<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________
Commission File Number 0-5965
NORTHERN TRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)630-6000
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
111,306,530 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on June 30, 1998)
================================================================================
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
June 30 December 31 June 30
--------- ----------- ----------
($ In Millions) 1998 1997 1997
- - ------------------------------------------------------------------------------ --------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and Due from Banks $ 1,389.4 $ 1,738.9 $ 1,791.6
Federal Funds Sold and Securities Purchased under Agreements to Resell 3,430.8 2,991.7 1,919.9
Time Deposits with Banks 1,790.8 2,283.2 1,945.8
Other Interest-Bearing 13.1 34.5 75.6
Securities
Available for Sale 7,676.0 3,733.3 6,556.1
Held to Maturity (Fair value - $484.0 at June 1998, $473.4 at December 1997,
$491.8 at June 1997) 471.0 456.1 474.0
Trading Account 11.6 8.8 5.8
- - ------------------------------------------------------------------------------ --------- --------- ---------
Total Securities 8,158.6 4,198.2 7,035.9
- - ------------------------------------------------------------------------------ --------- --------- ---------
Loans and Leases
Commercial and Other 8,149.8 7,401.5 7,097.0
Residential Mortgages 5,467.9 5,186.7 4,861.1
- - ------------------------------------------------------------------------------ --------- --------- ---------
Total Loans and Leases (Net of unearned income - $147.6 at June 1998, $151.9
at December 1997, $126.4 at June 1997) 13,617.7 12,588.2 11,958.1
- - ------------------------------------------------------------------------------ --------- --------- ---------
Reserve for Credit Losses (146.7) (147.6) (148.4)
Buildings and Equipment 329.5 316.4 312.0
Customers' Acceptance Liability 25.2 31.4 41.3
Trust Security Settlement Receivables 346.0 291.4 254.9
Other Assets 822.6 989.1 864.3
- - ------------------------------------------------------------------------------ --------- --------- ---------
Total Assets $29,777.0 $25,315.4 $26,051.0
- - ------------------------------------------------------------------------------ --------- --------- ---------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 3,453.7 $ 3,510.1 $ 3,809.6
Savings and Money Market 2,379.9 4,278.9 3,918.1
Savings Certificates 2,126.4 2,092.6 2,034.8
Other Time 483.7 572.0 857.6
Foreign Offices - Demand 472.4 451.0 543.3
- Time 6,208.2 5,455.4 4,727.7
- - ------------------------------------------------------------------------------ --------- --------- ---------
Total Deposits 17,124.3 16,360.0 15,891.1
Federal Funds Purchased 980.8 821.2 621.1
Securities Sold Under Agreements to Repurchase 876.0 1,139.7 1,059.2
Commercial Paper 134.1 146.8 149.4
Other Borrowings 6,829.6 2,876.6 4,654.4
Senior Notes 580.0 785.0 655.0
Long-Term Debt 462.4 439.5 443.5
Debt - Floating Rate Capital Securities 267.4 267.4 267.3
Liability on Acceptances 25.2 31.4 41.3
Other Liabilities 656.1 708.8 619.8
- - ------------------------------------------------------------------------------ --------- --------- ---------
Total Liabilities 27,935.9 23,576.4 24,402.1
- - ------------------------------------------------------------------------------ --------- --------- ---------
Stockholders' Equity
Preferred Stock 120.0 120.0 120.0
Common Stock, $1.66 2/3 Par Value; Authorized 280,000,000 shares at June 1998,
December 1997 and June 1997; Outstanding 111,306,530 at June 1998,
111,367,436 at December 1997 and 111,679,056 at June 1997 189.9 189.9 189.9
Capital Surplus 223.1 225.5 224.5
Retained Earnings 1,453.8 1,330.8 1,214.4
Net Unrealized Gain on Securities Available for Sale .3 2.1 2.2
Common Stock Issuable - Performance Plan 30.4 11.7 11.7
Deferred Compensation - ESOP and Other (46.2) (37.5) (35.7)
Treasury Stock - (at cost, 2,654,232 shares at June 1998, 2,593,326 shares at
December 1997, and 2,281,706 shares at June 1997) (130.2) (103.5) (78.1)
- - ------------------------------------------------------------------------------ --------- --------- ---------
Total Stockholders' Equity 1,841.1 1,739.0 1,648.9
- - ------------------------------------------------------------------------------ --------- --------- ---------
Total Liabilities and Stockholders' Equity $29,777.0 $25,315.4 $26,051.0
- - ------------------------------------------------------------------------------ --------- --------- ---------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
Second Quarter Six Months
Ended June 30 Ended June 30
---------------------------- ---------------------------
($ In Millions Except Per Share Information) 1998 1997 1998 1997
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Loans and Leases $219.8 $195.9 $430.8 $379.5
Securities
Available For Sale 97.2 83.6 188.7 155.7
Held to Maturity 6.9 7.8 14.1 15.7
Trading Account .1 .2 .3 .3
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Securities 104.2 91.6 203.1 171.7
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Time Deposits with Banks 31.1 31.5 65.2 58.7
Federal Funds Sold and Securities Purchased under Agreements
to Resell and Other Interest-Bearing 15.2 12.8 28.5 21.9
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Interest Income 370.3 331.8 727.6 631.8
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Interest Expense
Deposits 137.3 124.4 277.1 238.6
Federal Funds Purchased 30.2 19.0 66.5 38.6
Securities Sold under Agreements to Repurchase 13.1 17.6 34.0 39.3
Commercial Paper 2.1 1.9 4.1 3.8
Other Borrowings 45.4 44.3 67.2 67.2
Senior Notes 11.2 3.5 21.8 7.2
Long-Term Debt 7.6 8.0 15.7 16.0
Debt - Floating Rate Capital Securities 4.2 3.9 8.4 5.8
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Interest Expense 251.1 222.6 494.8 416.5
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Interest Income 119.2 109.2 232.8 215.3
Provision for Credit Losses 3.0 .5 7.0 1.0
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Interest Income after Provision for Credit Losses 116.2 108.7 225.8 214.3
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Noninterest Income
Trust Fees 202.3 168.3 396.0 326.6
Treasury Management Fees 17.4 15.0 33.3 29.6
Foreign Exchange Trading Profits 23.1 23.9 51.2 44.3
Security Commissions and Trading Income 7.2 6.6 14.4 12.5
Other Operating Income 15.2 9.4 26.2 18.9
Investment Security Gains .5 - 1.2 .6
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Noninterest Income 265.7 223.2 522.3 432.5
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Income before Noninterest Expenses 381.9 331.9 748.1 646.8
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Noninterest Expenses
Salaries 125.2 107.6 246.9 209.0
Pension and Other Employee Benefits 22.8 20.5 46.3 41.6
Occupancy Expense 17.3 16.4 34.2 32.5
Equipment Expense 14.9 14.9 31.4 29.8
Other Operating Expenses 67.5 57.6 125.1 110.6
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Noninterest Expenses 247.7 217.0 483.9 423.5
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Income before Income Taxes 134.2 114.9 264.2 223.3
Provision for Income Taxes 47.0 39.5 92.1 76.2
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income $ 87.2 $ 75.4 $172.1 $147.1
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income Applicable to Common Stock $ 86.0 $ 74.2 $169.6 $144.7
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income Per Common Share - Basic $ .78 $ .67 $ 1.53 $ 1.30
- Diluted .75 .65 1.48 1.26
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
Average Number of Common Shares Outstanding - Basic 110,808,676 111,029,616 110,855,135 110,979,939
- Diluted 115,006,566 114,483,841 115,030,924 114,566,949
- - --------------------------------------------------------------- ----------- ----------- ----------- -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NORTHERN TRUST CORPORATION
Second Quarter Six Months
Ended June 30 Ended June
----------------- ------------------
($ In Millions) 1998 1997 1998 1997
- - ----------------------------------------------------------------------------- ----- ------ ------
<S> <C> <C> <C> <C>
Net Income $87.2 $75.4 $172.1 $147.1
Other Comprehensive Income (net of tax)
Unrealized Gains (Losses) on Securities Available for Sale
Unrealized Holding Gains (losses) Arising During Period
(Net of tax (provision) benefit - $.8 million in Second
Quarter 1998 and $(1.2) million in 1997; and $.7 million
during first six months of 1998 and $(.6) million in 1997) (1.3) 1.9 (1.1) .9
Less: Reclassification Adjustments for Gains Included in Net Income
(Net of tax (provision) benefit - $(.2) million in Second
Quarter of 1998 and zero in 1997; and $(.4) million during
first six months of 1998 and $(.2) million in 1997). (.3) - (.7) (.3)
- - ----------------------------------------------------------------------------- ----- ------ ------
Other Comprehensive Income (1.6) 1.9 (1.8) 0.6
- - ----------------------------------------------------------------------------- ----- ------ ------
Comprehensive Income $85.6 $77.3 $170.3 $147.7
- - ----------------------------------------------------------------------------- ----- ------ ------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION
Six Months
Ended June 30
----------------------
(In Millions) 1998 1997
- - ---------------------------------------------------------------- ----------------------
<S> <C> <C>
Preferred Stock
Balance at January 1 and June 30 $ 120.0 $ 120.0
- - ---------------------------------------------------------------- ----------------------
Common Stock
Balance at January 1 and June 30 189.9 189.9
- - ---------------------------------------------------------------- ----------------------
Capital Surplus
Balance at January 1 225.5 231.7
Stock Issued - Incentive Plan and Awards (2.4) (7.2)
- - ---------------------------------------------------------------- ----------------------
Balance at June 30 223.1 224.5
- - ---------------------------------------------------------------- ----------------------
Retained Earnings
Balance at January 1 1,330.8 1,110.2
Net Income 172.1 147.1
Dividends Declared - Common Stock (46.8) (40.2)
Dividends Declared - Preferred Stock (2.3) (2.7)
- - ---------------------------------------------------------------- ----------------------
Balance at June 30 1,453.8 1,214.4
