituting for subparagraph 4.2(b) the following provision:
"(b) Borrow from any lender (including the Company or the Corporation)
to finance the acquisition of Company Stock or the repayment of a
prior loan used to acquire Company Stock, giving its note as Trustee
with such reasonable interest and security for the loan as may be
appropriate and necessary; provided that no lender shall have recourse
against the Trust Fund except as provided for in Article VI of the
Plan; provided further that the Trustee shall have complete and
independent discretion with respect to any decision to borrow funds to
refinance the loan obtained by the Trustee under the Note Agreement
dated as of January 26, 1989."
3. The Parent Corporation agrees to make the following additional
contributions to the Plan:
(A) On the first business day in the year 2002, the Parent
Corporation shall contribute to the Plan the amount of Five Million
Four Hundred Thousand Dollars ($5,400,000), plus the actual amount, if
any, by which the aggregate amount of dividends paid after June 30,
1996 on shares that would have been allocated to the Plan
participants, but for the restructuring of the Original Loan, exceeds
the 1996 dividend rate of $1.24 per share increased by 15 percent each
year thereafter, with appropriate adjustment for stock dividends,
splits, or similar adjustments in the capital structure of the
Corporation.
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<PAGE>
(B) On the first business day in the year 2003, the Parent Corporation
shall contribute to the Plan the amount of Five Million Four Hundred
Thousand Dollars ($5,400,000).
The Parent Corporation, in its sole discretion, may make the additional
contributions described in subparagraphs (A) and (B) in the form of cash or
shares of common stock of the Parent Corporation ("Common Stock"). The value of
a contribution in the form of shares of Common Stock shall be determined by
multiplying the number of shares contributed to the Plan by the Average (as
defined herein) of the last sale prices of a share of Common Stock, as reported
on the National Association of Securities Dealers Automated Quotation System
("NASDAQ") at the close of trading on the ten consecutive trading days ending on
the third business day prior to the date of the contribution to the Plan.
"Average" shall mean the sum of the ten last sale prices determined as specified
above divided by ten, with the result rounded to the nearest ten-thousandth.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective representatives thereunto duly
authorized as of the date first hereinbefore appearing.
NORTHERN TRUST EMPLOYEE STOCK
OWNERSHIP TRUST
By: NATIONSBANK (South) N.A.,
not individually but solely
as Trustee under Trust
Agreement dated January 26, 1989
By: /s/ Ernst F. Ritter
--------------------------------
Its: /s/ Senior Vice President
--------------------------------
NORTHERN TRUST CORPORATION
By: /s/ Perry R. Pero
-------------------------------------
Its: /s/ Senior Executive Vice President
-------------------------------------
THE NORTHERN TRUST COMPANY
By: /s/ Perry R. Pero
-------------------------------------
Its: /s/ Senior Executive Vice President
-------------------------------------
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<PAGE>
Exhibit Number (10)(vi)
To 6/30/96 Form 10-Q
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TERM LOAN AGREEMENT
between
NORTHERN TRUST EMPLOYEE STOCK
OWNERSHIP TRUST
and
NORTHERN TRUST CORPORATION
Dated as of June 28, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TERM LOAN AGREEMENT
-------------------
THIS TERM LOAN AGREEMENT (this "Agreement"), dated as of June 28, 1996,
between (i) the NORTHERN TRUST EMPLOYEE STOCK OWNERSHIP TRUST (the "Issuer"), a
trust (the "Trust") established under a trust agreement dated January 26, 1989
as amended between The Northern Trust Company (the "Company") and NationsBank
(South) N.A., as Trustee (the "Trustee") to implement and form part of the
NORTHERN TRUST EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan"), and (ii) NORTHERN
TRUST CORPORATION, a Delaware corporation (the "Lender"),
W I T N E S S E T H:
WHEREAS, Company has duly established the Plan and the Trust, and has duly
appointed Trustee;
WHEREAS, the Issuer has previously authorized, issued and sold an original
aggregate principal amount of $64,296,000 of its 8.23% Guaranteed ESOP Notes
(collectively the "Original Loan") pursuant to certain Note Agreements, dated as
of January 26, 1989 (collectively the "Note Agreements"), with the original
respective purchasers of the notes evidencing the Original Loan thereunder;
