<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Northern Trust Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
PRELIMINARY COPY
[LOGO NORTHERN TRUST CORPORATION]
Notice and Proxy Statement
Annual Meeting of Stockholders
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 15, 1997
The annual meeting of stockholders of Northern Trust Corporation will be
held on Tuesday, April 15, 1997, at 10:30 a.m., Chicago time, at the office of
the Corporation, northwest corner of LaSalle and Monroe Streets, Chicago, for
the following purposes:
(1) to elect fourteen Directors to hold office until the next annual
meeting of stockholders and until their successors shall have been
elected and qualified;
(2) to amend the Restated Certificate of Incorporation to increase the
authorized Common Stock;
(3) to amend the Northern Trust Corporation Amended 1992 Incentive Stock
Plan as described in the Proxy Statement; and
(4) to transact such other business as may properly come before the
meeting.
Only stockholders of record on the books of the Corporation at 5 p.m.,
Chicago time, on February 24, 1997, will be entitled to vote at the meeting.
PETER L. ROSSITER
Secretary
March 10, 1997
IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION
AT THE MEETING, YOU ARE URGED TO SIGN AND RETURN
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. YOU
MAY NEVERTHELESS VOTE IN PERSON IF YOU DO ATTEND
THE MEETING.
<PAGE>
PRELIMINARY COPY
[LOGO--NORTHERN TRUST CORPORATION]
50 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60675
MARCH 10, 1997
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Northern Trust Corporation (the "Corporation") of
proxies for use at the annual meeting of stockholders of the Corporation to be
held April 15, 1997, at 10:30 a.m., Chicago time, at the office of the
Corporation, northwest corner of LaSalle and Monroe Streets, Chicago. The
Corporation is a bank holding company whose principal subsidiary is The
Northern Trust Company (the "Bank").
Any stockholder giving a proxy will have the right to revoke it at any time
prior to the voting thereof. All shares represented by effective proxies will
be voted at the meeting, or at any adjournment thereof, in accordance with the
instructions reflected in the proxies. Absent any voting instructions to the
contrary, shares will be voted FOR the election of the fourteen nominees for
Director, FOR the proposed amendment to the Corporation's Restated Certificate
of Incorporation, and FOR the proposed amendments to the Northern Trust
Corporation Amended 1992 Incentive Stock Plan.
This Proxy Statement and the enclosed proxy, along with the Corporation's
1996 Annual Report, including financial statements, are being mailed on or
about March 10, 1997, to each stockholder of record as of February 24, 1997.
As of February 24, 1997, the record date for the annual meeting, the
Corporation had outstanding and entitled to vote shares of common
stock, par value $1.66 2/3 per share (the "Common Stock"), exclusive of
shares held by the Corporation as treasury stock, which will not be
voted.
Votes cast in person or by proxy at the annual meeting will be tabulated by
the inspectors of election appointed for the meeting and will determine the
presence or absence of a quorum. The presence, either in person or by proxy,
of the holders of a majority of the outstanding shares of Common Stock will
constitute a quorum at the annual meeting. Abstentions and broker non-votes
will be counted for purposes of determining the presence or absence of a
quorum. An abstention with respect to any proposal will have the effect of a
vote against that proposal. A "broker non-vote" will occur with respect to a
given proposal when a broker holding shares in street name (i.e., as nominee
for the beneficial owner) returns an executed proxy (or voting directions)
indicating that the broker does not have discretionary authority to vote on a
proposal. Under the rules of the New York Stock Exchange, brokers who hold
shares of Common Stock as nominees will have discretionary authority to vote
such shares on all of the proposals being submitted at the annual meeting,
except for the proposal to approve the amendments to the Northern Trust
Corporation Amended 1992 Incentive Stock Plan. Under Delaware law, a broker
non-vote is counted as present for quorum purposes but is not considered to be
entitled to vote on the specified matter. Therefore, a broker non-vote will
have no effect on the outcome of the vote on the proposal to approve the
amendments to the Northern Trust Corporation Amended 1992 Incentive Stock Plan
since that proposal requires the affirmative vote of a majority of the shares
of Common Stock present in person or by proxy and entitled to vote on that
proposal at the annual meeting.
ELECTION OF DIRECTORS
Fourteen Directors are to be elected at the annual meeting of stockholders.
It is intended that, absent any voting instructions to the contrary, shares
represented by the enclosed proxy will be voted for the election of all
nominees listed below, who include 12 of the 14 Directors elected last year.
Robert
1
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D. Krebs has decided not to stand for reelection as a Director of the
Corporation at the annual meeting because of business commitments to the
corporation of which he is chief executive officer, and Ardis Krainik died on
January 18, 1997. Susan Crown and Duane L. Burnham will stand for election to
the vacated seats. All Directors will be elected to serve until the next annual
meeting and until their successors shall have been elected and qualified. In
the event that any such nominee shall be unable to serve, which is not now
contemplated, the proxy holders may or may not vote for a substitute nominee.
The proxy provides instructions for voting for all Director nominees or for
withholding authority to vote for one or more Director nominees. Stockholders
have cumulative voting rights in the election of Directors. Accordingly, each
stockholder is entitled to as many votes as shall equal the number of his
shares of Common Stock multiplied by the number of Directors to be elected. It
is expected that the proxy holders will divide these cumulative votes equally
among all Director nominees for whom authority to vote has not been withheld,
unless the stockholder chooses to allocate his votes otherwise and so indicates
on the proxy. Notwithstanding the foregoing, the proxy holders reserve the
right, exercisable in their sole discretion, to vote proxies cumulatively so as
to elect all or as many as possible of such Director nominees depending upon
circumstances at the meeting. Whether or not any shares are voted cumulatively,
the fourteen persons receiving the highest number of votes cast will be elected
as Directors.
INFORMATION ABOUT NOMINEES
The following information with respect to nominees for election to the Board
of Directors of the Corporation at the 1997 annual meeting of stockholders is
as of December 31, 1996.
Nominee, Age
and
Year Became
Director of
Corporation
or Bank Principal Occupation and Other Information
- -------------- ------------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, ABBOTT
[PHOTO] LABORATORIES since 1990 (Global diversified health
care products and services company).
Mr. Burnham is a director of Abbott Laboratories,
NCR Corporation and Sara Lee Corporation.
DUANE L. BURNHAM
Age 55
PRESIDENT, CHICAGO STATE UNIVERSITY since 1990;
[PHOTO] Associate Provost and Associate Vice President for
Academic Affairs, University of Minnesota, from
1988 to 1990 (Educational institutions).
DOLORES E. CROSS
Age 59 1994
2
<PAGE>
Nominee, Age
and
Year Became
Director of
Corporation
or Bank Principal Occupation and Other Information
- --------------- ------------------------------------------
VICE PRESIDENT, HENRY CROWN AND COMPANY since 1984
[PHOTO] (Company with diversified manufacturing operations, real
estate and securities).
Ms. Crown is a director of Baxter International Inc.,
Illinois Tool Works Inc. and Caribbean International News
Corporation and a trustee of Rush-Presbyterian-St. Luke's
Medical Center in Chicago.
SUSAN CROWN
Age 38
DEAN AND EDWARD EAGLE BROWN DISTINGUISHED SERVICE
[PHOTO] PROFESSOR OF FINANCE, GRADUATE SCHOOL OF BUSINESS,
UNIVERSITY OF CHICAGO since July, 1993, Edward Eagle
Brown Professor of Finance from 1989 to July, 1993 and
member of the Faculty since 1966 (Educational
institution).
Mr. Hamada is a director of A. M. Castle & Co. and the
Chicago Board of Trade.
ROBERT S. HAMADA
Age 59 1988
PRESIDENT since October, 1995 AND CHIEF OPERATING OFFICER
[PHOTO] since June, 1995 of the CORPORATION AND THE BANK, Vice
Chairman from January, 1994 to June, 1995, Senior
Executive Vice President from November, 1992 through
December, 1993, and Executive Vice President of the Bank
from April, 1987 to November, 1992 and of the Corporation
from April, 1990 to November, 1992.
BARRY G. HASTINGS
Age 49 1994
PARTNER, MAYER, BROWN & PLATT since January, 1967 (Law
[PHOTO] firm).
Mr. Helman is a director of Zenith Electronics
Corporation and Brambles USA, Inc. and a Governor of the
Chicago Stock Exchange.
ROBERT A. HELMAN
Age 62 1986
3
<PAGE>
Nominee, Age
and
Year Became
Director of
Corporation
or Bank Principal Occupation and Other Information
- --------------- ------------------------------------------
MANAGING PARTNER, KEL ENTERPRISES L.P. since 1982
[PHOTO] (Holding and investment partnership).
Mr. Kelly is a director of Bayerische Motoren Werke (BMW)
A.G., Deere & Company, Nalco Chemical Company, Snap-on
Incorporated, Tejas Gas Corporation and Thyssen Industrie
AG.
ARTHUR L. KELLY
Age 59 1988
CHAIRMAN since November, 1993, AND CHIEF EXECUTIVE OFFI-
[PHOTO] CER since July, 1988, MOLEX INCORPORATED (Manufacturer of
electrical/electronic interconnecting products and sys-
tems).
Mr. Krehbiel is a director of Molex Incorporated,
Tellabs, Inc., Nalco Chemical Company and DeVry Inc.
FREDERICK A. KREHBIEL
Age 55 1988
RETIRED VICE CHAIRMAN, CENTEL CORPORATION since May, 1987
[PHOTO] (Telecommunications company).
Mr. Mitchell is a director of The Interlake Corporation,
Peoples Energy Corporation and The Sherwin-Williams Co.
WILLIAM G. MITCHELL
Age 65 1975
CHAIRMAN since July, 1994, CHIEF EXECUTIVE OFFICER since
[PHOTO] April, 1994, AND PRESIDENT since 1990, NALCO CHEMICAL
COMPANY; Chief Operating Officer from 1992 to 1994
(Manufacturer of specialized service chemicals).
Mr. Mooney is a director of Nalco Chemical Company and
Morton International, Inc.
EDWARD J. MOONEY
Age 55 1996
4
<PAGE>
Nominee, Age
and
Year Became
Director of
Corporation
or Bank Principal Occupation and Other Information
- --------------- ------------------------------------------
CHAIRMAN since October, 1995 AND CHIEF EXECUTIVE OFFICER
[PHOTO] since June, 1995 of the CORPORATION AND THE BANK,
President from January, 1994 to October, 1995, Chief
Operating Officer from January, 1994 to June, 1995,
Senior Executive Vice President from November, 1992
through December, 1993 and Executive Vice President of
the Bank from April, 1987 to November, 1992 and of the
Corporation from April, 1989 to November, 1992.
WILLIAM A. OSBORN
Age 49 1994
CHAIRMAN OF THE EXECUTIVE COMMITTEE, ILLINOIS TOOL WORKS
[PHOTO] INC. since January, 1982 (Manufacturer and marketer of
engineered components and industrial systems and
consumables).
Mr. Smith is a director of Illinois Tool Works Inc. and
W. W. Grainger, Inc. and is a trustee of The Northwestern
Mutual Life Insurance Company.
HAROLD B. SMITH
Age 63 1974
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, THE
[PHOTO] QUAKER OATS COMPANY since November, 1995, Chairman and
Chief Executive Officer from January, 1993 to November,
1995, Chairman, President and Chief Executive Officer
from November, 1990 through December, 1992 (Worldwide
manufacturer and marketer of beverages and grain-based
products).
Mr. Smithburg is a director of The Quaker Oats Company,
Abbott Laboratories, Corning Incorporated and Prime
Capital Corp.
WILLIAM D. SMITHBURG
Age 58 1981
RETIRED PRESIDENT, COMMONWEALTH EDISON COMPANY since
[PHOTO] December, 1992; President from September, 1987 to
December, 1992 (Company engaged in production,
distribution and sale of electric energy).
Mr. Thomas is a director of R. R. Donnelley & Sons Com-
pany and MYR Group Inc.
BIDE L. THOMAS
Age 61 1984
5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of the Common Stock for
each Director and Director nominee, each executive officer named in the Summary
Compensation Table elsewhere in this Proxy Statement and all Directors and
executive officers of the Corporation as a group.
<TABLE>
<CAPTION>
COMMON STOCK(/1/)
OWNED AS OF
JANUARY 2, 1997
-----------------------
NO. OF PERCENT
NAME SHARES OF CLASS
- ---------------------------------------------------
<S> <C> <C>
Duane L. Burnham........ (/2/) *
Dolores E. Cross........ *
Susan Crown............. (/2/) *
Robert S. Hamada........ *
Barry G. Hastings....... (/3/) *
Robert A. Helman........ *
Arthur L. Kelly......... *
Robert D. Krebs......... *
Frederick A. Krehbiel... *
William G. Mitchell..... *
Edward J. Mooney........ *
William A. Osborn....... (/3/) *
Sheila A. Penrose....... (/3/) *
Perry R. Pero........... (/3/) *
Harold B. Smith......... (/4/) %
Mark Stevens............ (/3/) *
William D. Smithburg.... *
Bide L. Thomas.......... *
ALL DIRECTORS AND EXECU-
TIVE OFFICERS AS A
GROUP.................. (/3/) %
</TABLE>
- --------------------------------------------------------------------------------
* Less than one percent of the outstanding Common Stock.
(1) The information contained in this table is furnished to the Corporation
by the individuals named in the table and reflects the Securities and
Exchange Commission's definition of beneficial ownership. The nature of
beneficial ownership for shares shown in this table is sole voting and/or
sole investment power, except as set forth below.
(2) As of February 24, 1997, the record date for the annual meeting, Mr.
Burnham and Ms. Crown owned 1,000 and 1,500 shares of Common Stock,
respectively.
(3) Includes shares issuable pursuant to stock options exercisable within
60 days after January 2, 1997, as follows: Mr. Hastings, shares; Mr.
Osborn, shares; Ms. Penrose, shares; Mr. Pero, shares; Mr.
Stevens, shares; and all Directors and executive officers as a group,
shares.