- - ---------------------------------------------------------------- ----------------------
Net Unrealized Gain on Securities Available for Sale
Balance at January 1 2.1 1.6
Unrealized Gain (Loss), net (1.8) .6
- - ---------------------------------------------------------------- ----------------------
Balance at June 30 .3 2.2
- - ---------------------------------------------------------------- ----------------------
Common Stock Issuable - Performance Plan
Balance at January 1 11.7 10.4
Stock Issuable, net of Stock Issued 18.7 1.3
- - ---------------------------------------------------------------- ----------------------
Balance at June 30 30.4 11.7
- - ---------------------------------------------------------------- ----------------------
Deferred Compensation - ESOP and Other
Balance at January 1 (37.5) (35.5)
Compensation Deferred (15.5) (4.6)
Compensation Amortized 6.8 4.4
- - ---------------------------------------------------------------- ----------------------
Balance at June 30 (46.2) (35.7)
- - ---------------------------------------------------------------- ----------------------
Treasury Stock
Balance at January 1 (103.5) (84.2)
Stock Options and Awards 34.5 38.0
Stock Purchased (61.2) (31.9)
- - ---------------------------------------------------------------- ----------------------
Balance at June 30 (130.2) (78.1)
- - ---------------------------------------------------------------- ----------------------
Total Stockholders' Equity at June 30 $1,841.1 $1,648.9
- - ---------------------------------------------------------------- ----------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION
Six Months
Ended June 30
---------------------------------------
(In Millions) 1998 1997
- - ------------------------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 172.1 $ 147.1
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 7.0 1.0
Depreciation on Buildings and Equipment 26.4 24.7
Decrease in Interest Receivable 8.2 7.3
Increase (Decrease) in Interest Payable (12.4) 10.0
Amortization and Accretion of Securities and Unearned Income (153.5) (92.8)
Amortization of Software, Goodwill and Other Intangibles 26.8 23.4
Net Increase in Trading Account Securities (2.8) (1.0)
Other Noncash, net 134.7 (26.1)
- - ------------------------------------------------------------------------------------------------------------ -----------
Net Cash Provided by Operating Activities 206.5 93.6
- - ------------------------------------------------------------------------------------------------------------ -----------
Cash Flows from Investing Activities:
Net Increase in Federal Funds Sold and Securities Purchased under Agreements to Resell (439.1) (897.3)
Net Decrease in Time Deposits with Banks 492.4 114.2
Net Decrease in Other Interest-Bearing Assets 21.4 38.7
Purchases of Securities-Held to Maturity (158.9) (67.1)
Proceeds from Maturity and Redemption of Securities-Held to Maturity 145.5 92.3
Purchases of Securities-Available for Sale (55,974.6) (29,308.7)
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 52,179.7 27,173.2
Net Increase in Loans and Leases (1,034.5) (1,041.0)
Purchases of Buildings and Equipment (39.5) (25.2)
Net (Increase) Decrease in Trust Security Settlement Receivables (54.6) 107.4
Decrease in Cash Due to Acquisitions (15.0) -
Other, net (1.7) (3.4)
- - ------------------------------------------------------------------------------------------------------------ -----------
Net Cash Used in Investing Activities (4,878.9) (3,816.9)
- - ------------------------------------------------------------------------------------------------------------ -----------
Cash Flows from Financing Activities:
Net Increase in Deposits 764.3 2,094.9
Net Increase (Decrease) in Federal Funds Purchased 159.6 (31.9)
Net Increase (Decrease) in Securities Sold under Agreements to Repurchase (263.7) 93.1
Net Increase (Decrease) in Commercial Paper (12.7) .4
Net Increase in Short-Term Other Borrowings 3,936.2 1,526.4
Proceeds from Term Federal Funds Purchased 433.3 260.4
Repayments of Term Federal Funds Purchased (416.5) (274.5)
Proceeds from Senior Notes & Long-Term Debt 300.6 552.8
Repayments on Senior Notes & Long-Term Debt (483.0) (207.1)
Proceeds from Debt-Floating Rate Capital Securities - 267.3
Treasury Stock Purchased (61.0) (28.6)
Net Proceeds from Stock Options 8.7 8.6
Cash Dividends Paid on Common and Preferred Stock (49.2) (42.7)
Other, net 6.3 3.3
- - ------------------------------------------------------------------------------------------------------------ -----------
Net Cash Provided by Financing Activities 4,322.9 4,222.4
- - ------------------------------------------------------------------------------------------------------------ -----------
Increase (Decrease) in Cash and Due from Banks (349.5) 499.1
Cash and Due from Banks at Beginning of Year 1,738.9 1,292.5
- - ------------------------------------------------------------------------------------------------------------ -----------
Cash and Due from Banks at June 30 $ 1,389.4 $ 1,791.6
- - ------------------------------------------------------------------------------------------------------------ -----------
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 507.2 $ 406.6
Income Taxes Paid 64.9 40.1
- - ------------------------------------------------------------------------------------------------------------ -----------
Schedule of Noncash Investing and Financing Activities:
Building Purchase Obligation - $ 20.0
</TABLE>
6
<PAGE>
Notes to Consolidated Financial Statements
1. Basis of Presentation - The consolidated financial statements include the
accounts of Northern Trust Corporation and its subsidiaries (Northern
Trust), all of which are wholly-owned. Significant intercompany balances and
transactions have been eliminated. The consolidated financial statements as
of June 30, 1998 and 1997 have not been audited by independent public
accountants. In the opinion of management, all adjustments necessary for a
fair presentation of the financial position and the results of operations for
the interim periods have been made. All such adjustments are of a normal
recurring nature. Certain reclassifications have been made to prior periods'
consolidated financial statements to place them on a basis comparable with
the current period's consolidated financial statements. For a description of
Northern Trust's significant accounting policies, refer to the Notes to
Consolidated Financial Statements in the 1997 Annual Report to Stockholders.
2. Securities - The following table summarizes the book and fair values of
securities:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
--------------------------------------------------------------------------------------
Book Fair Book Fair Book Fair
(In Millions) Value Value Value Value Value Value
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity
U.S. Government $ 58.2 $ 58.2 $ 72.0 $ 72.0 $ 66.1 $ 66.1
Obligations of States and
Political Subdivisions 266.5 282.0 276.7 295.1 298.0 316.8
Federal Agency 6.0 6.0 14.3 14.3 16.2 16.2
Other 140.3 137.8 93.1 92.0 93.7 92.7
- - ---------------------------------------------------------------------------------------------------------------------
Subtotal 471.0 484.0 456.1 473.4 474.0 491.8
- - ---------------------------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 286.4 286.4 470.0 470.0 739.6 739.6
Obligations of States and
Political Subdivisions 183.3 183.3 130.2 130.2 118.4 118.4
Federal Agency 7,084.6 7,084.6 2,969.8 2,969.8 5,523.8 5,523.8
Preferred Stock 98.3 98.3 128.8 128.8 137.0 137.0
Other 23.4 23.4 34.5 34.5 37.3 37.3
- - ---------------------------------------------------------------------------------------------------------------------
Subtotal 7,676.0 7,676.0 3,733.3 3,733.3 6,556.1 6,556.1
- - ---------------------------------------------------------------------------------------------------------------------
Trading Account 11.6 11.6 8.8 8.8 5.8 5.8
- - ---------------------------------------------------------------------------------------------------------------------
Total Securities $8,158.6 $8,171.6 $4,198.2 $4,215.5 $7,035.9 $7,053.7
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity June 30, 1998
- - ---------------------------------------------------------------------------------------------------------
Gross Unrealized
Book ---------------------- Fair
(In Millions) Value Gains Losses Value
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 58.2 $ -- $ -- $ 58.2
Obligations of States and Political Subdivisions 266.5 15.6 .1 282.0
Federal Agency 6.0 -- -- 6.0
Other 140.3 -- 2.5 137.8
- - ---------------------------------------------------------------------------------------------------------
Total $471.0 $15.6 $2.6 $484.0
- - ---------------------------------------------------------------------------------------------------------
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale June 30, 1998
- - ---------------------------------------------------------------------------------------------------------
Gross Unrealized
Amortized ---------------------- Fair
(In Millions) Cost Gains Losses Value
- - ---------------------------------------------------------------------------------------------------------
U.S. Government $ 285.7 $ .8 $ .1 $ 286.4
Obligations of States and Political Subdivisions 176.9 6.4 -- 183.3
Federal Agency 7,085.1 .8 1.3 7,084.6
Preferred Stock 98.0 .4 .1 98.3
Other 23.9 -- .5 23.4
- - ----------------------------------------------------------------------------------------------------------
Total $7,669.6 $8.4 $2.0 $7,676.0
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
Unrealized gains and losses on off-balance sheet financial instruments used to
hedge available for sale securities totaled zero and $5.9 million, respectively,
as of June 30, 1998. At June 30, 1998, stockholders' equity included a credit
of $.3 million, net of tax, to recognize the appreciation on securities
available for sale and the related hedges.
3. Pledged Assets - Securities and loans pledged to secure public and trust
deposits, repurchase agreements and for other purposes as required or permitted
by law were $9.9 billion on June 30, 1998, $6.2 billion on December 31, 1997 and
$8.2 billion on June 30, 1997.
4. Contingent Liabilities - Standby letters of credit outstanding were $1.7
billion on June 30, 1998, $1.5 billion on December 31, 1997 and $1.4 billion on
June 30, 1997.