WHEREAS, the Trustee has agreed to enter into this Agreement so as to
refinance certain installments due on the Original Loan;
WHEREAS, the Issuer has agreed to borrow from the Lender, and the Lender
has agreed to lend to the Issuer, on the respective dates (each such date being
herein called a "New Loan Date") and in the respective amounts set forth in
Schedule I (collectively the "New Loans"), and on the terms and conditions
hereof; and
WHEREAS, the parties hereto intend that each of the New Loans constitute an
"exempt loan" within the meaning of Section 4975(d)(3) of the Code, Treasury
Regulation (S)54.4975-7(b), Section 408(b)(3) of ERISA, and Department of Labor
Regulation (S)2550.408b-3 (collectively, the "Exempt Loan Rules") and as
described in Section 6.1 of the Plan;
WHEREAS, the Trustee has determined that (i) the transactions contemplated
by this Agreement are prudent and in the best interest of the Plan participants
and their beneficiaries and do not constitute prohibited transactions under
Section 406 of ERISA or Section 4975 of the Code, for which no statutory or
administrative exemption exists, and (ii) the New Loans are not
<PAGE>
inconsistent with the "primary benefit requirement" as described in Section
4975(d)(3) of the Code and Section 54.4975.7(b)(3) of the Excise Tax
Regulations, and bear a reasonable rate of interest; and
WHEREAS, in consideration for entering into this Agreement, the parties
have entered into the Implementation Agreement dated as of the date hereof.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained and other good and valuable consideration (the
receipt, adequacy and sufficiency of which each party hereto respectively
acknowledges by its execution hereof), the parties hereto intending legally to
be bound do hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions. In this Agreement, unless a clear contrary
intention appears, terms defined herein or in Exhibit A hereto have such
meanings when used herein.
SECTION 1.2 Accounting Terms. For purposes of this Agreement, unless a
clear contrary intention appears, accounting terms, determinations and
computations shall be interpreted or made, as the case may be, in accordance
with GAAP.
SECTION 1.3 General Interpretation. This Agreement, unless a clear contrary
intention appears, shall be construed and interpreted so as to maintain the
status of the Plan as a qualified leveraged employee stock ownership plan under
Sections 401(a) and 4975(e)(7) of the Code, the Trust as exempt from taxation
under Section 501(a) of the Code, the Original Loan and the New Loans as "exempt
loans" under the Exempt Loan Rules, and each of the New Loans as a "Loan"
meeting the requirements of Section 6.1 of the Plan and, without limiting the
foregoing, herein:
(a) the singular includes the plural and vice versa;
(b) reference to any Person includes such Person's successors and
permitted assigns and to a Person in a specified capacity excludes such
Person in any other capacity;
(c) reference to any gender includes each other gender;
-2-
<PAGE>
(d) reference to any agreement (including this Agreement), document or
instrument means such agreement, document or instrument as amended or
modified and in effect from time to time in accordance with the terms
thereof and, if applicable, the terms hereof and, in the case of a
promissory note, includes renewals and extensions thereof and replacements
and substitutions therefor;
(e) reference to any Applicable Law means such Applicable Law as amended,
modified, codified, superseded, or reenacted, in whole or in part, and in
effect from time to time, unless the effect thereof is to reduce, limit or
otherwise prejudicially affect any obligation or any right, power or remedy
hereunder, in which case such amendment, modification, codification or
reenactment shall, to the maximum extent permitted by Applicable Law, not
form part of this Agreement and be disregarded for purposes of construction
and interpretation hereof;
(f) "hereof", "hereto" and words of similar import shall be deemed
references to this Agreement as a whole and not to any particular Article or
Section hereof; and
(g) "including" (and with correlative meaning "include") means without
limiting the generality of any preceding description.
ARTICLE II
NEW LOANS; NOTE; PAYMENTS
SECTION 2.1 New Loans. The Lender will lend to the Issuer, and the Issuer
will borrow from the Lender, each New Loan on each applicable New Loan Date
therefor, in an aggregate principal amount not to exceed $14,768,425 for all New
Loans. The obligation of the Lender under this Section 2.1 is herein called the
"Commitment".