(4) See note 2 on page 7.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table includes information concerning Common Stock ownership of
stockholders who were the beneficial owners of more than 5% of the outstanding
shares of the Common Stock on January 2, 1997.
<TABLE>
<CAPTION>
COMMON STOCK(/1/)
HELD AS OF
JANUARY 2, 1997
-----------------------
NO. OF PERCENT
NAME AND ADDRESS SHARES OF CLASS
---------------------------------------------------- --------- --------
<S> <C> <C>
Harold B. Smith..................................... (/2/) %
3600 West Lake Avenue, Glenview, Illinois 60025-
5811
NationsBank, N.A. (South)........................... (/3/) %
600 Peachtree St., N.E., Suite 700, Atlanta, Geor-
gia 30308
</TABLE>
- --------------------------------------------------------------------------------
(1) The information contained in this table is furnished to the Corporation
by the persons named in the table and reflects the Securities and Exchange
Commission's definition of beneficial ownership. The nature of beneficial
ownership of the holdings shown in this table is set forth in notes 2 and 3
which follow.
(2) Harold B. Smith serves as co-fiduciary and shares voting and investment
power with various family members and the Bank with respect to
shares or % of the outstanding Common Stock. As co-trustee with the Bank
and two individuals he shares voting and investment power for
shares or % of the outstanding Common Stock. With respect to
shares or % of the outstanding Common Stock, he serves as co-fiduciary
and shares voting and investment power with other family members. Mr. Smith
also has sole voting and investment power over shares or % of the
outstanding Common Stock held in a trust, and shared voting and investment
power over shares or % of the outstanding Common Stock as co-
trustee of three additional trusts.
(3) NationsBank, N.A. (South) holds shares or % of the
outstanding Common Stock, including shares or % of the
outstanding Common Stock in its capacity as Trustee of the Northern Trust
Employee Stock Ownership Plan ("ESOP"). NationsBank, N.A. (South) has no
voting and investment power with respect to the ESOP shares
allocated to participant accounts and has shared voting and investment power
with respect to the unallocated ESOP shares. Participants in the
ESOP are entitled to direct the Trustee as to the voting of shares allocated
to their accounts under the ESOP. Unallocated shares and allocated shares
for which no direction is received will be voted by the Trustee in the same
proportion that the allocated shares were voted, unless inconsistent with
the Trustee's fiduciary responsibility.
The Bank and its affiliates individually act as sole or co-fiduciary with
respect to trusts and other fiduciary accounts which own, hold or control
through intermediaries in the aggregate shares or % of the
outstanding Common Stock over which the Bank and its affiliates have, directly
or indirectly, sole or shared voting power and/or sole or shared investment
power. No single trust or other fiduciary account holds a beneficial interest
in excess of %. The Bank and its affiliates have sole voting power with
respect to shares or % of the outstanding Common Stock, and they
share voting power with respect to shares or % of the
outstanding Common Stock. They have sole investment power with respect to
shares or % of the outstanding Common Stock, and they share
investment power with respect to shares or % of the outstanding
Common Stock.
In addition, the Bank, as Trustee of The Northern Trust Company Thrift-
Incentive Plan, holds in the Northern Trust Common Stock Fund of that Plan
shares or % of the outstanding Common Stock. The Bank has no
voting or investment power with respect to these shares since sole voting and
investment power for the shares is held by the Northern Trust Common
Stock Fund participants who are employees of the Corporation or its
subsidiaries.
7
<PAGE>
INFORMATION ABOUT THE BOARD AND COMMITTEES
COMMITTEES
The Corporation's Board of Directors presently has six standing committees:
an Audit Committee, a Business Risk Committee, a Business Strategy Committee,
a Compensation and Benefits Committee, a Corporate Governance Committee and an
Executive Committee.
Current members of the Audit Committee are Robert D. Krebs, Chairman, Robert
S. Hamada, Arthur L. Kelly, William G. Mitchell and Bide L. Thomas. During
1996, the Committee met on four occasions to review and make recommendations
to the full Board of Directors with respect to the following matters:
examinations by regulatory authorities, internal audit procedures, internal
controls, compliance with laws and regulations, engagement of independent
public accountants and matters having a material effect upon the Corporation's
financial operations. (See "Independent Public Accountants," below.)
Current members of the Compensation and Benefits Committee are William D.
Smithburg, Chairman, Arthur L. Kelly, Frederick A. Krehbiel, Edward J. Mooney,
Harold B. Smith and Bide L. Thomas. During 1996, the Committee met on five
occasions to review and make recommendations to the full Board of Directors
with respect to the following matters: compensation policy, including
executive compensation policy and compensation levels, benefit plans and
programs, incentive plans and payments thereunder and management development
and succession planning.
Current members of the Corporate Governance Committee are Frederick A.
Krehbiel, Chairman, Robert D. Krebs, Harold B. Smith and William D.
Smithburg. During 1996, the Committee met on one occasion to review and make
recommendations to the full Board of Directors with respect to the evaluation
of candidates for nomination to the Board of Directors and the structure and
membership of Board committees. The Committee will consider recommendations
from the stockholders of the Corporation, submitted in writing to the
Secretary of the Corporation, regarding potential nominees for election as
Directors.
The Board of Directors held 10 regular and one special meeting during 1996.
All persons who were Directors during 1996 attended at least 75% of these
meetings and meetings of Committees on which they served, except for Ms.
Krainik and Mr. Krehbiel.
The Executive Committee meets as required between meetings of the Board of
Directors and may exercise the powers of the Board in the management of the
business and affairs of the Corporation when the Board is not in session,
subject to limitations imposed by law and the By-Laws of the Corporation. The
Business Strategy Committee reviews the policies, strategies and performance
of the various business units of the Corporation. The Business Risk Committee
reviews the risks inherent in the extension of credit, managing assets and
liabilities, providing fiduciary investment services and other related
matters.
COMPENSATION OF DIRECTORS
During 1996 compensation of non-employee Directors of the Corporation
consisted of an annual retainer fee of $22,000, with the Chairmen of the
Corporation's Audit, Business Risk, Business Strategy, Compensation and
Benefits, and Corporate Governance Committees each receiving an additional
annual retainer fee of $4,000. All non-employee Directors received a fee of
$1,000 for each Board and Committee meeting attended. Non-employee Directors
were also eligible to receive a per diem fee of $1,000 when required to
perform specific services on behalf of the Corporation. For such services in
1996, the Corporation paid $11,000.
Effective as of January 1, 1997, compensation of non-employee Directors of
the Corporation consists of an annual retainer fee of $35,000 with the
Chairmen of the Corporation's Audit, Business Risk, Business Strategy,
Compensation and Benefits, and Corporate Governance Committees each receiving
8
<PAGE>
an additional annual retainer fee of $5,000. All non-employee Directors
receive a fee of $1,000 for each Board Committee meeting attended and are
eligible to receive a per diem fee of $1,000 when required to perform specific
services on behalf of the Corporation. Each non-employee Director will also
receive a grant of 500 shares of Common Stock on the date of each annual
meeting of stockholders in the years 1997, 1998 and 1999 under the Northern
Trust Corporation 1997 Stock Plan for Non-Employee Directors (the "1997
Director Stock Plan") adopted in February, 1997. The 1997 Director Stock Plan
replaces prior stock plan arrangements under which non-employee Directors
received 300 shares of Common Stock each year.
Under the Northern Trust Corporation 1997 Deferred Compensation Plan for
Non-Employee Directors (the "1997 Deferred Compensation Plan") adopted in
February, 1997, non-employee Directors may elect to defer the payment of their
annual retainer, cash fees and annual stock grants under the 1997 Director
Stock Plan until termination of services as a director of the Corporation.
Amounts deferred are paid into a stock unit account and converted into stock
units representing shares of Common Stock, with the value of each stock unit
based upon the mean of the high and low sale prices on the last trading day of
the calendar quarter for which the cash compensation would have been paid or,
in the case of deferred stock, the date on which the stock was granted.
Dividend equivalents on the stock units are paid quarterly to a cash account
and accrue interest at an interest rate determined from time to time by the
Compensation and Benefits Committee. Amounts previously deferred by
participating non-employee Directors under a prior deferred compensation plan
may be transferred effective March, 1997 into the stock unit account or cash
account of the 1997 Deferred Compensation Plan at the election of such
Directors. Distribution of amounts in a participating non-employee Director's
stock unit account will be made either in cash or stock in a single lump sum
payment or in up to 10 annual installments at the election of the
participating non-employee Director, except that stock units representing the
deferral of annual stock grants under the 1997 Director Stock Plan will be
distributed only in stock. Distribution of amounts in a participating non-
employee Director's cash account will be made in cash in a single lump sum
payment or in up to 10 annual installments at the election of the
participating non-employee Director.
MANAGEMENT TRANSACTIONS AND INDEBTEDNESS
Directors and executive officers of the Corporation, as well as members of
their immediate families and their associates, were customers of and had
transactions with the Corporation and its subsidiaries in the ordinary course
of business during 1996. These transactions included loans; purchases, sales
and placements of investment securities and other financial instruments;
fiduciary transactions; deposits; and other purchase, sale and finance
transactions. It is anticipated that similar transactions may occur in the
ordinary course of business in the future. All credit transactions were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
persons and did not involve more than the normal risk of collectibility or
present other unfavorable features. Transactions in 1996 involving the
purchase or sale of products and services did not result in payments that were
material to the gross revenues of either the Corporation or the company with
which a director or executive officer was associated. Mr. Helman, a director
of the Corporation, is a partner in the law firm of Mayer Brown & Platt, which
renders legal services to the Corporation and its subsidiaries.
9
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION AND BENEFITS COMMITTEE REPORT
The Compensation and Benefits Committee (the "Committee"), which is
comprised entirely of non-employee Directors, is responsible for overseeing
the Corporation's executive compensation program. Each year the Committee
reviews the components of the Corporation's executive compensation program,
comparing compensation levels to a peer group of financial services
organizations that represent the Corporation's competition for executive
talent. The Committee considers recommendations from the Corporation's Human
Resources Department which works closely with outside consultants. The
organizations selected for comparison purposes generally have one or more of
the following characteristics: superior financial performance; lines of
business similar to those of the Corporation; significant operations in the
Corporation's principal geographic areas; and size, either overall or in
particular lines of business, comparable to that of the Corporation. The
Keefe, Bruyette & Woods 50 Bank Index, which is used in the Five-Year
Cumulative Total Return table presented elsewhere in this Proxy Statement,
includes all of the organizations in the peer group used for compensation
comparison purposes.
The Committee reviews and approves the compensation of the Corporation's
most highly compensated executives, including the executive officers whose
compensation is detailed in this Proxy Statement. For other executives the
Committee reviews overall compensation policies and payment levels. In
reviewing the compensation of executives other than the Chief Executive
Officer, the Committee takes the Chief Executive Officer's counsel and
recommendations into account.
The Committee also periodically reviews the share ownership levels of
executives, evaluating their current and potential holdings of the
Corporation's Common Stock. The Committee presently believes that formal
ownership requirements for executive officers are not necessary, since these
officers have existing and potential equity holdings that are significant as a
multiple of base salaries.
The Corporation's executive compensation program links short-term and
longer-term financial rewards to the Corporation's performance and return to
stockholders, and is designed to compensate executives at market competitive
levels and to ensure the retention of executive talent. Accordingly, the
Corporation's compensation program makes a significant portion of the
executives' rewards variable and dependent on performance. Rewards to
executives should increase when performance goals are achieved and surpassed,
and correspondingly decrease if goals are not achieved. The Corporation's
program places emphasis on equity incentives in order to closely align the
executives' interests with those of the stockholders. The components of the
Corporation's executive compensation program are designed to reflect these
compensation principles in each of the following: base salary, annual
incentive cash award, performance shares and stock options. The Corporation
also has made specific awards of restricted stock from time to time.
BASE SALARIES--Base salaries are generally determined by evaluating the
responsibilities of the current position and the individual's experience,
performance, career progress and potential development. A review is also made
of the competitive marketplace for executive talent, including a comparison to
base salaries for comparable positions at other financial services companies.
The Committee generally determines annual salary adjustments, within the
context of the Corporation's overall salary policy, by evaluating the
performance of each executive officer and any changes in the executive's
responsibilities. Adjustments to the base salaries of these executives in 1996
reflect the factors referred to above. With respect to Mr. Osborn and Mr.
Hastings, the 1996 adjustments also reflect their promotions in October, 1995,
to Chairman and Chief Executive Officer, and President and Chief Operating
Officer, respectively, and the fact that their salaries had not been adjusted
since January, 1994. With respect to Mr. Stevens, the 1996 adjustment reflects
his promotion in February, 1996, to Executive Vice President and head of the
Personal Financial Services Business Unit. The Committee targeted the base
salaries of the executive officers named in the Summary Compensation Table at
approximately the median of salaries for similar positions in most of the
companies used for comparison purposes.
10
<PAGE>
ANNUAL INCENTIVE CASH AWARDS--During 1996 the executive officers named in
the Summary Compensation Table were eligible for annual incentive cash awards
under one of two plans. Messrs. Osborn, Hastings, and Pero participated in the
1996 Management Performance Plan; Mr. Stevens and Ms. Penrose participated in
the 1996 Annual Performance Plan. The amount available under the Management
Performance Plan is determined by a formula and is directly related to the
achievement of a corporate net income goal. At the beginning of the 1996 Plan
year, the Committee reviewed and recommended to the Board the corporate net
income goal and the individual target awards expressed as a percentage of
salary. Following completion of the 1996 Plan year, the Committee approved
individual award payments based on a comparison of actual achievement with the
corporate net income goal and an evaluation of individual performance. Under
the 1996 Annual Performance Plan, the potential amount available for
individuals is based on the achievement of a corporate net income goal and
business unit earnings goals set at the beginning of the year. Individual
awards are discretionary, based on an evaluation of each executive's
performance. Awards under both the Management Performance Plan and Annual
Performance Plan were paid in cash.
Mr. Osborn's 1996 Management Performance Plan Award of $ was based
on the factors described above and reflects that the Corporation achieved
record earnings in 1996, surpassing the Plan's corporate net income goal.