8
<PAGE>
5. Loans and Leases - Amounts outstanding in selected loan categories are shown
below:
<TABLE>
<CAPTION>
(In Millions) June 30, 1998 December 31, 1997 June 30, 1997
- - --------------------------------------------------------------------------------------------------------------
Domestic
<S> <C> <C> <C>
Residential Real Estate $ 5,467.9 $ 5,186.7 $ 4,861.1
Commercial 3,977.1 3,734.8 3,463.2
Broker 211.4 170.1 334.0
Commercial Real Estate 608.6 582.1 602.2
Personal 1,275.7 1,207.2 1,104.0
Other 954.3 890.1 643.2
Lease Financing 390.7 347.0 295.3
- - --------------------------------------------------------------------------------------------------------------
Total Domestic 12,885.7 12,118.0 11,303.0
International 732.0 470.2 655.1
- - --------------------------------------------------------------------------------------------------------------
Total Loans and Leases $13,617.7 $12,588.2 $11,958.1
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1998, other domestic and international loans included $1.2 billion
of overnight trust-related advances primarily in connection with next day
security settlements, compared with $924.5 million at December 31, 1997 and
$847.0 million at June 30, 1997.
At June 30, 1998, nonperforming loans totaled $27.0 million. Included in this
amount were loans with a recorded investment of $22.9 million which were also
classified as impaired. A loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Impaired loans
totaling $2.1 million had no portion of the reserve for credit losses allocated
to them, while $20.8 million had an allocated reserve of $1.1 million. For the
second quarter of 1998, the total recorded investment in impaired loans averaged
$29.1 million. Total interest income recorded on impaired loans for the quarter
ended June 30, 1998 was $25 thousand.
At June 30, 1997, nonperforming loans totaled $55.3 million and included $52.7
million of impaired loans. Of these impaired loans, $12.0 million had no
reserve allocation while $40.7 million had an allocated reserve of $3.4 million.
Impaired loans for the second quarter of 1997 averaged $28.0 million with $26
thousand of interest income recognized.
9
<PAGE>
6. Reserve for Credit Losses - Changes in the reserve for credit losses were as
follows:
<TABLE>
<CAPTION>
Six Months
Ended June 30
-------------------------------------
(In Millions) 1998 1997
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at Beginning of Period $147.6 $148.3
Charge-Offs
Commercial Real Estate (.2) (.6)
Other (9.1) (2.4)
International -- --
- - -------------------------------------------------------------------------------------------------------
Total Charge-Offs (9.3) (3.0)
- - -------------------------------------------------------------------------------------------------------
Recoveries 1.2 2.1
- - -------------------------------------------------------------------------------------------------------
Net Charge-Offs (8.1) ( .9)
Provision for Credit Losses 7.0 1.0
Reserve Related to Acquisitions .2 --
- - -------------------------------------------------------------------------------------------------------
Balance at End of Period $146.7 $148.4
- - -------------------------------------------------------------------------------------------------------
</TABLE>
The reserve for credit losses represents management's estimate of probable
inherent losses which have occurred as of the date of the financial statements.
The loan and lease portfolio and other extensions of credit are regularly
reviewed to evaluate the adequacy of the reserve for credit losses. In
determining the level of the reserve, Northern Trust makes allocations to
specific problem loans. The amount of the allocation is based on expected
future cash flows, the value of collateral and other factors that may impact the
borrower's ability to pay. In addition, loss factors are assigned to Northern
Trust's other credit exposures based on internal credit ratings. The loss
factors are determined based on historical charge-off experience, regulatory
guidance, and the impact of economic conditions on the credit worthiness of
borrowers. The amount of reserve for particular categories of loans may also be
affected, and an additional allocation for the portfolio overall may be made, on
a basis of factors that cannot be associated with a specific credit. These
factors include management's subjective evaluation of local and national
economic business conditions, portfolio concentration and changes in the
character and size of the loan portfolio.
The related provision for credit losses, which is charged to income, is the
amount necessary to adjust the reserve to the level determined through the above
process. Loans, leases and other extensions of credit deemed uncollectable are
charged to the reserve. Subsequent recoveries, if any, are credited to the
reserve. Actual losses may vary from current estimates and the amount of the
provision may be either greater than or less than actual net charge-offs.
10
<PAGE>
7. Net Income Per Common Share Computations - The computation of net income per
common share is presented in the following table:
<TABLE>
<CAPTION>
Second Quarter Six Months
Ended June 30 Ended June 30
-------------------------------------------------------------------------------
($ In Millions Except Per Share Information) 1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Net Income Per Common Share:
Net Income $ 87.2 $ 75.4 $ 172.1 $ 147.1
Less Dividends on Preferred Stock (1.2) (1.2) (2.5) (2.4)
- - ------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 86.0 $ 74.2 $ 169.6 $ 144.7
Average Number of Common Shares Outstanding 110,808,676 111,029,616 110,855,135 110,979,939
Basic Net Income Per Common Share $ 0.78 $ 0.67 $ 1.53 $ 1.30
Diluted Net Income Per Common Share:
Net Income Applicable to Common Stock $ 86.0 $ 74.2 $ 169.6 $ 144.7
Average Number of Common Shares Outstanding 110,808,676 111,029,616 110,855,135 110,979,939
Plus Dilutive Potential Common Shares:
Stock Options 3,270,630 2,670,631 3,288,311 2,761,095
Performance Shares 589,546 540,984 563,526 581,752
Other 337,714 242,610 323,952 244,163
- - ------------------------------------------------------------------------------------------------------------------------------
Average Common and Potential Common Shares 115,006,566 114,483,841 115,030,924 114,566,949
Diluted Net Income Per Common Share $ 0.75 $ 0.65 $ 1.48 $ 1.26
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8. Accounting Standards Pronouncements - In March, 1998, the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1
requires the capitalization of certain external and internal costs of computer
software developed or obtained for internal use. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998, with
early adoption permitted.
Northern Trust's current accounting policy is to expense internal costs of
computer software developed for internal use as incurred. Northern Trust is in
the process of identifying the amount of salary and related costs which would be
eligible for capitalization based on SOP 98-1. It is not expected that the
adoption of SOP 98-1 will have a material effect on Northern Trust's results of
operations.
In April, 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires
all nongovernmental entities to expense costs of start-up activities as those
costs are incurred. The term "start-up" is broadly defined and includes pre-
operating, pre-opening and organization activities. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998, with
early adoption permitted.
11
<PAGE>
Northern Trust will adopt SOP 98-5 effective January 1, 1999. Northern Trust has
typically expensed such costs as incurred and, therefore, adoption of this SOP
will not have a material effect on Northern Trust's results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded on the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
A company may elect to implement the Statement at the start of any quarter
beginning with the third quarter of 1998. However, Northern Trust must adopt the
new statement by January 1, 2000. Statement No. 133 cannot be applied
retroactively.
Northern Trust has not yet quantified the impact of adopting Statement No. 133
on its financial statements and has not determined the timing or method of its
adoption.
9. Acquisition - On May 15, 1998, Northern Trust Corporation completed the
acquisition of Trustbank Financial Corp., parent company of Trust Bank of
Colorado, for approximately $15 million in cash. The transaction was recorded
under the purchase method of accounting. Included in the acquisition cost was
$10.4 million of goodwill which is being amortized over 15 years.
10. Notes Payable - Under the terms of a May 27, 1998 Offering Circular
Supplement, on June 2, 1998 The Northern Trust Company issued $100 million of
6.25% Subordinated Notes due 2008.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER EARNINGS HIGHLIGHTS
Net income increased 16% to a record $87.2 million from the $75.4 million earned
in the second quarter of last year. Net income per common share on a diluted
basis increased 15% to a record $.75 for the second quarter, up from $.65 earned
a year ago. This earnings performance produced an annualized return on average
common equity (ROE) of 20.48% versus 20.01% reported last year, and an
annualized return on average assets (ROA) of 1.32% versus 1.27% in 1997. Total
revenues stated on a fully taxable equivalent basis increased 16% in the
quarter, driven by record corporate trust fees, personal trust fees and net
interest income. The quarter also highlighted Northern Trust's continued success
in generating positive operating leverage as the 16% growth in revenues was well
above the 14% increase in noninterest expenses.
The 15% earnings per share growth for the quarter and the 20.48% ROE exceeded
Northern Trust's strategic financial targets. The productivity ratio, which is
derived by dividing total taxable equivalent revenue by noninterest expenses,
was 159% compared to Northern Trust's target of 160%.
Noninterest Income
Noninterest income increased 19% and totaled $265.7 million for the quarter,
accounting for 67% of total taxable equivalent revenue. Trust fees of $202.3
million increased 20% or $34.0 million over the like period of 1997, and
represented 76% of noninterest income and 51% of total taxable equivalent
revenue. This fee growth was driven by new business, increased transaction
volumes and higher market values of trust assets administered. Trust assets
under administration increased 34% or $302.1 billion from a year ago and totaled
$1.20 trillion at June 30, 1998. Trust assets under the management of Northern
Trust grew 44% to $228.7 billion from June 30, 1997. At December 31, 1997, trust
assets under administration totaled $1.08 trillion with $196.6 billion under
management.
Trust fees are based on the market value of assets managed and administered, the
volume of transactions, securities lending volume and spreads, and fees for
other services rendered. Asset-based fees are typically determined on a sliding
scale so that as the value of a client portfolio grows in size, Northern Trust
receives a smaller percentage of the increasing value as fee income. Therefore,
market value or other changes in a portfolio's size do not typically have a
proportionate impact on the level of trust fees. In addition, Corporate and
Institutional Services (C&IS) trust relationships are increasingly priced to
reflect earnings from activities such as custody-related deposits and foreign
exchange trading which are not included in trust fees.
13
<PAGE>
Noninterest Income (continued)
Effective January 1, 1998, the trust activities for Middle Market clients
transferred to C&IS from the Personal Financial Services business unit (PFS).
Trust assets and fees for all periods presented have been restated.
Trust fees from PFS increased 25% from the prior year level of $77.4 million and
totaled $96.8 million for the second quarter, reflecting strong growth in new
business throughout Northern Trust's PFS office network and favorable equity
markets. Trust fees in each state increased 20% or more from last year's second
quarter with growth especially strong in Florida, Arizona and Texas. The PFS
Wealth Management Group, which administers significant family-asset pools
nationwide, continued to achieve excellent performance, with trust fees
increasing 24% to $9.0 million. The Group now administers $32.6 billion of trust
assets. Total personal trust assets under administration increased $23.2 billion
from the prior year and $14.3 billion since December 31, 1997, and totaled
$110.2 billion at June 30, 1998. Of this amount, $66.8 billion was under
management compared to $53.2 billion one year ago and $58.5 billion at December
31, 1997. Net recurring new business sold for the first six months, which will
transition over the calendar year, was $19.1 million in annualized trust fees,
up 17% from the same period of 1997.