SECTION 2.2 Use of New Loan Proceeds. The Issuer will use the proceeds of
each New Loan to pay principal and interest then due under the Original Loan.
SECTION 2.3 Note. The New Loans will be evidenced by a promissory note of
the Issuer (the "Note") substantially in the form of Exhibit B hereto,
appropriately completed, dated the date (the "Initial Loan Date") of the initial
New Loan, payable to the order of the Lender. The Issuer shall pay the principal
of the
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<PAGE>
New Loans in the respective amounts and on the respective dates set forth in
Schedule II hereto.
SECTION 2.4 Prepayments. The Issuer may prepay any New Loan in whole or in
part to the Lender from time to time. Each prepayment shall be applied to each
remaining scheduled installment due on the Note and to each New Loan pro rata
according to the respective amounts thereof.
SECTION 2.5 Interest. The Issuer will pay interest to the Lender on the
aggregate unpaid principal balance of each New Loan from time to time
outstanding, commencing on (and including) the applicable New Loan Date therefor
through (but excluding) the date such New Loan is paid in full, at the rate of
7.52% per annum. Prior to maturity, interest shall be payable semiannually on
June 30 and December 31 in each year, commencing December 31, 1996, and at
maturity. After maturity (whether by acceleration or otherwise), interest shall
be payable on demand. Interest shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 2.6 Payments. All payments of principal of, or interest on, the
Note shall be made by the Issuer to the Lender in same day funds at such bank or
other financial institution and for credit to such account as the Lender shall
from time to time direct by notice to the Issuer, on the date due; and funds
received after that hour shall be deemed to have been received on the next
following Business Day.
SECTION 2.7 Interest on Overdue Amounts. If any payment of principal of, or
interest on, the Note is not made when due, interest shall accrue on the amount
thereof, commencing on (and including) such due date through (but excluding) the
date on which such amount is paid in full, at a rate per annum which is 2% in
excess of the otherwise applicable interest rate on the Note, such interest to
be payable on demand.
ARTICLE III
REPRESENTATIONS
SECTION 3.1 Representations of Trustee. The Trustee (by execution of this
Agreement on behalf of the Issuer) represents and warrants to the Lender on the
date hereof and as of the date of each such New Loan, as follows:
(a) assuming the due authorization, execution and delivery
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<PAGE>
of the Trust Agreement by the Company, the execution, delivery and
performance of this Agreement and the Note are within the Trustee's powers
and have been duly authorized by all necessary action by the Trustee;
(b) the Issuer does not need to obtain any authorization, approval or
other action by any governmental authority or regulatory body, and no notice
by the Issuer to or filing by the Issuer with any governmental authority or
regulatory body is required, for the due execution, delivery and performance
by the Issuer of this Agreement and the Note;
(c) the Trustee on behalf of the Issuer has duly executed and delivered
this Agreement and this Agreement is, and the Note when executed and
delivered by the Trustee on behalf of the Issuer for value received will be,
legal, valid and binding obligations of the Trust, enforceable against the
Trust in accordance with their respective terms; and
(d) neither the execution and delivery of this Agreement or the Note nor
the performance by the Trustee on behalf of the Issuer of its obligations
thereunder are contrary to, conflict with or constitute a default under, the
Plan, the Trust Agreement, or any other instrument or agreement to which the
Issuer is a party or by which the Issuer is bound.
SECTION 3.2 Representations of Lender. The Lender (by execution of this
Agreement on behalf of the Issuer) represents and warrants to the Issuer on the
date hereof and as of the date of each such New Loan, as follows:
(a) the execution, delivery and performance of this Agreement are within
the Lender's powers and have been duly authorized by all necessary action by
the Lender;
(b) the Lender does not need to obtain any authorization, approval or
other action by any governmental authority or regulatory body, and no notice
by the Lender to or filing by the Lender with any governmental authority or
regulatory body is required, for the due execution, delivery and performance
by the Lender of this Agreement;
(c) the Lender has duly executed and delivered this Agreement, and this
Agreement constitutes legal, valid and binding obligations of the Lender,
enforceable against the Lender in accordance with its terms; and
(d) neither the execution and delivery of this Agreement, nor the
performance by the Trustee on behalf of the Issuer of
-5-
<PAGE>
its obligations thereunder are contrary to, conflict with or constitute a
default under, the Plan, the Trust Agreement, or any other instrument or
agreement to which the Lender is a party or by which the Issuer is bound.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1 Documentation Condition Precedent. The obligation of the Lender
to make the initial New Loan is, in addition to the conditions precedent
contained in Section 4.2, subject to the condition precedent that the Lender
shall have received the duly executed Note, dated the initial New Loan Date (or
such earlier date as shall be satisfactory to the Lender) and in form and
substance satisfactory to the Lender.