PERFORMANCE SHARES--Performance share awards to executive officers are
determined generally on an annual basis under the performance share provisions
of the Amended 1992 Incentive Stock Plan (the "1992 Plan"). For each year's
award, there is a three-year performance period followed by a three-year
vesting period. The three-year performance period is intended to reflect a
longer-term strategic business focus and the three-year vesting period is
designed to encourage the executives to remain with the Corporation. The
Committee, at the beginning of the performance period, establishes return-on-
equity corporate performance goals for the period and performance share target
awards for the 1992 Plan's participants. Awards made in 1996 provide for the
crediting of 50% of the target shares if a minimum goal is met and 100% if a
higher goal is met for the relevant performance period. Individual performance
share target awards are based on multiple-of-salary guidelines and competitive
compensation data. Awards are made within the context of providing an
appropriate mix of both cash and equity incentives. The Committee also
considers the number of performance shares and stock options previously
granted to the individual. If the executive leaves the Corporation prior to
the completion of the performance period for reasons other than death,
disability or retirement (in which cases the award amounts are prorated), the
performance shares are forfeited. Following the completion of each three-year
performance period, the Committee determines what level of return-on-equity
for that performance period has been achieved and authorizes the crediting of
the appropriate number of performance shares to the participants' accounts.
Typically the shares are distributed to the participant on the third
anniversary following the date on which the shares were credited to the
participant's account, together with cash in an amount equal to the dividends
declared on that number of shares during the three-year vesting period plus
interest at an assumed rate on those dividends. If the executive leaves the
Corporation prior to this distribution date for reasons other than death,
disability or retirement, the performance shares and related cash balance are
forfeited. In cases of death, disability or retirement during the three-year
vesting period, the performance shares and related cash balance become
distributable.
In February, 1996, the Committee applied the factors described above and set
a performance share target award of 30,000 shares for the 1996-1998
performance period for Mr. Osborn. Mr. Osborn's target share award represents
approximately 9.1% of the total of 331,000 performance shares awarded for the
1996-1998 performance period.
STOCK OPTIONS--Stock option grants to executive officers are determined
generally on an annual basis under the provisions of the 1992 Plan. Individual
stock option awards are based on multiple-of-salary guidelines, incorporating
both a current and projected option value to the recipient, and competitive
compensation data. Awards are made within the context of providing an
appropriate mix of
11
<PAGE>
cash and equity incentives. The Committee also considers the number of
performance shares and stock options previously granted to the individual.
Option grants are designed to align the interests of executives with those
of the stockholders. Stock options are granted with an exercise price equal to
the market price of the Common Stock on the date of grant and may be exercised
over ten years. This approach is designed to motivate the executive to
contribute to the creation of stockholder value over the long term.
In September, 1996, the Committee applied the factors described above and
granted to Mr. Osborn an option to purchase 60,000 shares at an exercise price
of $33.50. This represents 4.6% of the total options to purchase 1,315,700
shares that were granted in 1996. Mr. Osborn currently holds options to
purchase a total of 254,750 shares.
Section 162(m) of the Internal Revenue Code (the "Code") provides that
compensation in excess of $1,000,000 per year paid to the chief executive
officer and the four other most highly compensated executive officers employed
at year-end, other than compensation meeting the technical definition in the
Code for "performance-based compensation" or otherwise exempt from the
provisions of Section 162(m), will not be deductible by a corporation for
federal income tax purposes. All compensation paid in 1996 to the executive
officers named in Summary Compensation Table was deductible. The Committee and
the Board of Directors recommend that stockholders approve at the 1997 annual
meeting of stockholders amendments to the Amended 1992 Incentive Stock Plan
that include provisions designed to ensure that stock option awards continue
to qualify, and performance share awards made in 1997 and thereafter will
qualify, as performance-based compensation under Section 162(m). See "Approval
of Amendments to the Northern Trust Corporation Amended 1992 Incentive Stock
Plan." The Committee will continue to review the deductibility of compensation
under Section 162(m) and will recommend steps to assure the deductibility of
compensation where the Committee concludes that the actual benefits of
deductibility to the Corporation in specific circumstances outweigh any
sacrifice of flexibility and effectiveness involved in qualifying a particular
compensation program under Section 162(m).
* * * * *
Through the programs described above, a significant portion of the
Corporation's executive compensation is linked directly to individual and
corporate performance and stock price appreciation. In 1996 the group of five
executives listed in the Summary Compensation Table received over half of
their compensation in the aggregate (consisting of the dollar amounts shown in
the Table and value realized on stock options exercised) in the form of
performance-based variable elements. The Committee intends to continue the
policy of linking executive compensation to corporate performance and returns
to stockholders.
This report is submitted on behalf of the members of the Committee:
William D. Smithburg, Chairman
Arthur L. Kelly
Frederick A. Krehbiel
Edward J. Mooney
Harold B. Smith
Bide L. Thomas
12
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the years 1994
through 1996 with respect to the Corporation's chief executive officer and the
four other most highly compensated executive officers during 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- -----------------------------------------
AWARDS
(SECURITIES
NAME AND RESTRICTED UNDERLYING PAYOUTS
PRINCIPAL POSITION TOTAL OF STOCK OPTIONS (LONG-TERM ALL OTHER
(AT DECEMBER 31, 1996) YEAR SALARY BONUS(1) SALARY & BONUS AWARDS(2) GRANTED) INCENTIVE PLAN)(3) COMPENSATION(4)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William A. Osborn 1996 $600,000 XX XX 60,000 $697,567 $66,352
Chairman and 1995 $410,000 $251,000 $661,000 50,000 $456,563 $65,525
Chief Executive Officer 1994 $410,000 $225,000 $635,000 $987,500 30,000 $ 0 $49,909
Barry G. Hastings 1996 $475,000 XX $ XX 44,000 $697,567 $52,529
President and 1995 $385,000 $236,000 $621,000 40,000 $456,563 $61,530
Chief Operating Officer 1994 $385,000 $215,000 $600,000 $987,500 30,000 $ 0 $46,866
Mark Stevens 1996 $347,000 XX XX 26,000 $261,587 $93,374
Executive Vice 1995 $314,000 $186,000 $500,000 24,000 $171,211 $34,483
President 1994 $310,500 $163,000 $473,500 20,000 $ 0 $22,272
Perry R. Pero 1996 $336,250 XX XX 24,000 $697,567 $37,185
Senior Executive 1995 $325,000 $183,000 $508,000 22,000 $456,563 $51,941
Vice President 1994 $322,500 $163,000 $485,500 20,000 $ 0 $39,258
Sheila A. Penrose 1996 $322,500 XX XX 26,000 $ 0 $35,664
Executive Vice 1995 $300,000 $150,000 $450,000 24,000 $ 0 $47,945
President 1994 $237,500 $ 86,000 $323,500 16,000 $ 0 $28,911
</TABLE>
- --------------------------------------------------------------------------------
(1) Reflects amounts awarded under the 1996 Management Performance Plan for
Mr. Osborn, Mr. Hastings and Mr. Pero and amounts awarded under the 1996
Annual Performance Plan for Mr. Stevens and Ms. Penrose.
(2) The total number of restricted stock awards and their aggregate market
value as of December 31, 1996 were: Mr. Osborn, 50,000 shares valued at
$1,850,000; and Mr. Hastings, 50,000 shares valued at $1,850,000 based on
$37.00 per share, the mean of the high and low sale prices of the Common
Stock as reported by The Nasdaq Stock Market on December 31, 1996. The
restrictions on these stock awards, granted on January 3, 1994, lapse
beginning four years after the date of grant, and the stock becomes fully
vested nine years after the date of grant, subject to earlier vesting in the
event of a change in control of the Corporation, as defined in the Plan, or
earlier prorated vesting upon a participant's death, normal retirement or
disability, or as otherwise determined by the Compensation and Benefits
Committee. Dividends are paid on restricted stock awards, as adjusted by an
interest factor, and distributed to participants in accordance with the
vesting schedule described above.
(3) The respective values of the amounts shown for all named executive
officers were determined by multiplying the total number of shares awarded by
the mean of the high and low sale prices of the Common Stock as reported by
The Nasdaq Stock Market on the dates of distribution and adding dividend
equivalents and an assumed interest factor.
(4) The "All Other Compensation" category reflects contributions on behalf
of the named executive officers to the Thrift-Incentive Plan ("TIP") and
allocations on behalf of the named executive officers under The Northern
Trust Employee Stock Ownership Plan ("ESOP"), both of which are defined
contribution plans. For each of the following executive officers, the 1996
TIP and ESOP amounts (in that order) were: Mr. Osborn, $24,000 and $42,352;
Mr. Hastings, $19,000 and $33,529; Mr. Stevens, $13,880 and $24,494; Mr.
Pero, $13,450 and $23,735; and Ms. Penrose, $12,900 and $22,764. In the event
of a change in control of the Corporation, participants become fully vested
in all benefits payable under the ESOP and all benefits payable under the TIP
that are in excess of applicable Internal Revenue Code limits. For Mr.
Stevens, "All Other Compensation" in 1996 also includes a cash payment of
$55,000 which recognizes a variety of incremental expenses incurred in
connection with his relocation to Chicago that were not covered by the
Corporation's general relocation reimbursement program.
13
<PAGE>
EMPLOYMENT SECURITY AGREEMENTS
Messrs. Osborn, Hastings, Stevens and Pero and Ms. Penrose are parties to
employment security agreements that provide lump sum cash payments equivalent
to three years' salary and bonus (and payment of a pro rata bonus for the year
of termination, as well as continuation of medical, dental, life insurance and
similar benefits for three years) upon the termination of employment either by
the Corporation without good cause or by the executive with good reason, as
defined in the agreements, within two years after a change in control of the
Corporation, as defined in the agreements. The agreements also provide that the
Corporation will reimburse the executives for any excise tax imposed on
payments under the agreements as well as taxes imposed on such reimbursement
amounts.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to the stock
options granted during the last fiscal year to the executive officers named in
the Summary Compensation Table. Using 0%, 5% and 10% in assumed rates of stock
price appreciation (compounded annually) for the option term of ten years, the
table also shows the potential realizable pre-tax value of the stock options.
These assumed rates are used for illustrative purposes only, and are not
intended to represent or predict future increases in the price of the
Corporation's Common Stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
FOR OPTION TERM OF 10
INDIVIDUAL GRANTS YEARS (2)
-----------------------------------------------------------------------
PERCENT
NUMBER OF OF TOTAL 5% ($54.57
SECURITIES OPTIONS STOCK 10% ($86.89
UNDERLYING GRANTED TO PRICE STOCK PRICE
OPTIONS EMPLOYEES EXERCISE EXPIRATION AFTER AFTER
NAME GRANTED(1) IN FISCAL YEAR PRICE DATE 0% 10 YEARS) 10 YEARS)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William
A.
Osborn 60,000 4.56% $33.50 9/17/06 0 $1,264,200 $3,203,400
Barry G.
Hastings 44,000 3.34% $33.50 9/17/06 0 $ 927,080 $2,349,160
Mark
Stevens 26,000 1.97% $33.50 9/17/06 0 $ 547,820 $1,388,140
Perry R.
Pero 24,000 1.82% $33.50 9/17/06 0 $ 505,680 $1,281,360
Sheila
A.
Penrose 26,000 1.97% $33.50 9/17/06 0 $ 547,820 $1,388,140
</TABLE>
- --------------------------------------------------------------------------------
(1) All options to the named executive officers were granted on September
17, 1996 and first become exercisable on September 17, 1998. In the event of
a change in control of the Corporation, as defined in the 1992 Plan, all
outstanding stock options become fully vested and exercisable.
(2) No gain to the optionees is possible without an increase in the stock
price, which will benefit all stockholders commensurately. The pre-tax gain
to all stockholders, using as a base the $33.50 mean of the high and low
sale prices of the Common Stock as reported by The Nasdaq Stock Market on
September 17, 1996, would be $0 for 0% appreciation, approximately $2.3
billion for 5% appreciation and approximately $5.9 billion for 10%
appreciation.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares for which stock options
were exercised during 1996, the actual as well as annualized pre-tax value
realized, the number of shares for which options were outstanding and the pre-
tax value of those options as of year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(4)
ANNUALIZED ---------------------------- ----------------------------
SHARES ACQUIRED VALUE VALUE SINCE EXERCISABLE(3) UNEXERCISABLE EXERCISABLE(3) UNEXERCISABLE
NAME ON EXERCISE REALIZED(1) GRANT DATE(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William A. Osborn 15,000 $316,875 $33,437 144,750 110,000 $3,191,560 $885,000
Barry G. Hastings 0 $ 0 $ 0 155,576 84,000 $3,470,734 $694,000
Mark Stevens 18,000 $374,063 $38,976 121,000 50,000 $2,816,622 $415,000
Perry R. Pero 15,000 $332,345 $34,161 119,200 46,000 $2,629,885 $381,000
Sheila A. Penrose 0 $ 0 $ 0 58,000 50,000 $1,133,990 $415,000
</TABLE>
- --------------------------------------------------------------------------------
(1) Calculated on a pre-tax basis using the spread between the option
exercise price and the mean of the high and low sale prices of the Common
Stock as reported by The Nasdaq Stock Market on the date of exercise.
(2) Amount of pre-tax value realized annualized over period between the
date of grant and the date of exercise.
(3) Amounts represent options granted since 1987 to Messrs. Osborn,
Hastings, Stevens and Pero and since 1990 to Ms. Penrose.
(4) Calculated on a pre-tax basis using the spread between the option
excise price and $37.00, which was the mean of the high and low sale prices
of the Common Stock as reported by The Nasdaq Stock Market on December 31,
1996.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
The following table sets forth the performance share target awards made under
the 1992 Plan to the named executive officers during 1996 for the 1996-1998
Performance Period.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER PERIOD
OR OTHER UNTIL MATURATION
NAME RIGHTS(1) OR PAYOUT(2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
William A.
Osborn 30,000 shares 6 years
Barry G.
Hastings 20,000 shares 6 years
Mark Stevens 16,000 shares 6 years
Perry R. Pero
16,000 shares 6 years
Sheila A.