Northern Trust Corporation completed the acquisition of Trust Bank of Colorado
for approximately $15.0 million in cash during the second quarter, marking its
entry into the attractive Denver market. Northern Trust also opened a new office
in Glenview, Illinois, bringing to 64 the number of PFS locations in six states,
and has plans to open additional offices during the second half of 1998.
Trust fees from C&IS increased 16% to $105.5 million from $90.9 million in the
year-ago quarter, reflecting excellent new business. These fees are derived from
a full range of custody, investment and advisory services rendered to retirement
and other asset pools of corporate and institutional clients worldwide, and all
of these services contributed to the second quarter fee growth. Strong custody
fees contributed approximately one-third of the growth in C&IS trust fees. New
business drove a 26% increase in retirement services recordkeeping and
consulting fees. Securities lending continued to achieve outstanding results,
with fees increasing 16%, or $3.1 million, from the prior year quarter to a
record $22.6 million. Corporate trust fees also benefited from $3.6 million in
fees generated by Northern Trust Quantitative Advisors, Inc., (NTQA) a December
31, 1997 acquisition. C&IS trust assets under administration increased 34% or
$278.9 billion from the prior year and now total $1.09 trillion, of which $161.9
billion is managed by Northern Trust. Trust assets under administration included
approximately $179 billion of global custody assets. For the six months, net new
business sold, which will transition over the calendar year, was $28.6 million
in annualized trust fees, about even with the comparable period in 1997.
Approximately 40% of the new business sold came from existing clients and 60%
from new relationships.
14
<PAGE>
Noninterest Income (continued)
Foreign exchange trading profits of $23.1 million declined slightly from the
$23.9 million in the same quarter last year. This performance reflects a lower
level of client trading volume in Asian currencies and decreased volatility in
the European Monetary Union currencies. The effect of the conversion to the Euro
in 1999 on foreign exchange trading profits is difficult to predict. During
1997, cross border trading between the eleven national country currencies which
will likely make up the Euro averaged approximately 10% of overall foreign
exchange volume.
Total treasury management revenues from both fees and the computed value of
compensating deposit balances increased 5% from the second quarter of 1997 to
$24.1 million. Increased volumes from existing clients as well as new business
contributed to the growth in revenues which was fairly evenly distributed
between electronic- and paper-based products. The fee portion of these revenues
accrued in the quarter was $17.4 million, up from $15.0 million in the
comparable quarter last year.
Security commissions and trading income increased 10% and totaled $7.2 million
compared with $6.6 million reported in the second quarter of 1997. The increase
was driven by a 29% increase in securities brokerage commissions resulting from
the continued strength in the equity markets, partially offset by a decline in
futures commissions.
Other operating income was $15.2 million for the second quarter compared with
$9.4 million in the same period of last year. This performance was primarily
attributable to higher fees from trust deposit activities and banking services,
and $1.1 million in gains from the sale of mortgage loans. In addition, a $1.2
million gain from the sale of exchange membership seats owned by Northern
Futures Corporation (NFC) was realized during the quarter. The gain was
essentially offset by incremental expenses associated with Northern Trust's
previously announced exit from the futures business, which was completed during
the quarter.
Net Interest Income
Net interest income for the quarter totaled $119.2 million, 9% higher than the
$109.2 million reported in the second quarter of 1997. Net interest income is
defined as the total of interest income and amortized fees on earning assets,
less interest expense on deposits and borrowed funds, adjusted for the impact of
off-balance sheet hedging activity. When net interest income is adjusted to a
fully taxable equivalent (FTE) basis, yields on taxable, nontaxable and
partially taxable assets are comparable, although the adjustment to a FTE basis
has no impact on net income. Net interest income on a FTE basis for the quarter
was $128.2 million, up 9% from the $117.7 million reported in 1997. The increase
in net interest income reflects higher levels of noninterest-related funds,
driven by increases in both demand and noninterest-bearing deposits and common
equity, and 12% growth in average earning assets. The net interest margin
declined to 2.14% from 2.20% reported in the year-ago quarter. The decline in
the net interest margin is attributable to the flattening yield curve which has
compressed interest rate spreads and a higher proportion of assets held in lower
spread short-term securities and money market assets.
15
<PAGE>
Net Interest Income (continued)
Earning assets for the second quarter averaged $24.1 billion, up 12% from the
$21.5 billion average for the same quarter of 1997. The $2.6 billion growth in
average earning assets was concentrated in the loan portfolio which increased
13% to average $13.1 billion and in securities which increased 16% to $7.6
billion. Money market assets averaged $3.4 billion in the quarter, virtually
unchanged from last year.
The loan growth was concentrated predominantly in the domestic portfolio which
increased $1.4 billion to average $12.5 billion. Residential mortgage loans
accounted for nearly one-half of the domestic growth, increasing 15% to average
$5.5 billion for the quarter, comprising 42% of the total loan portfolio.
Commercial and industrial loans averaged $4.0 billion during the second quarter
compared to $3.6 billion in the prior year quarter. The securities portfolio
increased $1.1 billion or 16% reflecting a higher level of investments in short-
term U.S. agency securities.
Funding for the growth in earning assets came from several sources. Total
interest-bearing deposits averaged $12.1 billion, up 8% or $936 million from the
second quarter of 1997. This growth came principally from foreign office time
deposits (up $680 million), and savings and money market deposits (up $511
million). The increase in foreign office time deposits resulted primarily from
growth in global custody activity. Other interest-related funds grew 17% or $1.2
billion resulting from higher levels of federal funds purchased and the issuance
of senior bank notes. In addition, in June 1998, The Northern Trust Company
issued $100 million of 6.25% Subordinated Notes due 2008. Noninterest-related
funds increased 13% to average $3.7 billion, due to strong demand and
noninterest-bearing deposit growth and a $200 million increase in common
stockholders' equity resulting from retained earnings.
Provision for Credit Losses
The provision for credit losses of $3.0 million increased $2.5 million from the
unusually low level in the second quarter of 1997. For a discussion of the
provision and reserve for credit losses, refer to the Asset Quality section.
Noninterest Expenses
Noninterest expenses totaled $247.7 million for the quarter, an increase of 14%
or $30.7 million from the $217.0 million in the year-ago quarter. Approximately
65% of this increase is related to salaries and employee benefits resulting from
staff growth, merit increases and higher performance-based compensation. In
addition, the noninterest expense increase in the second quarter reflects $3.6
million of incremental expenses resulting from the NTQA and Trust Bank of
Colorado acquisitions, as well as costs associated with technology, occupancy,
business promotion, and unusually high expenses relating to the processing of
certain securities transactions.
16
<PAGE>
Noninterest Expenses (continued)
Salaries and benefits, which represent 60% of total noninterest expenses,
increased to $148.0 million from $128.1 million in the year-ago quarter. The
increase was primarily attributable to staff growth, merit increases and higher
performance-based compensation. Staff levels increased from one year ago to
support new business in both PFS and C&IS. Staff on a full-time equivalent basis
at June 30, 1998 totaled 7,883, up 9% from 7,254 at June 30, 1997. Excellent new
business results, strong corporate earnings and the price increase in Northern
Trust Corporation stock increased performance-based compensation expenses by
$6.3 million from the second quarter of last year.
Net occupancy expense totaled $17.3 million, up 6% from $16.4 million in the
second quarter of 1997, due in large part to the opening of additional private
banking and trust offices over the past twelve months, as well as additional
space leased to support business growth. The principal components of the
increase were higher net rental costs and lease operating expenses, building
maintenance and depreciation.
Equipment expense, comprised of depreciation, rental and maintenance costs,
totaled $14.9 million, unchanged from the second quarter of 1997. Higher levels
of lease expense for data lines and depreciation for computer hardware and
personal computers, were offset by a reduction in equipment rental costs
resulting from the termination of certain leases associated with the relocation
of the computer data facility.
Other operating expenses in the quarter totaled $67.5 million compared to $57.6
million last year. The increase in the 1998 expense level was primarily the
result of continued investment in technology, expansion of the personal trust
and banking office network, and higher operating expenses necessary to support
business growth. The expense categories most affected were business promotion,
technical and consulting services, and the amortization of computer software,
goodwill and other intangibles. In addition, the increase in the other expense
category reflects higher costs from processing errors incurred in servicing and
managing financial assets and performing banking activities.
The components of other operating expenses were as follows:
<TABLE>
<CAPTION>
Second Quarter
Ended June 30
---------------------------
(In Millions) 1998 1997
- - ----------------------------------------------------------------------------
<S> <C> <C>
Business Development $ 9.4 $ 8.4
Purchased Professional Services 20.3 20.5
Telecommunications 3.7 3.0
Postage and Supplies 5.8 4.9
Software Amortization 10.0 9.2
Goodwill and Other Intangibles Amortization 3.5 2.5
Other Expense 14.8 9.1
- - ----------------------------------------------------------------------------
Total Other Operating Expenses $67.5 $57.6
- - ----------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Year 2000 Project
Like other businesses dependent upon computerized information processing,
Northern Trust must deal with "Year 2000" issues, which stem from using two
digits to reflect the year in many computer programs and data. Computer
programmers and other designers of equipment that use microprocessors have long
abbreviated dates by eliminating the first two digits of the year. As the year
2000 approaches, many systems may be unable to distinguish years beginning with
20 from years beginning with 19, and so may not accurately process certain date-
based information, which could cause a variety of operational problems for
businesses.