SECTION 4.2 Other Conditions Precedent. In addition to the condition
precedent contained in Section 4.1, the obligation of the Lender to make each
New Loan is subject to the following conditions precedent:
(a) the representations and warranties made by the Trustee herein are true
and correct on the applicable New Loan Date for such New Loan as if made on
and as of such New Loan Date; and
(b) no Event of Default or Unmatured Event of Default shall have occurred
and be continuing on the applicable New Loan Date for such New Loan.
ARTICLE V
EVENTS OF DEFAULT AND THEIR EFFECT
SECTION 5.1 Events of Default; Effect. If default in the payment when due
of any principal of, or default (and continuance thereof for 2 Business Days) in
the payment when due of interest on, the Note (an "Event of Default") occurs,
unless the effect thereof as an Event of Default has been waived in writing by
the Lender, then, the Lender may declare the Commitment to be terminated and the
Note to be due and payable, whereupon the Commitment shall terminate and have no
further force or effect and the Note shall become immediately due and payable,
without presentment, demand, protest or notice to the Issuer or other action by
the Lender of any kind whatsoever, all of which actions the Issuer hereby waives
to the maximum extent permitted by,
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<PAGE>
Applicable Law. The Lender shall promptly advise the Issuer of any such
declaration, but failure to do so or delay in doing so shall not impair the
effect of such declaration. Notwithstanding anything to the contrary herein or
in the Note contained or implied, in the event of default (whether or not
constituting an Event of Default or Unmatured Event of Default) with respect to
the New Loans by the Issuer, the value of Trust assets transferred in
satisfaction thereof shall not exceed the amount of such default (without regard
to amounts owing solely as the result of a declaration under this Section 5). In
addition, such a transfer of such Trust assets shall only occur upon and to the
extent of the failure of the Issuer to meet the payment schedule of the New
Loans provided in Section 2.3. The Lender confirms that the shares of common
stock held in the Trust have not been pledged to the Lender as collateral for
the New Loans.
ARTICLE VI
GENERAL
SECTION 6.1 Waivers; Amendments. No delay on the part of the Lender in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise by any of them of any right, power or
remedy preclude other or further exercise thereof, or the exercise of any other
right, power or remedy. No amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement or the Note shall in any event be
effective unless the same shall be in writing and signed and delivered by the
Lender and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 6.2 Confirmations; Information. The Lender and the Issuer agree
from time to time, upon written request received by it from the other, to
confirm to the other in writing the aggregate unpaid principal balance then
outstanding under the Note and the rate or rates of interest from time to time
payable with respect thereto and such other matters relating to the Trust as may
reasonably be the subject of inquiry.
SECTION 6.3 Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
SECTION 6.4 Governing Law. This Agreement and the Note shall be a contract
made under and governed by the laws of the
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<PAGE>
State of Illinois, without regard to conflict of laws principles. All
obligations of the Issuer and rights of the Lender expressed herein or in the
Note shall be in addition to and not in limitation of those provided by
Applicable Law.
SECTION 6.5 Notices. All notices to either party provided for hereunder
shall be in writing and delivered by courier or by facsimile to such party or
mailed by registered or certified mail addressed to such party, at its address
appearing below (or such other address as such party may designate by written
notice to the other party), as follows:
-8-
<PAGE>
If to the Issuer: Northern Trust Employee Stock
Ownership Trust
c/o NationsBank (South) N.A.