Penrose 16,000 shares 6 years
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Awarded by the Compensation and Benefits Committee with established
return-on-equity goals for the 1996-1998 performance period.
(2) Shares are subject to the achievement of performance goals over a
three-year performance period and a subsequent three-year vesting period.
Either 50% or 100% of the target shares awarded will be distributed if the
minimum or target performance goal, respectively, is met and the vesting
restrictions are satisfied; no shares will be distributed if the minimum
performance goal is not met. In the event of a change in control of the
Corporation, as defined in the 1992 Plan, all shares credited to
participants' accounts and related cash balances become immediately
distributable to participants; target award shares for performance periods
currently in progress will be credited on a pro-rata basis of actual full
months lapsed to plan period and will become distributable to participants.
See "Compensation and Benefits Committee Report--Performance Shares," above
for a further description of the terms of the 1992 Plan.
15
<PAGE>
PENSION PLAN TABLE
The table below sets forth the estimated annual benefits payable upon
retirement at age 65 under the Bank's Pension Plan (including amounts payable
under the Bank's Supplemental Pension Plan) to persons in the remuneration and
service classifications specified.
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT
AVERAGE COMPENSATION --------------------------------------------
IN 5 HIGHEST YEARS 15 20 25 30 35
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 250,000...................... $ 90,000 $120,000 $132,500 $145,000 $157,500
350,000...................... 126,000 168,000 185,500 203,000 220,500
450,000...................... 162,000 216,000 238,500 261,000 283,500
550,000...................... 198,000 264,000 291,500 319,000 346,500
650,000...................... 234,000 312,000 344,500 377,000 409,500
750,000...................... 270,000 360,000 397,500 435,000 472,500
850,000...................... 306,000 408,000 450,500 493,000 535,500
950,000...................... 342,000 456,000 503,500 551,000 598,500
1,050,000...................... 378,000 504,000 556,500 609,000 661,500
1,150,000...................... 414,000 552,000 609,500 667,000 724,500
1,250,000...................... 450,000 600,000 662,500 725,000 787,500
</TABLE>
Compensation covered by the Pension Plan includes salaries, before tax
deposits made by a participant to the Thrift-Incentive Plan, shift differential
pay, overtime pay and awards under the Management or Annual Performance Plan
(or predecessor plans), as applicable. The average covered compensation for the
highest five consecutive years is used in the pension calculation.
Credited years of service for individuals named in the Summary Compensation
Table are as follows: William A. Osborn-26 years, Barry G. Hastings-22 years,
Mark Stevens-17 years, Perry R. Pero-32 years, and Sheila A. Penrose-19 years.
The above pension payments, which are shown as if paid in the form of a
straight life annuity, will be reduced by .39% of the average Social Security
taxable wage base for the individual ("Social Security Covered Compensation
Offset"), which varies by year of birth, for each year of service up to 35
years. For participants hired after 1988 the percentage is .50%. In the event
of a change in control of the Corporation, as defined in the Supplemental
Pension Plan, participants become fully vested in all benefits payable under
the Supplemental Pension Plan.
The Bank's Pension Plan and Supplemental Pension Plan were amended to change
the formula used to calculate retirement benefits beginning January 1, 1996.
The new formula will generally result in lower retirement benefits, due
principally to a change to a uniform accrual rate (1.8% per year of credited
service), a cap on credited service (at 35 years), adoption of a uniform Social
Security Covered Compensation Offset (.50%) and the elimination of special
subsidies applicable to surviving spouse benefits and early retirement
benefits. However, all participants employed on December 31, 1995 will continue
accruing benefits under the prior Plans, as set forth in the Pension Plan table
above, through December 31, 2000. At termination or retirement they will be
entitled to receive the greater of the minimum benefit accrued through December
31, 2000 (or termination date if earlier) or the benefit calculated under the
new formula.
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation and Benefits Committee is an officer,
employee or former employee of the Corporation or any of its subsidiaries.
Members of the Committee, as well as members of their immediate families and
their associates, may have loans and other transactions with the Corporation
and its subsidiaries. All credit transactions were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with unrelated persons and did not involve
more than the normal risk of collectibility or present other unfavorable terms.
16
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG NORTHERN TRUST CORPORATION COMMON STOCK, S&P 500 INDEX AND
KEEFE, BRUYETTE & WOODS 50 BANK INDEX
(TOTAL RETURN ASSUMES $100 INVESTED ON
JANUARY 1, 1992 WITH REINVESTMENT OF DIVIDENDS)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Northern Trust S&P 500 KBW 50 Bank
-------------- ------- -----------
<S> <C> <C> <C>
1991 $100 $100 $100
1992 129 108 127
1993 123 118 134
1994 112 120 128
1995 183 165 204
1996 242 203 289
</TABLE>
For the five-year period ended December 31, 1996, the Corporation's total
return to stockholders was 142% compared with 103% for the S&P 500 Index and
189% for the KBW 50 Bank Index. During the same period, the Corporation's
Common Stock market capitalization increased $2,312,100,000 or 134% from
$1,720,600,000 to $4,032,700,000, reflecting both an increase in the stock
price and a greater number of shares outstanding. The Corporation's net income
increased in 1996 for the ninth consecutive year, from $163.4 million in 1991
to $258.8 million in 1996, or an increase of 58% from 1991 to 1996. In terms of
total return to stockholders for the fiscal year ended December 31, 1996 the
Corporation ranked 33rd out of the 50 banking institutions comprising the KBW
50 Bank Index.
17
<PAGE>
APPROVAL OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
At its meeting on February 18, 1997, the Corporation's Board of Directors
unanimously adopted, subject to stockholder approval, an amendment to the
Corporation's Restated Certificate of Incorporation (the "Restated Certificate
of Incorporation") to increase the number of shares of Common Stock, par value
$1.66 2/3 per share, authorized for issuance from 140,000,000 to 280,000,000
shares. If the amendment is approved by stockholders, the first sentence of
ARTICLE FOURTH of the Restated Certificate of Incorporation would be changed to
provide as follows (with the changed portion in italics):
"The total number of shares of all classes of capital stock which the
Corporation has the authority to issue is \\290,000,000\\ shares, which are
divided into two classes as follows:
10,000,000 shares of Preferred Stock (Preferred Stock) without par value,
and
\\280,000,000\\ shares of Common Stock (Common Stock), $1.66 2/3 par value
per share."
On November 19, 1996, the Board of Directors declared a two-for-one stock
split which was paid to stockholders on December 9, 1996. Payment of the stock
split required shares of Common Stock which significantly reduced the
number of authorized shares available for future issuance. As of February 18,
1997, there were shares of Common Stock issued and
outstanding, and shares issued and held by the Corporation as
treasury stock. An additional shares were reserved for
issuance under the Corporation's incentive stock and employee benefit plans or
upon exercise of options issued under incentive stock plans. As a result, as of
February 18, 1997, a total of authorized shares of Common Stock
remain available for future issuance. Adoption of the proposed amendment would
increase the number of authorized shares of Common Stock available for future
issuance to shares. The additional shares of Common Stock for which
authorization is sought would, if and when issued, have the same rights and
privileges as the presently outstanding shares of Common Stock, including the
right to vote cumulatively in the election of directors.
The purpose of increasing the number of authorized shares of Common Stock is
to provide additional authorized shares of Common Stock which may be issued for
such corporate purposes as the Board of Directors may determine in its
discretion, including, without limitation, stock splits, stock dividends or
other distributions, future financings, acquisitions and incentive stock and
employee benefit plans. The increase in the number of shares of Common Stock
authorized for issuance would enable the Corporation, as the need may arise, to
take timely advantage of market conditions and the availability of favorable
opportunities without the delay and expense associated with the holding of a
special meeting of its stockholders. Upon adoption of the amendment, the Board
of Directors would be authorized to issue additional shares of Common Stock at
such time or times, to such persons and for such consideration as it may
determine, except as may otherwise be required by law. Holders of the
Corporation's Common Stock do not have preemptive rights to subscribe for or
purchase any part of any new or additional issue of Common Stock or securities
convertible into Common Stock. Although the Corporation anticipates that it may
issue shares of Common Stock for one or more of the foregoing purposes, the
Corporation has no existing plans, understandings or agreements for the
issuance of any additional shares of Common Stock (other than the shares under
its incentive stock and employee benefit plans).
Except as required by law or as a condition to continued inclusion in the
Nasdaq National Market System, or listing on any stock exchange on which the
Corporation's Common Stock may in the future be listed, it is unlikely that
further authorization by vote of stockholders would be sought for any issuance
of the shares of Common Stock. Nasdaq rules currently require stockholder
approval as a condition of continued eligibility for designation as a National
Market System security in several instances, including issuances of shares in
acquisition transactions where the number of shares of outstanding Common Stock
could increase by 20% or more.
18
<PAGE>
Although the decision of the Board of Directors to propose an amendment
increasing the number of shares of Common Stock authorized for issuance did not
result from any effort by any person to accumulate the Corporation's stock or
effect a change in control of the Corporation, one result of an increase may be
to help the Board discourage or render more difficult a change in control. The
additional shares could be used under certain circumstances to dilute the
voting power of, create voting impediments for or otherwise frustrate the
efforts of persons seeking to effect a takeover or gain control of the
Corporation, whether or not the change of control is favored by a majority of
unaffiliated stockholders. For example, such shares could be privately placed
with purchasers who might side with the Board in opposing a hostile takeover
bid. The issuance of any additional shares of Common Stock could also have the
effect of diluting the equity of existing holders and the earnings per share of
existing shares of stock.
The Corporation has a Preferred Stock Purchase Rights Plan that provides
stockholders the right to purchase shares of Common Stock of the Corporation
(or of an acquiring company) at half the market price in certain circumstances
involving a potential change in control of the Corporation unless the Rights
are earlier redeemed by the Corporation as directed by the Board. The Rights
Plan is intended as a means to protect the value of the stockholders'
investment in the Corporation, while preserving the possibility of a fair
acquisition bid. In addition, the Delaware General Corporation Law provides,
among other things, that any beneficial owner of more than 15% of the
Corporation's voting stock is prohibited, without the prior approval of the
Board, from entering into any business combination with the Corporation for
three years from the date the 15% ownership interest is acquired. The
Corporation's Restated Certificate of Incorporation and By-Laws do not
presently contain provisions that the Board of Directors considers to have an
anti-takeover effect, and the Board has no present intention of proposing such
measures in the future.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock, whether or not present or voting at the annual meeting, is
required to approve the amendment to the Restated Certificate of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF SHARES OF AUTHORIZED COMMON STOCK.
19
<PAGE>
APPROVAL OF AMENDMENTS TO THE NORTHERN TRUST
CORPORATION AMENDED 1992 INCENTIVE STOCK PLAN
GENERAL
The Northern Trust Corporation Amended 1992 Incentive Stock Plan (the "1992
Plan") is a stock-based compensation plan providing for the grant of
nonqualified stock options, incentive stock options, stock appreciation rights,
restricted stock, performance shares and other stock-based awards to key
officers of the Corporation and its subsidiaries. The purpose of the 1992 Plan
is to provide a sense of recognition and managerial participation among key
officers by providing them with opportunities to acquire shares of Common Stock
and awards that increase in value with an increase in the market value of
shares of Common Stock, thereby linking the interests of these officers with
the interests of stockholders.
The 1992 Plan was most recently amended and approved by the stockholders of
the Corporation at the 1995 annual meeting of stockholders. At its meeting on
February 18, 1997, the Board of Directors of the Corporation unanimously
adopted, on the recommendation of the Compensation and Benefits Committee (the
"Committee") certain amendments to the 1992 Plan, including the following
amendments (the "Amendments") which were adopted subject to shareholder
approval: (a) an increase in the aggregate number of shares of Common Stock
issued or issuable under the 1992 Plan by 8,500,000 shares and a corresponding
increase in the aggregate number of shares of Common Stock issued or issuable
under the 1992 Plan as incentive stock options by 8,500,000 shares; (b) the
inclusion of the "material terms of the performance goals" applicable to
performance shares granted to selected executive officers under the 1992 Plan
and the setting of a maximum number of performance shares that may be granted
to any individual participant in the 1992 Plan, in each case to ensure that
such performance shares will qualify as "performance-based" compensation under
Section 162(m) of the Code and thus be fully deductible by the Corporation for
federal income tax purposes; (c) an increase in the maximum number of shares
available for awards of stock options and stock appreciation rights to any
individual participant in the 1992 Plan for purposes of compliance with Section
162(m); and (d) the addition of non-employee Directors of the Corporation as
eligible participants in the 1992 Plan. No other changes to the 1992 Plan are
proposed. If the Amendments are not approved by stockholders, the Corporation
intends to continue the 1992 Plan in its current form (subject to the ability
of the Board of Directors to make certain future amendments permitted under the
Plan without stockholder approval), although the number of shares available
under the 1992 Plan will be quite limited, as described below. A copy of the
1992 Plan, as proposed to be amended by the Amendments is set forth as Exhibit
A to this Proxy Statement. The following description is qualified in its
entirety by reference to the full text of the 1992 Plan.
DESCRIPTION OF THE 1992 PLAN
The 1992 Plan is administered by the Committee, which is comprised solely of
non-employee directors each of whom qualifies as (i) an "outside director"
under Section 162(m), and (ii) a non-employee director under Rule 16b-3 of the
Securities Exchange Act of 1934. The Committee determines the key officers of
the Corporation and its subsidiaries who participate in the 1992 Plan based
upon their contributions and value to the Corporation. The Committee also
determines the number and types of benefits to be granted under the 1992 Plan
and the terms and conditions of such benefits. The determination of awards
under the 1992 Plan is made on a year-to-year basis by the Committee. No
separate determination of eligibility for awards under the 1992 Plan is made by
the Committee from among the Corporation's approximately 2,200 officers. In
1996, 223 persons received awards under the 1992 Plan.