Northern Trust data processing software and hardware provide essential support
to virtually all of its businesses, so successfully addressing Year 2000 issues
is of the highest importance. Failure to complete renovation of the critical
systems used by Northern Trust on a timely basis could have a materially adverse
affect on its operations and financial performance, as could Year 2000 problems
experienced by others with whom Northern Trust does business. Because of the
range of possible issues and the large number of variables involved, it is
impossible to quantify the potential cost of problems should Northern Trust's
remediation efforts or the efforts of those with whom it does business not be
successful.
Northern Trust has a dedicated Year 2000 Project Team whose members have
significant systems development and maintenance experience on Northern Trust's
many banking and trust applications, which run on a variety of mainframe, mid-
range and desktop platforms. Northern Trust has been developing systems using
four digit years since the mid 1980s, which reduces the scope of the work
involved. Northern Trust has also licensed a number of software tools that help
automate the process of identifying and making needed changes, most notably on
its mainframe computers. These tools reduce the amount of manual effort required
and increase the integrity of the changes.
Northern Trust completed the information technology portion of the assessment
and inventory phases of its Year 2000 project by early 1997. Full time
renovation began in the second quarter of 1997. Testing and implementation
activities have been underway on mission critical applications since mid-1997.
Northern Trust has a highly centralized data processing environment, with the
vast majority of its data processing needs serviced out of a consolidated data
center in Chicago. As of June 30, 1998, Northern Trust had completed
approximately 95% of its renovation, 80% of its testing and 70% of its
implementation for its centrally supported mission critical applications
(including in-house, vended and outsourced applications). All implementation
includes testing with dates into the Year 2000 and internal user acceptance. The
balance of these applications are planned to be renovated, tested and
implemented by December 31, 1998. Client, integration and service provider
testing are planned to start in 1998, although the majority of this work will be
done in the first half of 1999. With respect to non-mission critical
applications, Northern Trust's target for completion of Year 2000 work is
September 1999.
18
<PAGE>
Year 2000 Project (continued)
Northern Trust has also established a Year 2000 Business Issues Task Force in
order to systematically address issues that are not directly related to data
processing systems. The Business Issues Task Force is coordinating a review
of various infrastructure issues, such as checking elevators and heating,
ventilation and air-conditioning equipment, some of which include embedded
systems, to verify that they will function in the Year 2000. The Task Force is
also coordinating a review of the Year 2000 status of power and
telecommunications providers at each important location, as these services are
critical to its business. Contingency plans are being developed for Northern
Trust's important locations. The actions taken pursuant to these plans will
depend in part on Northern Trust's assessment of the readiness of specific
providers in the power and telecommunications industries.
The Task Force is also monitoring programs to contact vendors and suppliers to
determine their Year 2000 readiness. For example, during 1998, Northern Trust is
again reviewing the Year 2000 preparedness of its sub-custodians, covering its
most important providers in on-site due diligence visits. Although Northern
Trust is attempting to monitor and validate the efforts of other parties, it
cannot control the success of these efforts. Contingency plans are being
established where practical to provide Northern Trust with alternatives in
situations where an entity furnishing a critical product or service experiences
significant Year 2000 difficulties that will affect Northern Trust.
As part of its credit analysis process, Northern Trust has also developed a
project plan for assessing the Year 2000 readiness of its credit customers, with
a target date of September 30, 1998 for initial assessment of the responses of
significant customers. In addition, as part of its fiduciary investment
management activities, Northern Trust has developed and is implementing a plan
for taking the Year 2000 issue into consideration, and a plan to evaluate and
deal with the Year 2000 issues of other types of property held in trust.
Northern Trust is also contacting clients and customers to explain its Year 2000
Program and solicit information of theirs, where appropriate.
Northern Trust's ongoing review of its estimated Year 2000 expenditures has
resulted in an increase in the amount estimated from approximately $25 million
to approximately $35 million. This estimate includes the cost of purchasing
licenses for software programming tools, the cost of the time of internal staff
in Worldwide Technology and the cost of consultants. The increase in estimated
costs reflects additional time expected to be spent by these personnel in
testing changes with clients and others, additional salary and incentive
compensation for technology personnel and an estimate to cover expenditures
related to contingency planning activities. The estimate does not include the
time that internal staff and user departments are devoting to testing
programming changes, although this testing is not expected to add significant
incremental costs.
19
<PAGE>
Year 2000 Project (continued)
All Year 2000 costs are expensed as incurred. As of June 30, 1998, $16.1 million
of the estimated $35 million of project costs have been incurred. The remaining
costs are expected to be incurred roughly evenly over the next 18 months. Of the
total Worldwide Technology Group expenses (excluding depreciation and
amortization) for 1997, 1998 and 1999, it is estimated that 12% to 14% will be
for Year 2000 remediation costs, or less than 1.5% of Northern Trust's
anticipated aggregate noninterest expenses for those years. Although the
priority given to Year 2000 work may result in extending the time for completing
some other technology projects, these delays are not expected to have a material
effect on Northern Trust's business.
The work necessary to prepare Northern Trust's global custody, foreign exchange
and other systems for the advent of the Euro on January 1, 1999, has been
closely coordinated with Year 2000 work and remains on schedule for timely
completion and testing prior to that date.
Provision for Income taxes
The provision for income taxes was $47.0 million for the second quarter compared
with $39.5 million in the year-ago quarter. The higher tax provision in 1998
resulted primarily from the growth in taxable earnings for both federal and
state income tax purposes. The effective tax rate was 35% for 1998 versus 34% in
1997.
SIX MONTH EARNINGS HIGHLIGHTS
Net income per common share increased 17% to $1.48 for the six month period
ended June 30, up from $1.26 last year. Net income also increased 17% to $172.1
million from $147.1 million in the year-ago period. The ROE rose to 20.60% from
19.96% last year, while the ROA improved to 1.32% from 1.28% in the same period
last year.
Total revenues stated on a FTE basis increased 16% from 1997 levels. Trust fees
totaled $396.0 million, up 21% from $326.6 million last year. Excluding the $7.1
million of incremental fees resulting from the NTQA acquisition, trust fees
increased 19%. Foreign exchange trading profits totaled $51.2 million, up 15%
from last year's performance. Treasury Management revenues from both fees and
the computed value of compensating deposit balances increased 5% to $47.6
million. The fee portion of these revenues accrued in the period totaled $33.3
million, up from $29.6 million in 1997. Security commissions and trading income
totaled $14.4 million, up 15% from $12.5 million reported last year. Other
operating income totaled $26.2 million in the period compared with $18.9 million
in 1997. The improvement from the prior year was due primarily to higher banking
and trust deposit-related fees, and the second quarter gains on the mortgage
loan sale and the sale of NFC exchange memberships.
20
<PAGE>
SIX MONTH EARNINGS HIGHLIGHTS (continued)
Net interest income stated on a FTE basis totaled $250.2 million, up 8% from the
$231.8 million reported last year. The $7.0 million provision for credit losses
was $6.0 million higher than the unusually low provision required in the first
half of 1997. Net loan charge-offs increased to $8.1 million from $.9 million in
the prior year. Noninterest expenses were up 14% and totaled $483.9 million
compared to $423.5 million a year ago. Exclusive of $6.8 million of incremental
expenses from acquisitions, total noninterest expenses increased 13% from last
year.
BALANCE SHEET
Total assets at June 30, 1998 were $29.8 billion and averaged $26.6 billion for
the second quarter, up 11% from last year's average of $23.9 billion. Due to
continued strong demand for credit, loans and leases grew to $13.6 billion at
June 30, 1998, and averaged $13.1 billion for the quarter. This compares with
$12.0 billion in total loans and leases at June 30, 1997 and $11.6 billion on
average for the second quarter of last year.
Driven by continued strong earnings growth, offset in part by Northern Trust's
stock buyback program, common stockholders' equity increased to $1.72 billion at
June 30, 1998 and averaged $1.69 billion for the quarter, up 13% from the $1.49
billion average in last year's second quarter. Total stockholders' equity
averaged $1.80 billion for the second quarter compared with $1.61 billion in
1997.
During the quarter, Northern Trust acquired a total of 464,731 of its common
shares at a cost of $32.9 million pursuant to the stock buyback program
authorized by the Board of Directors. An additional 2.4 million shares may be
purchased after June 30, 1998 under the buyback program.
Northern Trust's risk-based capital ratios remained strong at 9.3% for tier 1
capital and 12.6% for total capital at June 30, 1998. These capital ratios are
well above the minimum regulatory requirements of 4% for tier 1 and 8% for total
risk-based capital ratios. The leverage ratio (tier 1 capital to second quarter
average assets) of 7.0% at June 30, 1998, also exceeded the minimum regulatory
requirement of 3%. In addition, each of Northern Trust's subsidiary banks had a
ratio above 8.2% for tier 1 capital, 11.0% for total risk-based capital, and
6.1% for the leverage ratio.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans, restructured loans and other
real estate owned (OREO). Nonperforming assets at June 30, 1998 totaled $29.0
million, compared with $43.3 million at December 31, 1997 and $58.5 million at
June 30, 1997. Domestic nonaccrual loans and leases, consisting primarily of
commercial loans, totaled $24.5 million, or .19% of total domestic loans and
leases at June 30, 1998. At December 31, 1997 and June 30, 1997, domestic
nonaccrual loans and leases totaled $38.9 million and $52.7 million,
respectively.
21
<PAGE>
ASSET QUALITY (continued)
The following Nonperforming Asset table presents the outstanding amounts of
nonaccrual loans and leases, restructured loans and OREO. Also shown are loans
that have interest or principal payments that are delinquent 90 days or more and
are still accruing interest. The balance in this category at any quarter end can
fluctuate widely based on the timing of cash collections, renegotiations and
renewals.