600 Peachtree Street, NE
Suite 700
Atlanta, Georgia 30308
Tel: (404) 607-4787
Fax: (404) 607-6543
Attn: Mr. Ernest F. Ritter
Senior Vice President
WITH A COPY TO:
Northern Trust Employee Stock
Ownership Trust
c/o The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois 60675
Tel: (312) 444-3716
Fax: (312) 444-4134
Attn: Secretary of the Corporation
If to the Lender: Northern Trust Corporation
50 South LaSalle Street
Chicago, Illinois 60675
Tel: (312) 444-7459
Fax: (312) 630-6739
Attn: Cathy Treiber
SECTION 6.6 Termination. The parties hereto acknowledge that by letter to
the Internal Revenue Service ("IRS") dated February 26, 1996 as supplemented
June 7, 1996 (the "Ruling Request"), McDermott, Will & Emery, on behalf of the
Company, has requested a ruling on the tax consequences of the New Loans. The
parties agree that in the event that on or before December 31, 1996 (or such
later date agreed to in writing by both parties hereto), the IRS does not grant
the Ruling Request on the terms requested therein, then (i) the funds comprising
the initial New Loan shall automatically be deemed to constitute a contribution
under the Plan, (ii) the Note shall automatically be deemed to be cancelled, and
(iii) this Agreement and the Note shall automatically terminate and be of no
further force or effect.
-9-
<PAGE>
ARTICLE VII
LIMITED RECOURSE
SECTION 7.1 Limited Recourse. Notwithstanding anything to the contrary
herein or in the Note or any other instrument, agreement or document contained
or implied, the obligations of the Issuer under this Agreement and the Note
(collectively the "Loan Obligations") shall be enforceable to the extent
permitted under Applicable Law, including the Exempt Loan Rules, only against
the Trust to the extent of contributions (other than contributions of employer
securities) made to the Trust in accordance with the Plan to enable the Issuer
to pay and satisfy the Loan Obligations and from earnings attributable to the
investment of such contributions (collectively the "Loan Assets"). No recourse
shall be had to or against the Trust or the assets thereof (other than the Loan
Assets) for any deficiency judgment against the Trust for the purpose of
obtaining payment or other satisfaction of the Loan obligations.
SECTION 7.2 No Personal Recourse Against Issuer. Without limiting the
provisions of Section 7.1, the Trustee shall not have any personal liability for
any of the Loan Obligations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective representatives thereunto duly
authorized as of the date first hereinbefore appearing.
NORTHERN TRUST EMPLOYEE STOCK
OWNERSHIP TRUST
By: NATIONSBANK (SOUTH) N.A.,
not individually but solely
as Trustee under Trust
Agreement dated January 26, 1989
By: /s/ Ernest F. Ritter
---------------------------------
Its: Senior Vice President
---------------------------------
NORTHERN TRUST CORPORATION
By: /s/ Perry R. Pero
---------------------------------
Its: Senior Executive Vice President
---------------------------------
-10-
<PAGE>
SCHEDULE I
NEW LOANS
---------
<TABLE>
<CAPTION>
New Loan Date Amount
------------- ------
<S> <C>
June 28, 1996 $2,241,050
December 31, 1996 $2,323,338
June 30, 1997 $2,414,965
December 31, 1997 $2,502,893
June 30, 1998 $2,599,843
December 31, 1998 $2,686,336
</TABLE>
-11-
<PAGE>
SCHEDULE II
INSTALLMENTS
------------
<TABLE>
<CAPTION>
New Loan Due Date Amount
----------------- ------
<S> <C>
June 30, 1999 $2,241,050
December 31, 1999 $2,323,338
June 30, 2000 $2,414,965
December 29, 2000 $2,502,893
June 29, 2001 $2,599,843
December 31, 2001 $2,686,336
</TABLE>
-12-
<PAGE>
EXHIBIT A
---------
DEFINITIONS
-----------
"Agreement" - see Preamble.
"Applicable Law" - means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
governmental authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Business Day" - means any day other than a Saturday, Sunday or other
day on which commercial banks in Chicago, Illinois are authorized or required by
law to close.
"Code" is defined in Section 2.7 of the Plan.
"Commitment" - see Section 2.1.
"Committee" is defined in Section 2.8 of the Plan.
"Company" - see Recitals.
"Company Stock" is defined in Section 2.10 of the Plan.
"ERISA" is defined in Section 2.21 of the Plan.
"Event of Default" - see Section 5.1.
"Exempt Loan Rules" - see Recitals.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
"Initial Loan Date" - see Section 2.3.