The types of awards available under the 1992 Plan are as follows:
Stock Options. The 1992 Plan provides for the grant of nonqualified stock
options and incentive stock options. The prices at which, and the periods
during which, options may be exercised are fixed by the Committee, but in no
case may be the price be less than 100% of the fair market value of the shares
on
20
<PAGE>
the date of the grant. On March 1, 1997, the mean of the high and low sales
prices of the Common Stock, as reported by The Nasdaq Stock Market, was
$ per share. Options are exercisable not earlier than six months after
the date of grant and are nontransferable except by will, the laws of descent
and distribution and, in the case of nonqualified stock options, by an
optionee's assignment during his or her life to (i) the optionee's spouse or
lineal descendants, (ii) a trustee of a trust for the primary benefit of the
optionee's spouse or lineal descendants, or (iii) a partnership of which the
optionee's spouse and lineal descendants are the only partners. In addition,
options may become exercisable upon a "change in control" of the Corporation,
as defined in the 1992 Plan. Upon exercise of an option, payment of the
purchase price must be made in full, in cash or shares of Common Stock or a
combination thereof, as provided in the option agreement.
Stock Appreciation Rights. Stock appreciation rights may be granted with
respect to options granted under the 1992 Plan. Each right will permit the
holder to receive, in lieu of exercising the related option, up to 100% of the
difference between the market price of the option shares on the date of
exercise of the right and the aggregate option price thereof. Stock
appreciation rights will be exercisable only if and to the extent that the
related options are exercisable. Upon exercise, stock appreciation rights will
be paid in cash or shares of Common Stock (based upon their fair market value
on the date of exercise) or a combination thereof, as set forth in the right.
Stock Awards. Stock awards may be granted to participants in the 1992 Plan,
consisting of shares of Common Stock transferred to participants for
consideration at or less than the fair market value thereof as the Committee
deems appropriate, or as a bonus for services rendered and without further
consideration. Such awards will be subject to terms and conditions determined
by the Committee, which may include restrictions on transferability, rights of
the Corporation to reacquire the shares upon termination of the participant's
employment and forfeiture of the shares under certain circumstances prescribed
by the Committee.
Performance Shares. Performance shares may be granted to participants in the
1992 Plan subject to terms and conditions determined by the Committee, which
may include restrictions on transferability, rights of the Corporation to
reacquire the shares upon termination of the participant's employment,
requirements of meeting specified performance goals or other stated
circumstances which might reflect certain corporate earnings achievements. A
participant may be entitled to have a portion of the awarded Common Stock
credited to an account maintained for the participant if established
performance goals are achieved for one or more of the "performance periods"
designated for the participant. After stock has been credited to an account and
until it is distributed, the account will also be credited with amounts equal
to dividends payable with respect to the number of shares credited to the
account. Each participant's account will be distributed, provided the
participant is employed by the Corporation or a subsidiary upon the first to
occur of death, retirement, disability, or change in control of the
Corporation, or on the third anniversary date on which an award was credited to
the account, or at the Committee's discretion. As described below, the
performance share provisions of the 1992 Plan are proposed to be amended to
ensure compliance with Section 162(m) of the Code.
Stock Equivalents. Stock equivalents may be granted entitling the holders
thereof to receive a payment in an amount equal to the fair market value or
book value of a designated number of shares of Common Stock on a specified date
or dates (which may be the date of the award) or the increase in the fair
market value or book value of a designated number of shares of Common Stock
during a specified period of time. Such payment will be made in cash or shares
of Common Stock, as provided in the award, at the date or dates, not later than
ten years after the date of the award, set forth in the award. Stock
equivalents may also provide for the payment to the recipients of "dividend
equivalents" on the shares designated in an award and will be subject to such
other terms and conditions as the Committee determines, which may include the
requirement of achievement of specified performance goals.
Plan Benefits. Information relating to awards made in 1996 under the 1992
Plan to the executive officers named in the Summary Compensation Table is
presented in the various tables under the caption "Executive Compensation." In
addition, in 1996, 259,000 options at an exercise price of
21
<PAGE>
$33.50, and 172,000 performance shares (valued at $4,611,750 based on the mean
of the high and low sales prices of the Common Stock on the date of grant),
were granted to all executive officers as a group, and 1,056,700 options at
exercise prices of $26.78 to $33.50, and 241,444 performance shares (valued at
$6,473,717 based on the mean of the high and low sales prices of the Common
Stock on the date of grant), were granted to all non-executive officer
employees as a group. Awards to be made in 1997 under the 1992 Plan are not yet
determinable, except for the following grants of performance shares for the
1997 through 1999 performance period approved by the Committee at its February
18, 1997 meeting. As to the executive officers named below, these grants are
contingent upon stockholder approval of the Amendments to the 1992 Plan.
<TABLE>
<CAPTION>
NUMBER OF DOLLAR VALUE
NAME AND POSITION PERFORMANCE SHARES ON DATE OF GRANT
----------------- ------------------ ----------------
<S> <C> <C>
William A. Osborn $
Chairman and Chief Executive Officer
Barry G. Hastings $
President and Chief Operating Officer
Mark Stevens $
Executive Vice President
Perry R. Pero $
Senior Executive Vice President
Sheila A. Penrose $
Executive Vice President
All Executive Officers as a Group $
All Non-Executive Officer Employees $
as a Group
</TABLE>
AMENDMENT INCREASING THE NUMBER OF SHARES UNDER THE 1992 PLAN
As of February 18, 1997, of the 7,500,000 shares issued or issuable
under the 1992 Plan remained available for issuance under the Plan, of which
shares were subject to outstanding options or awards (including
performance shares). Thus, at that date shares remained available for
the grant of options or awards in the future. The Amendment would increase the
number of shares of Common Stock issued or issuable under the 1992 Plan by
8,500,000 shares from 7,500,000 shares to 16,000,000 shares. The Amendment
would also increase the number of shares of Common Stock issued or issuable
under the 1992 Plan as incentive stock options by 8,500,000 shares from
7,500,000 shares to 16,000,000 shares. Available shares may consist in whole or
in part of authorized and unissued shares or shares issued but held in the
treasury of the Corporation. Shares representing the unexercised portion of any
lapsed or cancelled awards, or forfeited awards, also become available for
future use under the 1992 Plan. The Board believes that the 1992 Plan has
served its purpose well and that the proposed increase in shares issued or
issuable under the Plan will continue to enhance the Corporation's ability to
attract and retain key officers by providing them with long-term financial
incentives.
AMENDMENT RELATING TO PERFORMANCE SHARES
As described above under "Executive Compensation--Compensation and Benefits
Committee Report," Section 162(m) and the regulations adopted thereunder
generally preclude a publicly traded company from taking a tax deduction for
compensation in excess of $1 million paid to the company's chief executive
officer or any of the company's four next highest paid executive officers,
subject to several exceptions, including an exception for "performance-based"
compensation that meets the following requirements: (a) the compensation must
be payable solely on account of the attainment of one or more pre-established
performance goals, (b) the performance goals must be established by a
compensation committee comprised solely of two or more outside directors, (c)
the "material terms of the performance goals" must be disclosed to and approved
by stockholders before any compensation is paid, and (d) the compensation
committee must certify in writing that the performance goals have been
satisfied before any compensation is paid.
22
<PAGE>
In approving the Amendments to the 1992 Plan, stockholders are being asked to
approve the "material terms of the performance goals" applicable to performance
shares, the setting of a maximum number of performance shares that may be
granted to any individual participant in the 1992 Plan, and certain conforming
changes to the performance share provisions of the 1992 Plan to ensure that
such performance shares will qualify as "performance-based" compensation under
Section 162(m) of the Code and thus be fully deductible by the Corporation for
federal income taxes purposes. If the Amendment is approved by stockholders, it
will be effective for performance shares granted during the remaining five-year
term of the 1992 Plan. If the Amendment is not approved by stockholders, no
performance shares will be granted to selected executive officers of the
Corporation, as described below. Other officers of the Corporation and its
subsidiaries will, in any event, continue to be eligible for grants of
performance shares under the 1992 Plan.
Within the first 90 days of each fiscal year, the Committee will grant
performance shares to selected executive officers subject to a performance
period and a subsequent vesting period. At such time the Committee also will
establish a range of performance targets based upon one or more of the
following corporate performance goals: (i) return-on-equity, (ii) earnings per
share and (iii) stock price. Corporate performance goals may be absolute in
their terms or measured against or in relationship to the performance of other
companies or indices selected by the Committee. In addition, corporate
performance goals may be adjusted for any events or occurrences (including
extraordinary charges, losses from discontinued operations, restatements and
accounting charges and other unplanned special charges such as restructuring
expenses, acquisition expenses and strategic loan loss provisions) as may be
determined by the Committee. Corporate performance goals may be particular to
one or more business units, lines of business or subsidiaries or may be based
on the performance of the Corporation as a whole. The corporate performance
goals and the performance targets established thereunder by the Committee may
be identical for all selected executive officers for a given performance period
or, at the discretion of the Committee, may differ among such participants.
Achievement of the applicable performance targets will determine whether and
the extent to which the performance shares will be credited to (or earned) by
the participants. Performance targets may include minimum, target and maximum
levels of performance, with the number of performance shares credited to a
participant based on the level of performance achieved. In all cases, no
performance shares will be credited to a participant for failure to achieve a
minimum performance target. The Amendment also changes the current provisions
of the 1992 Plan relating to performance shares to eliminate the Committee's
discretion to increase or decrease corporate performance goals during a
performance period.
Performance shares under the 1992 Plan will be credited to participants
following certification by the Committee that the applicable performance
targets have been met. Performance shares will be distributed to participants
upon satisfaction of the applicable vesting period following the performance
period. To date, all performance shares granted under the 1992 Plan have been
subject to the achievement of average return-on-equity performance targets over
a three-year performance period and the satisfaction of a subsequent three-year
vesting period. The number of performance shares, if any, which may be credited
and distributed under the 1992 Plan in the future cannot presently be
determined, except as described above for the 1997 through 1999 performance
period. Since Section 162(m) requires a stated maximum amount of compensation
that may be paid to a participant during a performance period, the Committee
has determined that the maximum number of performance shares to be granted to
any individual participant, including the Chief Executive Officer, in any year
after 1997 (and thus the maximum number of performance shares potentially to be
credited and distributed to any individual participant with respect to any
performance period beginning after 1997) will not exceed 75,000 performance
shares, subject to adjustment as provided in the 1992 Plan. This maximum number
of performance shares is intended to function as a limitation, and does not
represent a target award for any participant. For 1997, performance shares
granted for the 1997 through 1999 performance period are set forth in the table
above under "Description of the 1992 Plan--Plan Benefits." Assuming stockholder
approval of the Amendments to the 1992 Plan, the actual crediting of
performance shares granted for the 1997 through 1999 performance period will be
based upon the achievement of return-on-equity corporate performance goals
established by the Committee, and will not exceed the number of shares shown in
the table.
23
<PAGE>
AMENDMENT RELATING TO STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Board of Directors has determined that it is desirable, to the extent
possible, to assure full deductibility of stock options and stock appreciation
rights granted under the 1992 Plan. The regulations issued under Section 162(m)
of the Code require that a plan include a per-participant limitation on the
number of shares for which stock options or stock appreciation rights may be
granted during a specified period in order for compensation attributable
thereunder to qualify as "performance-based" compensation. To satisfy this
requirement, the 1992 Plan currently provides that a participant in the 1992
Plan shall be entitled to receive a maximum of 600,000 shares of Common Stock
subject to stock options and stock appreciation rights during the term of the
1992 Plan (including awards already made under the 1992 Plan and subject to
adjustment as provided in the 1992 Plan). The Amendment would increase the
maximum number from 600,000 to 1,200,000 shares, subject to adjustment as
provided in the 1992 Plan, in light of the proposed increase in the aggregate
number of shares issued or issuable under the 1992 Plan.
AMENDMENT RELATING TO DIRECTOR ELIGIBILITY
Participation in the 1992 Plan is currently limited to key officers of the
Corporation and its subsidiaries. The Amendment would allow non-employee
Directors to participate in the 1992 Plan on the same terms available to other
participants. The only stock-based compensation currently available to non-
employee Directors is the Northern Trust Corporation 1997 Stock Plan for Non-
Employee Directors which, as described above, provides for a three-year program
of annual stock grants but does not provide for the grant of stock options,
performance shares, stock appreciation rights or any of the other various types
of stock-based awards under the 1992 Plan. The Board of Directors believes that
non-employee Director participation in the 1992 Plan would significantly
increase the Corporation's flexibility with respect to Director compensation
and further promote the alignment of the interests of Directors with the
interests of stockholders. The Corporation has no current plans to make any
awards under the 1992 Plan to non-employee Directors.
FEDERAL INCOME TAX CONSEQUENCES
Nonqualified Stock Options. Tax aspects of nonqualified stock options granted
under the 1992 Plan generally are as follows: (a) no income will be realized by
the optionee at the time the option is granted, (b) at exercise, ordinary
income will be realized by the optionee in an amount equal to the difference
between the option price and the fair market value of the shares on the date of
exercise, and the Corporation will receive a tax deduction for the same amount,
and (c) upon sale of such shares, any gain or loss realized is treated as
either short-term or long-term capital gain or loss depending on whether the
shares have been held more than one year.
Incentive Stock Options. Stock options granted under the 1992 Plan may
qualify as incentive stock options if the exercise price is not less than 100%
of the fair market value of the shares on the date of the grant and such
options may not be exercised later than three months after termination of
employment for any reason other than death or disability and not later than one
year after termination for disability. Incentive stock options also may not be
exercisable later than 10 years after the date of grant. If shares are issued
to an optionee pursuant to an incentive stock option, and if no disqualifying
disposition of such shares is made by such optionee within one year after the
transfer of such shares to such optionee or within two years after the date of
grant, (a) no income will be realized by the optionee at the time of the grant
of option, (b) no income, for federal income tax purposes, will be realized by
the optionee at the date of exercise, (c) upon sale of such shares, any amount
realized in excess of the option price will be taxed to the optionee, for
federal income tax purposes, as a long-term capital gain and any loss sustained
will be a long-term capital loss, and (d) no deduction will be allowed to the
Corporation for federal income tax purposes. Upon exercise of an incentive
stock option the optionee may be subject to alternative minimum tax on certain
items of tax preference.