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
-----------------------------------------------------------
(In Millions) 1998 1998 1997 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual Loans
Domestic
Residential Real Estate $ 3.7 $ 4.1 $ 5.3 $ 5.1
Commercial 18.0 22.4 26.3 40.5
Commercial Real Estate 2.6 6.8 7.1 6.6
Personal .2 .4 .2 .5
- - ------------------------------------------------------------------------------------------------------------
Total Domestic 24.5 33.7 38.9 52.7
International - - - -
- - ------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 24.5 33.7 38.9 52.7
Restructured Loans 2.5 2.5 2.5 2.6
Other Real Estate Owned 2.0 3.0 1.9 3.2
- - ------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $29.0 $39.2 $43.3 $58.5
- - ------------------------------------------------------------------------------------------------------------
Total 90 Day Past Due Loans (still accruing) $24.4 $16.1 $13.9 $28.8
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
Provision and Reserve for Credit Losses
The provision for credit losses is the charge against current earnings that is
determined by management, through a disciplined credit review process, as the
amount needed to maintain a reserve that is sufficient to absorb credit losses
inherent in Northern Trust's loan and lease portfolios and other credit
undertakings. The reserve provides for probable losses which are known to have
occurred (specific loss component) or have occurred but have not yet been
specifically identified (inherent loss component), as of the date of the
financial statements.
The 1998 second quarter provision for credit losses was $3.0 million, compared
with $.5 million in the second quarter of 1997. Net charge-offs totaled $4.2
million in the second quarter of 1998, versus $.5 million last year. The reserve
for credit losses was $146.7 million or 1.08% of outstanding loans at June 30,
1998. This compares with $147.6 million or 1.17% of outstanding loans at
December 31, 1997 and $148.4 million or 1.24% of outstanding loans at June 30,
1997.
During the second quarter, and as part of the regular review of classified and
nonperforming loans and potential charge-offs, management determined that
certain loans with specific reserves allocated to them had not recovered and
needed to be charged-off. Primarily as a result of these charge-offs, specific
reserves declined by approximately $4.6 million.
22
<PAGE>
ASSET QUALITY (continued)
The inherent loss component of the reserve is based on management's review of
historical charge-off experience in each credit rating category over an entire
economic cycle; segments of the portfolio such as commercial and commercial real
estate credits which are deemed to have greater risk potential than is reflected
in the historical charge-off analysis; and exposure attributable to local and
national economic and business conditions. Through this deliberative process
during the quarter, management determined that an increase in the inherent loss
component of the reserve was needed, primarily to support growth in the
commercial segment of the portfolio. Other portions of the inherent loss
component of the reserve, covering non-commercial credits, are based on
historical loss factors adjusted for other subjective factors as needed and
remained the same or declined during the quarter as a result of improved credit
quality. The combination of these factors resulted in a provision for credit
losses of $3.0 million in the second quarter.
MARKET RISK MANAGEMENT
As described in the 1997 Annual Report to Shareholders, Northern Trust manages
its interest rate risk through measurement techniques which include simulation
of earnings, simulation of the economic value of equity, and gap analysis. Also,
as part of its risk management activities, it regularly measures the risk of
loss associated with foreign currency positions using a value at risk model.
Based on this continuing evaluation process, the Northern Trust's interest rate
risk position and the value at risk associated with the foreign exchange trading
portfolio have not changed significantly since December 31, 1997.
FORWARD-LOOKING INFORMATION
This report contains statements that may be considered forward-looking, such as
the discussion of Northern Trust's pricing and fee trends, credit quality and
outlook, new business results, expansion plans, anticipated expenses and planned
schedules for the Year 2000 and Euro related work. These statements speak of
Northern Trust's plans, goals or expectations, refer to estimates, or use
similar terms. Actual results could differ materially from the results indicated
by these statements because the realization of those results is subject to many
uncertainties including:
. The future health of the U.S. and international economies and other
economic factors that affect wealth creation, investment and savings
patterns, and Northern Trust's interest rate risk exposure and credit risk.
. Changes in U.S. and worldwide financial markets, with respect to the market
values of financial assets and the level of volatility in certain markets
such as foreign exchange.
23
<PAGE>
FORWARD-LOOKING INFORMATION (continued)
. Regulatory developments and changes in accounting requirements in the U.S.
and other countries where Northern Trust has significant business.
. Changes in the nature of Northern Trust's competition resulting from
industry consolidation, regulatory change and other factors, as well as
actions taken by particular competitors.
. Northern Trust's success in identifying and penetrating targeted markets,
through acquisitions or otherwise, and generating a profit in those markets
in a reasonable time.
. Northern Trust's ability to continue to fund and accomplish technological
innovation, improve processes and controls and attract and retain capable
staff, in order to deal with increasing volume and complexity in many of
its businesses and technology challenges such as Year 2000 renovation and
the introduction of the Euro.
. The ability of various vendors, clients, counterparties and entities in
which Northern Trust invests for itself or its clients to complete Year
2000 systems renovation efforts on a timely basis and in a manner that
allows them to continue normal business operations or furnish products,
services or data to Northern Trust without disruption, as well as Northern
Trust's ability to accurately evaluate their readiness in this regard and,
where necessary, develop and implement effective contingency plans.
. The ability of each of Northern Trust's principal businesses to maintain a
product mix that achieves satisfactory margins.
. Changes in tax laws or other legislation that could affect Northern Trust's
personal and institutional asset administration businesses.
Some of these uncertainties that may affect future results are discussed in more
detail in the section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" captioned "Risk Management" in the 1997
Annual Report to Stockholders (pp. 32-39) and in the sections of "Item 1 -
Business" of the 1997 Annual Report on Form 10-K captioned "Government
Policies", "Competition" and "Regulation and Supervision" (pp. 6-9). All
forward-looking statements included in this document are based upon information
presently available, and Northern Trust assumes no obligation to update any
forward-looking statement.
24
<PAGE>
The following schedule should be read in conjunction with the Net Interest
Income section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<TABLE>
<CAPTION>
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME
Second Quarter
--------------------------------------------------------------------------
1998 1997
(Interest and rate on a taxable equivalent basis) -------------------------------------- ---------------------------------
($ in Millions) Interest Volume Rate Interest Volume Rate
- - ------------------------------------------------------- --------- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Average Earning Assets
Money Market Assets
Federal Funds Sold and Resell Agreements $ 14.3 $ 1,025.2 5.61% $ 12.0 $ 853.7 5.66%
Time Deposits with Banks 31.1 2,304.0 5.41 31.5 2,460.5 5.13
Other Interest-Bearing .9 51.8 7.13 .8 56.9 5.84
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Total Money Market Assets 46.3 3,381.0 5.49 44.3 3,371.1 5.27
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Securities
U.S. Government 5.4 369.0 5.99 13.3 893.8 5.98
Obligations of States and Political Subdivisions 9.5 432.1 8.83 9.9 415.6 9.53
Federal Agency 92.9 6,485.3 5.74 71.5 4,947.4 5.79
Other 3.9 272.0 5.65 3.8 248.3 6.21
Trading Account .1 12.1 6.65 .2 9.4 7.87
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Total Securities 111.8 7,570.5 5.93 98.7 6,514.5 6.08
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Loans and Leases 221.2 13,100.7 6.77 197.3 11,610.4 6.82
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Total Earning Assets $ 379.3 $ 24,052.2 6.33% $ 340.3 $ 21,496.0 6.35%
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Average Source of Funds
Deposits
Savings and Money Market $ 35.9 $ 4,303.0 3.35% $ 31.4 $ 3,901.8 3.23%
Savings Certificates 30.4 2,126.5 5.73 28.9 2,016.9 5.75
Other Time 6.9 517.4 5.38 10.7 772.6 5.55
Foreign Offices Time 64.1 5,183.7 4.96 53.4 4,503.2 4.76
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Total Deposits 137.3 12,130.6 4.54 124.4 11,194.5 4.46
Federal Funds Purchased 30.2 2,202.5 5.51 19.0 1,386.6 5.50
Securities Sold Under Agreements to Repurchase 13.1 967.2 5.44 17.6 1,323.5 5.34
Commercial Paper 2.1 148.3 5.57 1.9 137.3 5.55
Other Borrowings 45.4 3,421.4 5.32 44.3 3,284.6 5.41
Senior Notes 11.2 800.9 5.61 3.5 245.1 5.72
Long-Term Debt 7.6 422.9 7.20 8.0 427.9 7.53
Debt-Floating Rate Capital Securities 4.2 267.4 6.29 3.9 236.0 6.44
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Total Interest-Related Funds 251.1 20,361.2 4.95 222.6 18,235.5 4.90
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Interest Rate Spread - - 1.38% - - 1.45%
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Noninterest-Related Funds - 3,691.0 - - 3,260.5 -
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Total Source of Funds $ 251.1 $ 24,052.2 4.19% $ 222.6 $ 21,496.0 4.15%
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
Net Interest Income/Margin $ 128.2 - 2.14% $ 117.7 - 2.20%
- - ------------------------------------------------------- --------- ----------- --------- ------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
Second Quarter 1998/97 Six Months 1998/97
----------------------------------- ----------------------------------
Change Due To Change Due To
------------------------ ---------------------
(In Millions) Volume Rate Total Volume Rate Total
- - ------------------------------------------------------- --------- -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets $40.5 $(1.5) $39.0 $93.0 $ 3.7 $96.7
Interest-Related Funds 26.3 2.2 28.5 67.8 10.5 78.3
- - ------------------------------------------------------- --------- -------- ------- ------- -------- ------
Net Interest Income $14.2 $(3.7) $10.5 $25.2 $(6.8) $18.4
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NORTHERN TRUST CORPORATION
Six Months
- - ------------------------------------------------------------------------------------
1998 1997
- - --------------------------------------- ---------------------------------------
Interest Volume Rate Interest Volume Rate
- - -------- ---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 26.8 $ 961.9 5.63% $ 20.5 $ 747.2 5.55%
65.2 2,432.7 5.40 58.7 2,338.7 5.06
1.7 48.7 6.98 1.4 48.5 5.77
- - ------- ---------- ---------- ------- ---------- -----------
93.7 3,443.3 5.49 80.6 3,134.4 5.19
- - ------- ---------- ---------- ------- ---------- -----------
12.4 416.9 6.03 26.6 912.4 5.89
18.5 415.3 8.93 19.9 418.1 9.53
179.4 6,284.6 5.76 131.1 4,605.8 5.74
7.1 247.8 5.75 7.5 245.0 6.20
.3 10.5 6.87 .3 8.3 7.62
- - ------- ---------- ---------- ------- ---------- -----------
217.7 7,375.1 5.95 185.4 6,189.6 6.04
- - ------- ---------- ---------- ------- ---------- -----------
433.6 12,918.9 6.77 382.3 11,366.8 6.78
- - ------- ---------- ---------- ------- ---------- -----------
$ 745.0 $ 23,737.3 6.33% $ 648.3 $ 20,690.8 6.32%
- - ------- ---------- ---------- ------- ---------- -----------
$ 69.6 $ 4,229.7 3.32% $ 62.1 $ 3,926.4 3.19%
60.7 2,125.5 5.76 57.3 2,019.3 5.72
14.0 521.5 5.43 18.8 694.1 5.46
132.8 5,367.4 4.99 100.4 4,293.7 4.72
- - ------- ---------- ---------- ------- ---------- -----------
277.1 12,244.1 4.56 238.6 10,933.5 4.40
66.5 2,436.7 5.50 38.6 1,451.7 5.37
34.0 1,251.5 5.48 39.3 1,501.5 5.29
4.1 146.6 5.61 3.8 141.5 5.47
67.2 2,558.0 5.29 67.2 2,550.7 5.31
21.8 775.6 5.64 7.2 255.0 5.63
15.7 428.6 7.32 16.0 427.9 7.55
8.4 267.4 6.28 5.8 180.2 6.36
- - ------- ---------- ---------- ------- ---------- -----------
494.8 20,108.5 4.96 416.5 17,442.0 4.81
- - ------- ---------- ---------- ------- ---------- -----------
- - 1.37% - - 1.51%
- - ------- ---------- ---------- ------- ---------- -----------
- 3,628.8 - - 3,248.8 -
- - ------- ---------- ---------- ------- ---------- -----------
$ 494.8 $ 23,737.3 4.20% $ 416.5 $ 20,690.8 4.06%
- - ------- ---------- ---------- ------- ---------- -----------
$ 250.2 - 2.13% $ 231.8 - 2.26%
- - ------- ---------- ---------- ------- ---------- -----------
</TABLE>
26
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
The Corporation's By-Laws, as amended on July 21, 1998, provide that
stockholder proposals submitted outside the Rule 14a-8 process for
consideration at the Corporation's 1999 Annual Meeting of Stockholders
(the "1999 Annual Meeting") and stockholder nominations of directors
for the 1999 Annual Meeting must be received by the Corporation no
earlier than December 22, 1998 and no later than January 21, 1999.