"IRS" - See Section 6.7.
-13-
<PAGE>
"Lender" - see Preamble.
"Loan Assets" - see Section 7.1
"Original Loan" - see Recitals.
"New Loans" - see Recitals.
"New Loan Date" - see Recitals.
"Note" - see Section 2.3 and Exhibit B.
"Note Agreements" - see Recitals.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture or
governmental authority.
"Plan" - see Preamble.
"Ruling Request" - see Section 6.7.
"Trust" - see Preamble.
"Trustee" - see Preamble.
"Unmatured Event of Default" means any event which with the lapse of
time or the giving of notice, or both, would become an Event of Default.
-14-
<PAGE>
EXHIBIT B
---------
NORTHERN TRUST EMPLOYEE STOCK OWNERSHIP TRUST
7.52% ESOP NOTE DUE DECEMBER 31, 2001
$14,768,425 June 28, 1996
Northern Trust Employee Stock Ownership Trust (the "Issuer"), created
by a Trust Agreement dated January 26, 1989 as amended, between The Northern
Trust Company and NationsBank (South) N.A., as Trustee, FOR VALUE RECEIVED,
hereby promises to pay to the order of NORTHERN TRUST CORPORATION, the principal
amount of $14,768,425 (or, if less, the aggregate unpaid principal amount of all
New Loans made by the payee to the Issuer pursuant to the Term Loan Agreement
(hereinafter defined) as shown either on the schedule attached hereto or in the
records of the payee), such principal to be payable in the amounts and on the
dates provided for in Schedule II to the Term Loan Agreement.
The Issuer further promises to pay interest on the principal amount
from time to time remaining unpaid hereon at the rate of 7.52% per annum from
the date hereof until maturity, payable semiannually on June 30 and December 31
in each year, commencing December 31, 1996, and at maturity. If any payment of
principal of, or interest on, this Note is not made when due, interest shall
accrue on the amount thereof, commencing on (and including) such due date
through (but excluding) the date on which such amount is paid in full, at a rate
per annum which is 2% in excess of the otherwise applicable interest rate on
this Note, such interest to be payable on demand. Interest shall be computed on
the basis of a 360-day year of twelve 30-day months.
Both the principal hereof and interest hereon are payable at the
principal office of The Northern Trust Company in Chicago, Illinois, in coin or
currency of the United States of America which at the time of payment shall be
legal tender for the payment of public and private debts.
This Note is issued under and pursuant to the terms and provisions of,
and is subject to, the Term Loan Agreement (such Term Loan Agreement as the same
may from time to time be amended or modified being herein referred to as the
"Term Loan Agreement") dated as of June 28, 1996, between the Issuer and
Northern Trust Corporation and is entitled to all the benefits and security
provided for thereby or referred to therein, to
-15-
<PAGE>
which Term Loan Agreement reference is hereby made for the statement thereof.
Recourse for the payment of this Note has been limited by the
provisions of the Term Loan Agreement and this Note is expressly made subject to
such provisions.
NORTHERN TRUST EMPLOYEE STOCK
OWNERSHIP TRUST
By: NATIONSBANK (South) N.A.,
not individually but solely as
Trustee under Trust Agreement
dated January 26, 1989
By: _________________________
Its:________________________
-16-
<PAGE>
Schedule Attached to Note dated June 28, 1996 of NationsBank (South) N.A., not
individually but as trustee of the Northern Trust Employee Stock Ownership
Trust, payable to the order of Northern Trust Corporation.