24
<PAGE>
Stock Appreciation Rights. At the date of granting of stock appreciation
rights, the recipient will not be deemed to receive income, and the Corporation
will not be entitled to a deduction. Upon exercise, the holder of a stock
appreciation right will realize ordinary income equal to the amount of cash or
the market value of the shares received on exercise. The Corporation will be
entitled to a deduction with respect to the ordinary income realized by the
exercising holder.
Stock Awards and Performance Shares. Ordinary income will be realized by a
recipient of a stock award or performance shares upon becoming entitled to
transfer the shares at the end of the restriction period, if any, without
forfeiture. The amount of income realized will be equal to the fair market
value of the shares on the first day after the end of the restriction period.
Such amount will also constitute the tax basis for the shares. In addition, the
holding period commences on the day following the day the restriction expires
for purposes of determining whether the recipient has long-term or short-term
capital gain or loss on a subsequent sale of shares. The Corporation will be
entitled to a deduction with respect to the ordinary income realized by the
recipient.
A recipient of a stock award who makes an election under Section 83(b) of the
Code within 30 days after the date of the grant will have ordinary income equal
to the fair market value on the date of grant, and will recognize no additional
income until the shares are subsequently sold. If the shares subject to such
election are forfeited, the recipient will not be entitled to any deduction,
refund, or loss for tax purposes, and the Corporation will have to include the
amount that it previously deducted from its gross income in the taxable year of
the forfeiture. Upon sale of the shares after the forfeiture period has
expired, the tax basis will be equal to the fair market value on the date of
the grant and the holding period for capital gains purposes commences on the
day following the day the restriction expires.
Stock Equivalents. Stock equivalents will not result in taxable income to a
recipient or provide a deduction to the Corporation until a payment is made to
a participant. Upon such a payment, the recipient will realize ordinary income
measured by the amount so paid and a corresponding amount will ordinarily be
deductible by the Corporation.
VOTE REQUIRED FOR APPROVAL
Approval of the Amendments to the 1992 Plan requires the affirmative vote of
the holders of a majority of the shares of the Common Stock present in person
or represented by proxy and entitled to vote at the annual meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE NORTHERN TRUST CORPORATION AMENDED 1992 INCENTIVE STOCK PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP were the Corporation's independent public accountants
during 1996. The appointment of auditors is approved annually by the Board of
Directors. The decision of the Board of Directors is based on the
recommendation of the Audit Committee. In making its recommendation, the Audit
Committee reviews both the audit scope and estimated fees for professional
services for the coming year. For the year 1997, the Board of Directors has
authorized the engagement of Arthur Andersen LLP as its auditors.
Representatives of Arthur Andersen LLP will be present at the annual meeting
of stockholders on April 15, 1997, and will be given an opportunity to make any
comments they wish and will be available to respond to any questions raised at
the meeting.
25
<PAGE>
STOCKHOLDERS' PROPOSALS
Any stockholder proposal intended to be presented at the annual meeting in
1998 must be received by the Corporation on or before November 11, 1997, for
inclusion in the Corporation's Proxy Statement and form of proxy relating to
that meeting.
GENERAL
The cost of soliciting proxies will be borne by the Corporation. In addition
to solicitation by mail, officers and regular employees of the Corporation,
without receiving additional compensation therefor, may solicit proxies by
telephone or telegraph or in person. Kissel-Blake Inc. has been retained to
aid in the solicitation of proxies for a fee of $ , plus out-of-pocket
expenses.
As of the date of this Proxy Statement, the Board of Directors knows of no
matters to be brought before the meeting other than the election of Directors,
the amendment to the Restated Certificate of Incorporation, and the amendments
to the Northern Trust Corporation Amended 1992 Incentive Stock Plan. If,
however, further business is presented by others, the proxy holders will act
in accordance with their best judgment.
By order of the Board of Directors.
PETER L. ROSSITER
Secretary
March 10, 1997
26
<PAGE>
EXHIBIT A
NORTHERN TRUST CORPORATION
AMENDED 1992 INCENTIVE STOCK PLAN
[ADDITIONS TO BE EFFECTED BY THE PROPOSED AMENDMENTS ARE UNDERLINED, AND
------------------------------------------------------------------------
DELETIONS ARE STRICKEN.]
------------------------
1. PURPOSE. The Northern Trust Corporation Amended 1992 Incentive Stock Plan
(the "Plan") is intended to provide a sense of recognition and managerial
participation among key officers of Northern Trust Corporation (the
"Corporation") and its subsidiaries, by providing them with opportunities
to acquire shares of Common Stock of the Corporation ("Common Stock") and
cash payments based on the value or increase in the value of such shares as
described herein, and to allow the Corporation to compensate directors
----------------------------------------------------
under the Plan for their services in a manner that aligns their interests
-------------------------------------------------------------------------
with those of stockholders. Benefits granted under the Plan are referred to
---------------------------
as "Awards."
2. ADMINISTRATION. The Plan will be administered by the Compensation and
Benefits Committee (the "Committee") of the Board of Directors of the
Corporation. The Committee shall consist of at least two (2) of such
Directors as the Board may designate from time to time. Notwithstanding
anything to the contrary contained herein, membership of the Committee
shall be limited to Board members who meet the "non-employee director"
definition in Rule 16b-3 under Section 16 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the "outside director"
definition under Section 162(m) of the Internal Revenue Code (the "Code")
and the regulations thereunder.
3. PARTICIPANTS. Participants will consist of (a) directors of the
--------------------
Corporation, and (b) key officers of the Corporation or its subsidiaries
--------------------
as the Committee in its sole discretion determines to be mainly
responsible for the success and future growth and profitability of the
Corporation and whom the Committee may designate from time to time to
receive Awards under the Plan. Awards may be granted to participants who
are or were previously participants under this or other plans of the
Corporation or any subsidiary and, with the agreement of the participant,
may be granted in substitution, exchange or cancellation of any rights or
benefits then or theretofore held under this or other plans of the
Corporation or any subsidiary. The Corporation may continue to award
bonuses and other compensation to participants under other programs now in
existence or hereafter established.
4. TYPES OF AWARDS. Awards under the Plan may be granted in any one or a
combination of (a) Stock Options, (b) Stock Appreciation Rights, (c)
Performance Shares, (d) Stock Awards, and (e) Stock Equivalents, all as
described below.
5. SHARES ISSUABLE UNDER THE PLAN. An aggregate of *7,500,000* 16,000,000
----------
shares of Common Stock, $l.66 2/3 par value per share, consisting of
authorized but unissued shares or treasury shares, may be issued under the
Plan from and after the date of its initial adoption. Such total number of
shares shall be adjusted in accordance with the provisions of Section 11
hereof, and a share subject to a Stock Option and its related Stock
Appreciation Right shall only be counted once. The maximum number of
shares of Common Stock as to which a participant may receive Stock Options
and Stock Appreciation Rights during the term of the Plan is 1,200,000
---------
*600,000*, as such number may be adjusted in accordance with the provisions
of Section 11 hereof. The maximum number of Performance Shares that may be
----------------------------------------------------
granted to any participant in any year after 1997 is 75,000, as such
--------------------------------------------------------------------
number may be adjusted in accordance with the provisions of Section 11
----------------------------------------------------------------------
hereof. Any shares subject to Stock Options or Stock Appreciation Rights,
-------
issued as Performance Shares or Stock Awards or allotted as Stock
Equivalents may thereafter be subject to new Stock Options or Stock
Appreciation Rights, issued as Performance Shares or Stock Awards or
allotted as Stock Equivalents under this Plan if there is a lapse,
cancellation, forfeiture, surrender, expiration or termination of any such
Stock Options, Stock Appreciation Rights, Performance Shares, Stock Awards
or Stock Equivalents, or if shares are issued under such Stock Options or
Stock Appreciation Rights or as such Performance Shares, Stock Awards or
Stock Equivalents, and thereafter are reacquired by the Corporation
pursuant to rights reserved by the Corporation upon issuance thereof.
<PAGE>
6. STOCK OPTIONS. The Committee may, in its discretion, grant Stock Options
under the Plan to any participant hereunder. Each Stock Option granted
hereunder shall be subject to such terms and conditions as the Committee may
determine at the time of grant, the general provisions of the Plan, the
terms and conditions of the applicable Stock Option Agreement, and the
following specific rules:
(a) Stock Options granted to a participant under the Plan shall be governed
by a Stock Option Agreement, which shall specify such terms and
conditions, not inconsistent with the terms and conditions of the Plan,
as the Committee shall determine.
(b) Except as provided in subsection (d) below, Stock Options will consist
of options to purchase Common Stock at purchase prices not less than
100% of the fair market value thereof on the date the Stock Options are
granted.
(c) Stock Options will be exercisable not earlier than six months after the
date they are granted and will terminate not later than three years
after termination of employment for any reason other than death.
Notwithstanding the preceding sentence, Stock Options granted on or
after April 18, 1995, which are not Incentive Stock Options, will
terminate not later than five years from the date of the participant's
termination of employment on account of retirement, disability or death
(but in no event beyond the expiration of ten years from the date of
grant).
(d) Stock Options may, but need not, be "Incentive Stock Options" under
Section 422 of the Code; provided, however, that (i) the exercise price
of each Incentive Stock Option shall be at least 100% of the fair
market value of the Common Stock subject to such Incentive Stock Option
on the date of grant; (ii) Incentive Stock Options will be exercisable
not later than ten years after the date of grant; and (iii) in the case
of an Incentive Stock Option granted to a participant who, at the time
of grant, owns (as defined in Section 425(d) of the Code) stock of the
Corporation or its subsidiaries possessing more than 10% of the total
combined voting power of all classes of stock of any such corporation,
the exercise price shall be at least 110% of the fair market value of
the Common Stock subject to the Incentive Stock Option at the time it
is granted and the Incentive Stock Option, by its terms, shall not be
exercisable after the expiration of five (5) years from the date of its
grant. The aggregate fair market value (determined with respect to each
Incentive Stock Option as of the time such Incentive Stock Option is
granted) of the shares of capital stock with respect to which Incentive
Stock Options are exercisable for the first time by a participant
during any calendar year (under all Incentive Stock Option plans of the
Corporation and subsidiary corporations) shall not exceed $100,000.
(e) Leaves of absence for military service or illness, and transfers of
employment between the Corporation and any subsidiary thereof or
between subsidiaries, shall not constitute termination of employment.
(f) Stock Options may provide that they may be exercised by payment of the
purchase price (i) in cash, (ii) by the Corporation's withholding a
portion of the shares of Common Stock otherwise distributable to the
participant, and/or (iii) by the participant's delivering to the
Corporation shares of Common Stock of the Corporation. In the event
that the exercise price of a Stock Option is paid in whole or in part
by the withholding or delivery of shares of Common Stock pursuant to
clause (ii) or (iii) above, the number of shares so withheld or
delivered shall be the number of shares having an aggregate fair market
value on the date of such withholding or delivery equal to such Stock
Option exercise price, or portion thereof, so paid.
(g) Notwithstanding any other provision of the Plan to the contrary, a
Stock Option Agreement may provide that a Stock Option will become
exercisable as of the date of a Change in Control of the Corporation.
For purposes of the Plan, a "Change in Control" of the Corporation
shall be deemed to occur on the earliest of:
(i) The receipt by the Corporation of a Schedule 13D or other statement
filed under Section 13(d) of 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 Corporation entitled to
vote for the election of directors ("voting stock");
A-2
<PAGE>
(ii) The commencement by an entity, person, or group (other than the
Corporation or a subsidiary of the Corporation) of a tender offer
or an exchange offer for more than 20% of the outstanding voting
stock of the Corporation;
(iii) The effective time of (1) a merger or consolidation of the
Corporation with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Corporation immediately prior to such merger or consolidation
hold less than 60% of the voting stock of the surviving or
resulting corporation, or (2) a transfer of substantially all of
the property of the Corporation other than to an entity of which
the Corporation owns at least 80% of the voting stock; or
(iv) The election to the Board of Directors of the Corporation, without
the recommendation or approval of the incumbent Board of Directors
of the Corporation, of the lesser of (1) three directors or (2)
directors constituting a majority of the number of directors of
the Corporation then in office.
(h) The Committee may prescribe such other terms and conditions applicable
to Stock Options granted to a participant under the Plan that are
neither inconsistent with nor prohibited by the Plan or any Stock
Option Agreement.
7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant a
Stock Appreciation Right under the Plan to the holder of any Stock Option
granted hereunder. Each Stock Appreciation Right granted hereunder shall be
subject to such terms and conditions as the Committee may determine at the
time of grant, the general provisions of the Plan, the terms and conditions
of the applicable Stock Appreciation Right Agreement, and the following
specific rules:
(a) Stock Appreciation Rights granted to a participant under the Plan shall
be governed by a Stock Appreciation Right Agreement, which shall
specify such terms and conditions, not inconsistent with the terms and
conditions of the Plan, as the Committee shall determine.
(b) A Stock Appreciation Right may be granted in connection with a Stock
Option at the time of the grant of the Stock Option or at any time
thereafter up to six months prior to the expiration of the Stock
Option.
(c) Each Stock Appreciation Right will entitle the holder to elect to
receive, in lieu of exercising the Stock Option to which it relates, an
amount (payable in cash or in shares of Common Stock of the
Corporation, or a combination thereof, determined by the Committee and
set forth in the related Stock Appreciation Right Agreement) of up to
100% (or such lesser percentage as determined by the Committee and set
forth in the related Stock Appreciation Right Agreement) of the excess
of (i) the fair market value per share of Common Stock on the date of
exercise of such Stock Appreciation Right, multiplied by the number of
shares of the Common Stock with respect to which the Stock Appreciation
Right is being exercised, over (ii) the aggregate exercise price under
the terms of the related Stock Option for such number of shares.
(d) Each Stock Appreciation Right will be exercisable at the time and to
the extent that the Stock Option to which it relates is exercisable,
provided that no Stock Appreciation Right shall be exercisable during
the first six months following the date of its grant.