Stockholder proposals submitted pursuant to Rule 14a-8 for
consideration for inclusion in the Corporation's proxy statement and
form of proxy for the 1999 Annual Meeting must be received by the
Corporation no later than November 16, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
--------
Exhibit (3) Amendments to By-laws and By-laws as amended to date
(Incorporated by reference to Exhibit 3(ii) to the
Registrant's Form 8-K filed July 24, 1998).
Exhibit (4) Instruments Defining the Rights of Security Holders,
Including Indentures:
(i) Form of the Northern Trust Company's Global
Senior Bank Note (Fixed Rate) (supersedes Exhibit
4(i) filed with the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995).
(ii) Form of the Northern Trust Company's Global
Senior Bank Note (Floating Rate) (supersedes
Exhibit 4(i) filed with the Quarterly Report on
Form 10-Q for the quarter ended September 30,
1997).
(iii) Form of the Northern Trust Company's Global
Subordinated Bank Note (Fixed Rate) (supersedes
Exhibit 4(iii) filed with the Quarterly Report on
Form 10-Q for the quarter ended September 30,
1995).
27
<PAGE>
(iv) Form of The Northern Trust Company's Global
Subordinated Bank Note (Floating Rate)
(supersedes Exhibit 4(ii) filed with the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
Exhibit (10) Material Contracts:
(i) Third Amendment, dated as of July 21, 1998, to
Rights Agreement, dated as of October 17, 1989,
between Northern Trust Corporation and Harris
Trust and Savings Bank (which, effective November
10, 1997, was succeeded by Norwest Bank
Minnesota, N.A. as Rights Agent) (incorporated by
reference to Exhibit 99.1 to the Registrant's
Form 8-K filed July 24, 1998).
(ii) Rights Agreement, dated as of July 21, 1998,
between Northern Trust Corporation and Norwest
Bank Minnesota, N.A. (incorporated by reference
to Exhibit 99.2 to the Registrant's Form 8-K
filed July 24, 1998).
(iii) Northern Trust Corporation Deferred Compensation
Plan dated as of May 1, 1998.
(iv) Deferred Compensation Plans Trust Agreement dated
as of May 11, 1998 between Northern Trust
Corporation and Harris Trust and Savings Bank as
Trustee.
(v) Amendment effective May 14, 1998 to the Northern
Trust Employee Stock Ownership Plan.
(vi) Amendment effective August 1, 1998 to the
Northern Trust Employee Stock Ownership Plan.
(vii) Northern Trust Corporation (1998) Management
Performance Plan.
Exhibit (27) Financial Data Schedule.
(b.) Reports on Form 8-K
-------------------
In a report on Form 8-K filed April 21, 1998, Northern Trust
Corporation incorporated in Item 5 its April 20, 1998 press release,
reporting on its earnings for the first quarter of 1998. The press
release, with summary financial information, was filed pursuant to
Item 7.
In a report on Form 8-K filed July 24, 1998, Northern Trust reported
in Item 5 the amendment of its existing Stockholder Rights Plan, the
adoption of a new Plan and the amendment of its by-laws.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN TRUST CORPORATION
--------------------------
(Registrant)
Date: August 12, 1998 By: Perry R. Pero
-------------
Perry R. Pero
Senior Executive Vice President
and Chief Financial Officer
Date: August 12, 1998 By: Harry W. Short
--------------
Harry W. Short
Senior Vice President and Controller
(Chief Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
The following exhibits have been filed herewith:
Exhibit
Number Description
- - ------ -----------
(3) Amendments to By-laws and By-laws as amended to date (Incorporated by
reference to Exhibit 3(ii) to the Registrant's Form 8-K filed July 24,
1998).
(4) Instruments Defining the Rights of Security Holders, Including
Indentures:
(i) Form of the Northern Trust Company's Global Senior Bank Note
(Fixed Rate) (supersedes Exhibit 4(i) filed with the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).
(ii) Form of the Northern Trust Company's Global Senior Bank Note
(Floating Rate) (supersedes Exhibit 4(i) filed with the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997).
(iii) Form of the Northern Trust Company's Global Subordinated Bank
Note (Fixed Rate) (supersedes Exhibit 4(iii) filed with the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995).
(iv) Form of The Northern Trust Company's Global Subordinated Bank
Note (Floating Rate) (supersedes Exhibit 4(ii) filed with the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997).
30
<PAGE>
(10) Material Contracts:
(i) Third Amendment, dated as of July 21, 1998, to Rights
Agreement, dated as of October 17, 1989, between Northern
Trust Corporation and Harris Trust and Savings Bank (which,
effective November 10, 1997, was succeeded by Norwest Bank
Minnesota, N.A. as Rights Agent) (incorporated by reference to
Exhibit 99.1 to the Registrant's Form 8-K filed July 24, 1998)
(ii) Rights Agreement, dated as of July 21,1998, between
Northern Trust Corporation Norwest Bank Minnesota, N.A.
(incorporated by reference to Exhibit 99.2 to the Registrant's
Form 8-K filed July 24, 1998).
(iii) Northern Trust Corporation Deferred Compensation Plan dated as
of May 1, 1998.
(iv) Deferred Compensation Plans Trust Agreement dated as of May
11, 1998 between Northern Trust Corporation and Harris Trust
and Savings Bank as Trustee.
(v) Amendment effective May 14, 1998 to the Northern Trust
Employee Stock Ownership Plan.
(vi) Amendment effective August 1, 1998 to the Northern Trust
Employee Stock Ownership Plan.
(vii) Northern Trust Corporation (1998) Management Performance Plan.
(27) Financial Data Schedule.
31
<PAGE>
Exhibit Number (4)(i)
To 6/30/98 Form 10-Q
Rev. 7/98
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE BANK OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SENIOR NOTE
ISSUED UPON REGISTRATION OR TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF, THIS
SENIOR NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
IF THIS SENIOR NOTE IS ISSUED WITH "ORIGINAL ISSUE DISCOUNT" FOR PURPOSES
OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE FOLLOWING
SHALL BE COMPLETED: THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES
OF APPLYING SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE
CODE OF 1986, AS AMENDED, TO THIS SENIOR NOTE. THE ISSUE DATE OF THIS SENIOR
NOTE IS _______________. THE ISSUE PRICE OF THIS SENIOR NOTE IS _____% OF ITS
PRINCIPAL AMOUNT. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS SENIOR NOTE IS
$______________ PER $1,000 OF THE INITIAL PRINCIPAL AMOUNT, THE YIELD TO
MATURITY IS _____%, AND THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT ALLOCABLE TO
THE INITIAL SHORT ACCRUAL PERIOD, IF ANY, IS $_________ PER $1,000 OF THE
INITIAL PRINCIPAL AMOUNT, DETERMINED ON THE BASIS OF THE EXACT METHOD.