- --------------------------------------------------------------------------------
NEW LOANS AND PRINCIPAL PAYMENTS
- --------------------------------------------------------------------------------
================================================================================
NOTATION PRINCIPAL AMOUNT OF UNPAID
DATE AMOUNT OF PRINCIPAL PRINCIPAL
MADE BY NEW LOAN MADE REPAID BALANCE
------- ------------- --------- ---------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
-17-
<PAGE>
EXHIBIT NUMBER (11)
TO 6/30/96 FORM 10-Q
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Second Quarter Ended June 30 Six Months Ended June 30
------------------------------------- --------------------------------
1996 1995 1996 1995
--------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Computation Required by
-----------------------
Regulation S-K
--------------
Priamary Earnings Per Share
---------------------------
Net Income Applicable to
Common Shares $62,198,882 $50,946,144 $122,444,451 $98,127,843
================ ================ ============== =============
Weighed Average Number of Common
and Common Equivalent Shares Outstanding
Common Shares 56,204,977 55,975,144 56,231,580 55,117,831
Dilutive Effect of Common
Equivalent Shares (A)
Stock Options 889,374 534,482 906,823 560,390
Long Term Performance Stock Plan 293,734 355,597 278,716 339,360
Other 56,632 12,502 50,708 10,357
---------------- ---------------- -------------- -------------
57,444,717 56,878,030 57,467,827 56,027,938
================ ================ ============== =============
Net Income Per Common and
Common Equivalent Share $1.08 $0.90 $2.13 $1.75
================ ================ ============== =============
(A) Determined by application of the treasury stock method.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER (11)
TO 6/30/96 FORM 10-Q
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
Second Quarter Ended June 30 Six Months Ended June 30
--------------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Computations Required by
- ------------------------
Regulation S-K
- --------------
Fully Diluted Earnings Per Share
- --------------------------------
Net Income Applicable to
Common Shares $62,198,882 $50,946,144 $122,444,451 $98,127,843
Add Back: Dividend on Series E Convertible
Preferred Stock 785,353 14,756 1,562,500
------------- ------------- ------------- -------------
$62,198,882 $51,731,497 $122,459,207 $99,690,343
============= ============= ============= =============
Weighted Average Number of Common
and Common Equivalent Shares Outstanding
Common Shares 56,204,977 55,975,449 56,231,580 55,117,831
Dilutive Effect of Common
Equivalent Shares (A)
Stock Options 1,000,956 610,847 1,032,355 656,258
Long Term Performance Stock Plan 313,727 372,812 291,974 349,420
Other 65,915 14,514 56,888 11,680
Other Potentially Dilutive Securities
Equivalent Shares Assuming Conversion of
Series E Convertible Preferred Stock 1,204,820 191,977 1,204,820
------------- ------------- ------------- -------------
57,585,575 58,178,442 57,804,774 57,340,009
============= ============= ============= =============
Net Income Per Common and
Common Equivalent Share $1.08 $0.89 $2.12 $1.74
============= ============= ============= =============
(A) Determined by application of the treasury stock method.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and the Consolidated Statement of Income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,232,875
<INT-BEARING-DEPOSITS> 1,905,427
<FED-FUNDS-SOLD> 361,300
<TRADING-ASSETS> 3,286
<INVESTMENTS-HELD-FOR-SALE> 5,795,950
<INVESTMENTS-CARRYING> 504,093
<INVESTMENTS-MARKET> 523,871
<LOANS> 10,405,194
<ALLOWANCE> 147,380
<TOTAL-ASSETS> 21,751,177
<DEPOSITS> 13,267,850
<SHORT-TERM> 6,215,908
<LIABILITIES-OTHER> 436,222
<LONG-TERM> 337,544
<COMMON> 94,966
0
120,000
<OTHER-SE> 1,278,687
<TOTAL-LIABILITIES-AND-EQUITY> 21,751,177
<INTEREST-LOAN> 333,244
<INTEREST-INVEST> 184,995
<INTEREST-OTHER> 52,811
<INTEREST-TOTAL> 571,050
<INTEREST-DEPOSIT> 221,144
<INTEREST-EXPENSE> 382,141
<INTEREST-INCOME-NET> 188,909
<LOAN-LOSSES> 9,000
<SECURITIES-GAINS> 374
<EXPENSE-OTHER> 375,588
<INCOME-PRETAX> 187,203
<INCOME-PRE-EXTRAORDINARY> 187,203
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,949
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 2.21
<LOANS-NON> 36,225
<LOANS-PAST> 14,489
<LOANS-TROUBLED> 2,651
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 147,131
<CHARGE-OFFS> 9,780
<RECOVERIES> 1,028
<ALLOWANCE-CLOSE> 147,380
<ALLOWANCE-DOMESTIC> 115,843
<ALLOWANCE-FOREIGN> 2,827
<ALLOWANCE-UNALLOCATED> 28,710
</TABLE>