(e) Upon exercise of a Stock Appreciation Right, the Stock Option (or
portion thereof) with respect to which such Stock Appreciation Right is
exercised and any other Stock Appreciation Rights with respect to such
Stock Option (or portion thereof) shall be surrendered to the
Corporation and shall not thereafter be exercisable.
(f) Exercise of a Stock Appreciation Right will reduce the number of shares
of Common Stock purchasable pursuant to the related Stock Option and
available under the Plan to the extent of the total number of shares of
Common Stock with respect to which the Stock Appreciation Right is
exercised.
A-3
<PAGE>
(g) The Committee may, in its discretion, grant Limited Stock Appreciation
Rights, which shall be exercisable only for cash automatically upon a
Change in Control of the Corporation (as defined in Section 6(g)).
Except as provided in this subsection (g) hereof, a Limited Stock
Appreciation Right shall be subject to the same terms and conditions as
other Stock Appreciation Rights.
(h) The Committee may prescribe such other terms and conditions applicable
to Stock Appreciation Rights and Limited Stock Appreciation Rights that
are neither inconsistent with nor prohibited by the Plan or any Stock
Appreciation Right Agreement.
8. PERFORMANCE SHARES. The Committee may, in its discretion, grant Performance
Shares under the Plan to any participant hereunder. Each Performance Share
granted hereunder shall be subject to such terms and conditions as the
Committee may determine at the time of grant, the general provisions of the
Plan, the terms and conditions of the related Performance Share Agreement,
and the following specific rules:
(a) Performance Shares granted to a participant under the Plan shall be
governed by a Performance Share Agreement, which shall specify such
terms and conditions, not inconsistent with the terms and conditions of
the Plan, as the Committee shall determine.
(b) With respect to each performance period (each of which shall be no less
than one year in duration), the Committee shall establish such
performance goals relating to *the profitability of the Corporation over
such performance periods measured by such factors or combination of
factors, as the Committee in its sole discretion shall determine.
Performance goals may vary among participants. If, in the sole opinion
of the Committee, achievement of established performance goals has
ceased to be a reasonable measure of the intended performance, the
Committee may, in its sole discretion, increase or decrease such
performance goals and establish new performance goals that are a
reasonable measure of the intended performance.* one or more of the
----------------------
following: (i) return-on-equity, (ii) earnings per share and (iii)
-----------------------------------------------------------------------
Common Stock price. Corporate performance goals may be absolute in
-----------------------------------------------------------------------
their terms or measured against or in relationship to the performance
-----------------------------------------------------------------------
of other companies or indices selected by the Committee. In addition,
-----------------------------------------------------------------------
corporate performance goals may be adjusted for any events or
-----------------------------------------------------------------------
occurrences (including extraordinary charges, losses from discontinued
-----------------------------------------------------------------------
operations, restatements and accounting charges and other unplanned
-----------------------------------------------------------------------
special charges such as restructuring expenses, acquisition expenses
-----------------------------------------------------------------------
and strategic loan loss provisions) as may be determined by the
-----------------------------------------------------------------------
Committee. Corporate performance goals may be particular to one or more
-----------------------------------------------------------------------
business units, lines of business or subsidiaries or may be based on
-----------------------------------------------------------------------
the performance of the Corporation as a whole. The corporate
-----------------------------------------------------------------------
performance goals and the performance targets established thereunder by
-----------------------------------------------------------------------
the Committee may be identical for all participants for a given
-----------------------------------------------------------------------
performance period or, at the discretion of the Committee, may differ
-----------------------------------------------------------------------
among such participants.
------------------------
(c) With respect to each performance period, the Committee shall establish
targets for participants for achievement of performance goals. All
targets so established shall be stated as numbers of Performance
Shares, each of which shall represent the right, subject to the terms
and conditions of the Plan and the Performance Share Agreement
governing its grant, to the distribution of a share of Common Stock of
the Corporation plus dividends, as adjusted, accruing from the
effective date of the credit (as described in subsection (d) below) of
such Performance Share.
(d) Following the completion of each performance period, the Committee
shall determine the extent to which performance goals for that
performance period have been achieved and shall authorize credit as of
the end of such performance period of Performance Shares, in accordance
with the terms of the applicable Performance Share Agreements, to the
Accounts of participants for whom targets were established, which
Accounts shall be maintained by the Corporation for each participant
who is credited with Performance Shares under the Plan and remains
eligible for any distribution therefrom.
A-4
<PAGE>
(e) Each Performance Share credited to a participant's Account, along with
dividends accruing from the effective date of credit of such
Performance Share, shall be distributed to him, or in the event of his
death to his beneficiary, upon the first to occur during his employment
of (i) his retirement, disability or death, (ii) the third anniversary
of the date on which such Performance Share was credited to the
participant's Account, or (iii) for any other reason deemed appropriate
by the Committee in its sole discretion. Notwithstanding clause (ii) of
the preceding sentence, a participant may elect, in writing, to have a
Performance Share and related dividends distributed to him on a date
later than on the third anniversary of the date on which such
Performance Share was credited to his Account; provided, however, that
in such event, distribution of the Performance Share and related
dividends shall be distributed on the first to occur during the
participant's employment of the events specified in clause (i) or (iii)
above or, if earlier, upon the first to occur of the date specified by
the participant or the date his employment with the Corporation
terminates for any reason following the third anniversary of the date
on which such Performance Share was credited to his Account.
(f) Notwithstanding any other provision of the Plan to the contrary, a
Performance Share Agreement may provide that Performance Shares
credited to participants' Accounts, as well as Performance Shares
targeted with respect to any performance period, will become
immediately distributable to participants, in whole or in part, upon a
Change in Control (as defined in Section 6(g)).
(g) The Committee may prescribe such other terms and conditions applicable
to Performance Shares granted to a participant under the Plan that are
neither inconsistent with nor prohibited by the Plan or any Performance
Share Agreement.
9. STOCK AWARDS. The Committee may, in its discretion, grant, or sell for such
amount of cash, Common Stock or such other consideration as the Committee
deems appropriate (which amount may be less than the fair market value of
the Common Stock on the date of grant or sale), shares of Common Stock under
the Plan to any participant hereunder. Each share of Common Stock granted or
sold hereunder shall be subject to such restrictions, conditions and other
terms as the Committee may determine at the time of grant or sale, the
general provisions of the Plan, the restrictions, terms and conditions of
the related Stock Award Agreement, and the following specific rules:
(a) Shares of Common Stock issued to a participant under the Plan shall be
governed by a Stock Award Agreement, which shall specify whether the
shares of Common Stock are granted or sold to the participant and such
other provisions, not inconsistent with the terms and conditions of the
Plan, as the Committee shall determine.
(b) The Corporation shall issue, in the name of the participant, stock
certificates representing the total number of shares of Common Stock
granted or sold to the participant, as soon as may be reasonably
practicable after such grant or sale, which shall be held by the
Secretary of the Corporation as provided in subsection (g) hereof.
(c) Subject to the provisions of subsections (b) and (d) hereof, and the
restrictions set forth in the related Stock Award Agreement, the
participants receiving a grant of or purchasing Common Stock shall
thereupon be a stockholder with respect to all of the shares
represented by such certificate or certificates and shall have the
rights of a stockholder with respect to such shares, including the
right to vote such shares and to receive dividends and other
distributions paid with respect to such shares.
(d) The Committee may prescribe, in its discretion, that any share of
Common Stock granted to a participant pursuant to the Plan shall be
forfeited, and any share of Common Stock sold to a participant pursuant
to the Plan shall, at the Corporation's option, be resold to the
Corporation for an amount equal to the value of the cash and/or
property paid therefor, and, in either case, such shares shall revert
to the Corporation, if (i) the participant violates a noncompetition or
confidentiality agreement or other condition set forth in the Stock
Award Agreement, or (ii) the participant's employment with the
Corporation or its subsidiaries
A-5
<PAGE>
terminates prior to a date or dates for expiration of the forfeiture or
resale provisions set forth in his Stock Award Agreement, which date
shall not be earlier than the first anniversary of such grant or sale.
The Corporation shall exercise its right to require a forfeiture, and
may exercise its right to require a resale, of Common Stock pursuant to
this subsection by giving written notice to the participant at any time
within the thirty-day period following (i) the date that the Corporation
acquires knowledge of his violation of a non-competition or
confidentiality agreement or other condition, or (ii) the participant's
termination of employment with the Corporation or its subsidiaries prior
to such date set forth in the related Stock Award Agreement. Upon
receipt of such notice, the Secretary of the Corporation shall promptly
cancel shares of Common Stock that are forfeited or resold to the
Corporation, and the Corporation shall make payment therefor, if
applicable, as soon as reasonably practicable following the date of such
resale.
(e) The Committee, in its discretion, shall have the power to accelerate
the date on which the restrictions contained in any Stock Award
Agreement shall lapse with respect to any or all shares of Common Stock
granted or sold under the Plan that have been outstanding for at least
one year.
(f) Notwithstanding any provision of the Plan to the contrary, a Stock
Award Agreement may provide that (i) upon the participant's termination
of employment because of his retirement, death or disability (as
determined by the Committee), or (ii) upon a Change in Control of the
Corporation (as described in Section 6(g)), any restrictions of this
Section 9 or in any Stock Award Agreement shall lapse.
(g) The Secretary of the Corporation shall hold the certificate or
certificates representing shares of Common Stock issued under this
Section 9 of the Plan on behalf of each participant who holds such
shares, whether by grant or sale, until such time as the Common Stock
is forfeited, resold to the Corporation, or the restrictions lapse.
(h) The Committee may prescribe such other restrictions, terms and
conditions applicable to the shares of Common Stock issued to a
participant under this Section 9 of the Plan that are neither
inconsistent with nor prohibited by the Plan or any Stock Award
Agreement, including, without limitation, terms providing for a lapse
of the restrictions of this Section 9 or in any Stock Award Agreement,
in installments.
10. STOCK EQUIVALENTS. The Committee may, in its discretion, award Stock
Equivalents under the Plan to participants hereunder. Each Stock Equivalent
granted hereunder shall be subject to such terms and conditions as the
Committee may determine at the time of grant, the general provisions of the
Plan, the terms and conditions of the applicable Stock Equivalent Agreement
and the following specific rules:
(a) Grants of Stock Equivalents to a participant under the Plan shall be
governed by a Stock Equivalent Agreement, which shall specify such
terms and conditions, not inconsistent with the terms and conditions of
the Plan, as the Committee shall determine.
(b) Any participant who is awarded a Stock Equivalent shall be entitled to
receive a payment, in cash or in shares of Common Stock of the
Corporation, as provided in the Stock Equivalent Agreement, equal to
(i) the fair market value or book value, at a specified date or dates,
of a designated number of shares of Common Stock; (ii) the appreciation
in the fair market value or the book value, occurring during a
specified period of time, of a designated number of shares of Common
Stock; or (iii) the fair market value or book value, at the date of the
Award, payable at a specified date or dates, of a designated number of
shares of Common Stock.
(c) The date or dates for determining fair market value or book value, or
for payment, or the period of time over which the appreciation in fair
market value or book value shall be measured, as the case may be, shall
be established by the Committee and shall be specified in the
applicable Stock Equivalent Agreement, provided that such date, dates
or period of time shall not include any dates or period occurring later
than ten years after the date of the Award.
A-6
<PAGE>
(d) Stock Equivalents may be subject to such terms and conditions, not
inconsistent with the terms and conditions of the Plan, as the
Committee determines appropriate, which may include, without
limitation, requirements for the achievement of performance goals.
(e) Any Stock Equivalent may provide that the participant shall receive, on
the date of payment of any dividend on Common Stock occurring during
the period preceding payment of the Award, an amount in cash equal in
value to the dividends that the participant would have received had he
been the actual owner of the number of shares of Common Stock
designated by the Committee at the time of the Award.
(f) The Corporation's obligation to make payments or distributions with
respect to Stock Equivalents shall not be funded or secured in any
manner.
(g) Notwithstanding any provision of the Plan to the contrary, a Stock
Equivalent Agreement may provide that a Stock Equivalent will become
immediately vested and payable, in whole or in part, upon a Change in
Control (as defined in Section 6(g)).
(h) The Committee may prescribe such other terms and conditions applicable
to Stock Equivalents granted to a participant under the Plan that are
neither inconsistent with nor prohibited by the Plan or any Stock
Equivalent Agreement.
11. ADJUSTMENT PROVISIONS.
(a) The aggregate number of shares of Common Stock with respect to which
Awards may be granted, the aggregate number of shares of Common Stock
subject to each outstanding Award, and, where applicable, the exercise
price per share of each Award, may all be appropriately adjusted as the
Board of Directors of the Corporation may determine for any increase or
decrease in the number of shares of issued Common Stock resulting from
a subdivision or consolidation of shares, whether through
reorganization, recapitalization, stock split-up, stock distribution or
combination of shares, or the payment of a share dividend or other
increase or decrease in the number of such shares outstanding effected
without receipt of consideration by the Corporation. Adjustments under
this Section 11 shall be made according to the sole discretion of the
Board of Directors of the Corporation, and its decision shall be
binding and conclusive.
(b) Notwithstanding any other provisions of the Plan, and without affecting
the number of shares reserved or available hereunder, the Committee may
authorize the issuance or assumption of benefits in connection with any
merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem
appropriate.
(c) If the shares of Common Stock shall be changed into another kind of
stock of the Corporation or into securities of another corporation,
whether through reorganization, sale of assets, merger, consolidation,
or similar transaction, the Corporation shall cause adequate provision
to be made whereby participants shall thereafter be entitled to
receive, upon distribution of their Awards, the securities that they
would have been entitled to receive for shares distributed pursuant to
the Plan immediately prior to the effective date of the transaction.
12. NONTRANSFERABILITY. Except as provided below, each Award granted under the
Plan to an employee shall not be transferable by him other than by will or
the laws of descent and distribution and shall be exercisable, during his
lifetime, only by him. In the event of the death of a participant during
employment or prior to the termination, expiration, cancellation or
forfeiture of any Award held by him hereunder, each Award theretofore
granted to him shall be exercisable or payable to the extent provided
therein but no later than five years after his death and then only:
(a) by or to the executor or administrator of the estate of the deceased
participant or the person or persons to whom the deceased participant's
rights under the Award shall pass by will or the laws of descent and
distribution; and
A-7
<PAGE>
(b) to the extent set forth in the Agreement.
Notwithstanding the foregoing, a Stock Option Agreement for an Award of
Stock Options that are not Incentive Stock Options (including a Stock
Option Agreement for an Award made prior to the January 1, 1995 effective
date of the amendment to this Section 12), may permit the participant who
received the Award, at any time prior to his death, to assign all or any
portion of the Stock Option granted to him to: (i) his spouse or lineal
descendants; (ii) the trustee of a trust for the primary benefit of his
spouse or lineal descendants; or (iii) a partnership of which his spouse
and lineal descendants are the only partners. In such event, the spouse,
lineal descendant, trustee or partnership will be entitled to all of the
rights of the participant with respect to the assigned portion of such
Stock Option, and such portion of the Stock Option will continue to be
subject to all of the terms, conditions and restrictions applicable to the
Award, as set forth herein and in the related Stock Option Agreement
immediately prior to the effective date of the assignment. Any such
assignment will be permitted only if: (i) the participant does not receive
any consideration therefor; and (ii) the assignment is expressly permitted
by the applicable Stock Option Agreement (as such Stock Option Agreement
may be amended) as approved by the Committee. Any such assignment shall be
evidenced by an appropriate written document executed by the participant,
and a copy thereof shall be delivered to the Committee on or prior to the
effective date of the assignment.
13. OTHER PROVISIONS. Any Award under the Plan shall be subject to other
provisions as the Committee determines, including, without limitation,
provisions for the installment purchase of Common Stock under Stock
Options, provisions to assist the participant in financing the acquisition
of Common Stock, provisions for the forfeiture of, or restrictions on
resale or other disposition of shares acquired under any Award, provisions
to comply with Federal and state securities laws, provisions permitting
acceleration of exercise in the event of death or disability,
understandings or conditions as to the participant's employment in addition
to those specifically provided for under the Plan, provisions giving the
Corporation the right to repurchase shares acquired under any Award in the
event the participant elects to dispose of such shares, provisions
requiring the achievement of specified performance goals, and provisions
permitting acceleration of exercise upon the occurrence of specified events
or otherwise in the discretion of the Committee.
14. TAXES. The Corporation shall be entitled, if necessary or desirable, to pay
or withhold the amount of any tax attributable to any amounts payable under
any benefit after giving the person entitled to receive such amount notice
as far in advance as practicable, and the Corporation may defer making
payment as to any benefit if any such tax, charge or assessment may be
pending until indemnified to its satisfaction. In connection with an Award
under the Plan in the form of shares of Common Stock, and in lieu of
requiring a participant to make a cash payment to the Corporation in an
amount related to the tax resulting from such benefit, the Committee may,
in its discretion, provide that, at the participant's election, the tax
withholding obligation in connection with such benefit shall be satisfied
by the Corporation's withholding a portion of the shares otherwise
distributable to the participant or by the participant's delivering to the
Corporation the shares previously delivered by the Corporation in respect
of such Award, such shares being valued in either event at their fair
market value as of the date of such withholding or delivery, as the case
may be. Notwithstanding any provision of the Plan to the contrary, a
participant's election pursuant to the preceding sentence must be made on
or prior to the date as of which income is realized by the participant in
connection with such Award and must be irrevocable.
15. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN. The Board of Directors of the
Corporation may at any time suspend or terminate the Plan or amend the Plan
as it deems advisable and in the best interests of the Corporation. No
amendment, without approval of the stockholders of the Corporation, shall
(i) except as provided in Section 11, materially increase the total number
of shares that may be issued under the Plan, or increase the amount or type
of benefits that may be granted under the Plan, provided that,
notwithstanding the foregoing, in no event shall the number of shares
issuable under the Plan as Incentive Stock Options exceed *7,500,000*
16,000,000, as such
-----------
A-8
<PAGE>
number may be adjusted in accordance with the provisions of Section 11; (ii)
materially change the class of eligible employees; or (iii) materially
increase benefits to any participant who is subject to the restrictions of
Section 16 of the 1934 Act. All benefits in effect at the time of
termination of the Plan shall remain in effect according to their original
terms.
16. NO CONTRACT OF EMPLOYMENT. Neither the adoption of the Plan nor the grant
of any Award hereunder shall be deemed to obligate the Corporation or any
subsidiary thereof to continue the employment of any participant for any
particular period, nor shall the granting of an Award constitute a request
or consent to postpone the retirement date of any participant.
17. STOCKHOLDER APPROVAL. The Plan was adopted by the Board of Directors of the
Corporation as of May 1, 1992, and approved by the stockholders of the
Corporation. Amendments to the Plan have been adopted, including amendments
approved by the stockholders at the 1995 annual meeting of stockholders.
The Plan was further amended on February 18, 1997, with certain amendments
adopted subject to approval by the stockholders of the Corporation at the
1997 annual meeting of stockholders. These amendments shall be null and
void if stockholder approval is not obtained.
18. DURATION OF THE PLAN. This Plan shall be effective for the ten-year period
commencing May 1, 1992 and no benefits shall be granted hereunder after
April 30, 2002.
19. APPLICABLE LAW. All questions pertaining to the validity, construction and
administration of the Plan and all Awards hereunder shall be determined in
conformity with the laws of the State of Illinois and, in the case of
Incentive Stock Options, Section 422 of the Code and regulations issued
thereunder.
A-9
<PAGE>
PLEASE NOTE: All of the type in the EDGAR version of the Proxy Statement which
appears within the Delimiters (\\ \\) will appear as italicized text in the
printed document. All the type in the EDGAR version of Exhibit A to the Proxy
Statement which appears within the Delimiters (* *) will appear as "struck-out"
text (line thru type) in the printed document.
<PAGE>
PRELIMINARY COPY
PROXY CARD NORTHERN TRUST CORPORATION PROXY CARD
PROXY FOR ANNUAL MEETING 1997
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Frederick A. Krehbiel, William G. Mitchell
and William D. Smithburg, or any of them, with the power of substitution,
attorneys and proxies for the undersigned to vote at the annual meeting of
stockholders of Northern Trust Corporation on April 15, 1997, or any
adjournment of such meeting, all shares of Common Stock which the undersigned
is entitled to vote on the Proposals, as more fully described in the Proxy
Statement for the meeting, in the manner specified and on any other business
properly coming before the meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE ON THE PROPOSALS
BY MARKING THE APPROPRIATE SPACES (SEE REVERSE SIDE), BUT YOU NEED NOT MARK ANY
SPACE IF YOU WISH TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD
OF DIRECTORS. THE ABOVE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN, DATE
AND RETURN THIS CARD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
- -
NORTHERN TRUST CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. (X)
[ ]
1. ELECTION OF 14 DIRECTORS. NOMINEES: DUANE L. BURNHAM, DOLORES E. CROSS,
SUSAN CROWN, ROBERT S. HAMADA, BARRY G. HASTINGS, ROBERT A. HELMAN, ARTHUR
L. KELLY, FREDERICK A. KREHBIEL, WILLIAM G. MITCHELL, EDWARD J. MOONEY,
WILLIAM A. OSBORN, HAROLD B. SMITH, WILLIAM D. SMITHBURG, BIDE L. THOMAS
-----------------------------------------------------------------------------
(Except nominee(s) written above.)
For All
Except
For Withheld As Noted
( ) ( ) ( )
2. AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED
COMMON STOCK.
For Against Abstain
( ) ( ) ( )
3. AMENDMENTS TO THE NORTHERN TRUST CORPORATION AMENDED 1992 INCENTIVE STOCK
PLAN AS DESCRIBED IN THE PROXY STATEMENT.
For Against Abstain
( ) ( ) ( )
In their sole discretion, the Proxies are authorized to vote as they shall
determine on such other matters as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed
herein. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
ALL NOMINEES FOR DIRECTOR, CUMULATIVELY FOR SOME IF THE ABOVE PROXIES SHALL SO
DETERMINE AT THEIR SOLE DISCRETION, AND FOR PROPOSALS 2 AND 3.
Dated __________________________________________________________ ,1997
Signature(s) ___________________________________________________________________
- --------------------------------------------------------------------------------
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as an attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation or partnership, sign in name of entity
by authorized person.
- -
<PAGE>
PRELIMINARY COPY
PROXY CARD NORTHERN TRUST CORPORATION PROXY CARD
PROXY FOR ANNUAL MEETING 1997
VOTING DIRECTION SOLICITED BY THE TRUSTEE OF THE NORTHERN TRUST EMPLOYEE
STOCK OWNERSHIP PLAN
The undersigned hereby directs NationsBank, N.A. (South), Trustee of the
Northern Trust Employee Stock Ownership Plan ("ESOP"), to vote at the annual
meeting of stockholders of Northern Trust Corporation on April 15, 1997, or any
adjournment of such meeting, all shares of Common Stock that have been
allocated to the account of the undersigned on the Proposals, as more fully
described in the Proxy Statement for the meeting, in the manner specified and
on any other business properly coming before the meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE ON THE PROPOSALS
BY MARKING THE APPROPRIATE SPACES. SEE REVERSE SIDE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
- -
NORTHERN TRUST CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. (X)
[ ]
1. ELECTION OF 14 DIRECTORS. NOMINEES: DUANE L. BURNHAM, DOLORES E. CROSS,
SUSAN CROWN, ROBERT S. HAMADA, BARRY G. HASTINGS, ROBERT A. HELMAN, ARTHUR
L. KELLY, FREDERICK A. KREHBIEL, WILLIAM G. MITCHELL, EDWARD J. MOONEY,
WILLIAM A. OSBORN, HAROLD B. SMITH, WILLIAM D. SMITHBURG, BIDE L. THOMAS
-----------------------------------------------------------------------------
(Except nominee(s) written above.)
For All
Except
For Withheld As Noted
( ) ( ) ( )
2. AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED
COMMON STOCK.
For Against Abstain
( ) ( ) ( )
3. AMENDMENTS TO THE NORTHERN TRUST CORPORATION AMENDED 1992 INCENTIVE STOCK
PLAN AS DESCRIBED IN THE PROXY STATEMENT.
For Against Abstain
( ) ( ) ( )
In its sole discretion, the Trustee is authorized to vote as it shall
determine on such other matters as may properly come before the meeting.
Listed on this card are the number of shares of Common Stock allocated to
your account. You may direct the Trustee of the ESOP to vote all such shares at
the annual meeting. Please express your choice on the Proposals, date and sign
below, and mail this card in the envelope provided.
Unallocated shares and shares for which no direction is received will be
voted by the Trustee in the same proportion that the allocated shares were
voted, unless inconsistent with the Trustee's fiduciary responsibility.
Dated __________________________________________________________ ,1997
Signature(s) ___________________________________________________________________
- --------------------------------------------------------------------------------
DIRECTION TO NATIONSBANK, N.A. (SOUTH), AS TRUSTEE OF THE NORTHERN TRUST
EMPLOYEE STOCK OWNERSHIP PLAN, TO VOTE ALL SHARES FOR WHICH I AM ENTITLED TO
GIVE VOTING DIRECTION.
Please sign exactly as name appears hereon. When signing as an attorney,
executor, administrator, trustee or guardian, please give full title as such.
- -
<PAGE>
PRELIMINARY COPY
PROXY CARD NORTHERN TRUST CORPORATION PROXY CARD
PROXY FOR ANNUAL MEETING 1997
VOTING DIRECTION SOLICITED BY THE TRUSTEE OF THE THRIFT-INCENTIVE PLAN
The undersigned hereby directs The Northern Trust Company, Trustee of the
Thrift-Incentive Plan, to vote at the annual meeting of stockholders of
Northern Trust Corporation on April 15, 1997, or any adjournment of such
meeting, all shares of Common Stock for which the undersigned is entitled to
give voting direction on the Proposals, as more fully described in the Proxy
Statement for the meeting, in the manner specified and on any other business
properly coming before the meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE ON THE PROPOSALS
BY MARKING THE APPROPRIATE SPACES. SEE REVERSE SIDE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
- -
NORTHERN TRUST CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. (X)
[ ]
1. ELECTION OF 14 DIRECTORS. NOMINEES: DUANE L. BURNHAM, DOLORES E. CROSS,
SUSAN CROWN, ROBERT S. HAMADA, BARRY G. HASTINGS, ROBERT A. HELMAN, ARTHUR
L. KELLY, FREDERICK A. KREHBIEL, WILLIAM G. MITCHELL, EDWARD J. MOONEY,
WILLIAM A. OSBORN, HAROLD B. SMITH, WILLIAM D. SMITHBURG, BIDE L. THOMAS
-----------------------------------------------------------------------------
(Except nominee(s) written above.)
For All
Except
For Withheld As Noted
( ) ( ) ( )
2. AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED
COMMON STOCK.
For Against Abstain
( ) ( ) ( )
3. AMENDMENTS TO THE NORTHERN TRUST CORPORATION AMENDED 1992 INCENTIVE STOCK
PLAN AS DESCRIBED IN THE PROXY STATEMENT.
For Against Abstain
( ) ( ) ( )
In its sole discretion, the Trustee is authorized to vote as it shall
determine on such other matters as may properly come before the meeting.
Listed on this card are the number of shares of Common Stock which you are
entitled to vote. You may direct the Trustee of the Thrift-Incentive Plan to
vote all of the shares for which you are entitled to direct the voting at the
annual meeting. Please express your choice on the Proposals, date and sign
below, and mail this card in the envelope provided.
Dated __________________________________________________________ ,1997
Signature(s) ___________________________________________________________________
- --------------------------------------------------------------------------------
DIRECTION TO THE NORTHERN TRUST COMPANY, AS TRUSTEE OF THE THRIFT-INCENTIVE
PLAN, TO VOTE MY SHARE PARTICIPATION.
Please sign exactly as name appears hereon. When signing as an attorney,
executor, administrator, trustee or guardian, please give full title as such.
- -