No. SEN FXR- REGISTERED
----------------
CUSIP NO.:
----------------------------
THE NORTHERN TRUST COMPANY
GLOBAL SENIOR BANK NOTE
(FIXED RATE)
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INTEREST RATE: _______% MATURITY DATE:
<PAGE>
INTEREST PAYMENT REGULAR RECORD DATES (If
DATES: other than the April 1 or
October 1, prior to each
Interest Payment Date):
INITIAL REDEMPTION DATE: INITIAL REDEMPTION
PERCENTAGE:
ANNUAL REDEMPTION HOLDER'S OPTIONAL
PERCENTAGE REDUCTION: REPAYMENT DATE(S):
ORIGINAL ISSUE OID AMOUNT:
DISCOUNT NOTE:
Yes:_____ No:_____ DEFAULT RATE: ____ %
OTHER PROVISIONS:
The Northern Trust Company, an Illinois banking corporation (the "Bank"),
for value received, hereby promises to pay to Cede & Co., or registered assigns,
the principal amount specified on the face hereof in United States Dollars on
the Maturity Date specified above and to pay interest thereon from the Original
Issue Date specified above or from the most recent interest payment date to
which interest on this Senior Note (or any predecessor Senior Note) has been
paid or duly provided for, semi-annually on April 15 and October 15 of each year
(unless otherwise specified on the face hereof) (each, an "Interest Payment
Date") and at maturity or upon earlier redemption or repayment, if applicable,
commencing on the first Interest Payment Date next succeeding the Original Issue
Date (or, if the Original Issue Date is between a Regular Record Date and the
Interest Payment Date immediately following such Regular Record Date, on the
second Interest Payment Date following the Original Issue Date), at the Interest
Rate per annum specified above, until the principal hereof is paid or made
available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at such Interest Rate (or the Default Rate per
annum specified above) on any overdue principal and premium, if any, and on any
overdue installment of interest. Notwithstanding the foregoing, if this Senior
Note has a maturity of one year or less, interest will be paid only at maturity.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will be paid to the person in whose
-2-
<PAGE>
name this Senior Note (or any predecessor Senior Note) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the April 1 and October 1 (whether or not a Business Day (as defined below)), as
the case may be, next preceding the applicable Interest Payment Date (unless
otherwise specified on the face hereof); provided, however, that interest
payable at maturity or upon earlier redemption or repayment, if applicable, will
be payable to the person to whom principal shall be payable. Any such interest
not so punctually paid or duly provided for shall forthwith cease to be payable
to the holder on such Regular Record Date and may either be paid to the person
in whose name this Senior Note (or any predecessor Senior Note) is registered at
the close of business on a special record date for the payment of such defaulted
interest (the "Special Record Date") to be fixed by the Bank, notice of which
shall be given to the holders of Senior Notes not less than 10 calendar days
prior to such Special Record Date, or be paid at any time in any other lawful
manner.
Payment of principal of, and premium, if any, and interest on, this Senior
Note will be made in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
The Bank will at all times appoint and maintain a paying agent (the "Paying
Agent") authorized by the Bank to pay the principal of, and premium, if any, and
interest on, this Senior Note on behalf of the Bank and having an office or
agency (the "Paying Agent Office") in The City of New York or the City of
Chicago, Illinois (the "Place of Payment"), where this Senior Note may be
presented or surrendered for payment and where notices, designations or requests
in respect of payments with respect to this Senior Note may be served. The Bank
has initially appointed itself as the Paying Agent, with the Paying Agent Office
currently located at 50 South LaSalle Street (Level BB-A), Chicago, Illinois
60675, Attention: Securities Services.
THIS SENIOR NOTE IS A DIRECT, UNCONDITIONAL, UNSECURED AND UNSUBORDINATED
GENERAL OBLIGATION OF THE BANK AND DOES NOT EVIDENCE A DEPOSIT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS
SENIOR NOTE RANKS PARI PASSU WITH ALL OTHER UNSECURED AND UNSUBORDINATED
OBLIGATIONS OF THE BANK, EXCEPT DEPOSITS AND OTHER OBLIGATIONS THAT ARE SUBJECT
TO A PRIORITY OR PREFERENCE. UNDER APPLICABLE
-3-
<PAGE>
LAW, CLAIMS OF CERTAIN CREDITORS, INCLUDING HOLDERS OF DEPOSITS IN THE BANK,
WOULD BE ENTITLED TO PRIORITY OVER CLAIMS OF UNSECURED GENERAL CREDITORS OF THE
BANK, INCLUDING THE HOLDER OF THIS SENIOR NOTE, IN THE EVENT OF A LIQUIDATION OR
OTHER RESOLUTION OF THE BANK.
Payment of the principal of, and premium, if any, and interest on, this
Senior Note due at maturity or upon earlier redemption or repayment, if
applicable, will be made in immediately available funds upon presentation and
surrender of this Senior Note to the Paying Agent at the Paying Agent Office in
the Place of Payment; provided that this Senior Note is presented to the Paying
Agent in time for the Paying Agent to make such payment in accordance with its
normal procedures. Payments of interest on this Senior Note (other than at
maturity or upon earlier redemption or repayment) will be made by wire transfer
to such account as has been appropriately designated to the Paying Agent by the
person entitled to such payments.
This Senior Note is one of a duly authorized issue of Senior Bank Notes due
from 30 days to fifteen years from date of issue of the Bank (herein called the
"Senior Notes").
Payments of interest hereon on any Interest Payment Date will include
interest accrued to, but excluding, such Interest Payment Date. Interest hereon
shall be computed on the basis of a 360-day year of twelve 30-day months,
provided that if this Senior Note has a maturity of one year or less, interest
hereon shall be computed on the basis of actual days divided by 360.
If any Interest Payment Date, Maturity Date or date of earlier redemption
or repayment of this Senior Note falls on a day which is not a Business Day, the
related payment of principal, premium, if any, or interest shall be made on the
next succeeding Business Day with the same force and effect as if made on the
date such payment were due, and no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date, Maturity Date
or date of earlier redemption or repayment, as the case may be. "Business Day"
means any day that is not a Saturday or Sunday and that is not a day on which
banking institutions in The City of New York or the City of Chicago, Illinois
generally are authorized or obligated by law or executive order to close.
-4-
<PAGE>
This Senior Note will not be subject to any sinking fund. If so provided on
the face of this Senior Note, this Senior Note may be redeemed by the Bank on
and after the Initial Redemption Date, if any, specified on the face hereof. If
no Initial Redemption Date is specified on the face hereof, this Senior Note may
not be redeemed prior to the Maturity Date. On and after the Initial Redemption
Date, if any, this Senior Note may be redeemed at any time either in whole or in
part from time to time in increments of $1,000 (provided that any remaining
principal amount hereof shall be at least $250,000) at the option of the Bank at
the applicable Redemption Price (as defined below), together with accrued and
unpaid interest hereon at the applicable rate borne by this Senior Note to the
date of redemption (each such date, a "Redemption Date"), on written notice
given not more than 60 nor less than 30 calendar days prior to the Redemption
Date by the Bank to the registered holder hereof. Whenever less than all the
Senior Notes at any time outstanding are to be redeemed, the terms of the Senior
Notes to be so redeemed shall be selected by the Bank. If less than all the
Senior Notes with identical terms at any time outstanding are to be redeemed,
the Senior Notes to be so redeemed shall be selected by the Paying Agent by lot
or in any usual manner approved by it. In the event of redemption of this Senior
Note in part only, a new Senior Note for the unredeemed portion hereof shall be
issued in the name of the holder hereof upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Senior Note to be
redeemed and shall decline at each anniversary of the Initial Redemption Date
specified on the face hereof by the Annual Redemption Percentage Reduction, if
any, specified on the face hereof, of the principal amount to be redeemed until
the Redemption Price is 100% of such principal amount.
This Senior Note may be subject to repayment at the option of the holder
hereof in accordance with the terms hereof on the Holder's Optional Repayment
Date(s), if any, specified on the face hereof. If no Holder's Optional Repayment
Date is specified on the face hereof, this Senior Note will not be so repayable
at the option of the holder hereof prior to maturity. On any Holder's Optional
Repayment Date, this Senior Note will be
-5-
<PAGE>
repayable in whole or in part in increments of $1,000 (provided that any
remaining principal amount hereof will be at least $250,000) at the option of
the holder hereof at a repayment price equal to 100% of the principal amount to
be repaid, together with accrued and unpaid interest hereon payable to the date
of repayment. For this Senior Note to be repaid in whole or in part at the
option of the holder hereof on a Holder's Optional Repayment Date, this Senior
Note must be given, with the form entitled "Option to Elect Repayment" below
duly completed, to the Paying Agent at its offices located at 50 South LaSalle
Street (Level BB-A), Chicago, Illinois 60675, Attention: Securities Services, or
at such other address which the Bank shall from time to time notify the holders
of the Senior Notes, not more than 60 nor less than 30 days prior to such
Holder's Optional Repayment Date. Exercise of such repayment option by the
holder hereof shall be irrevocable.
If this Senior Note is an Original Issue Discount Note and if an Event of
Default with respect to the Senior Notes shall have occurred and be continuing,
the Default Amount (as defined hereafter) of this Senior Note may be declared
due and payable in the manner and with the effect provided herein. The "Default
Amount" shall be equal to the adjusted issue price as of the first day of the
accrual period as determined under Proposed Treasury Regulation Section 1.1272-
1(e) (or successor regulation) under the United States Internal Revenue Code of
1986, as amended, in which the date of acceleration occurs increased by the
daily portion of the original issue discount for each day in such accrual period
ending on the date of acceleration, as determined under Proposed Treasury
Regulation Section 1.1272-1(c) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended. Upon payment of (i) the amount of
principal or premium, if any, so declared due and payable and (ii) interest on
any overdue principal and overdue interest or premium, if any, (in each case to
the extent that the payment of such interest shall be legally enforceable), all
of the Bank's obligations in respect of the payment of the principal of, and
interest or premium, if any, on, this Senior Note shall terminate.
In case any Senior Note shall at any time become mutilated, destroyed, lost
or stolen and such Senior Note or evidence satisfactory to the Bank of the loss,
theft or destruction
-6-
<PAGE>
thereof (together with indemnity satisfactory to the Bank and such other
documents or proof as may be required in the premises) shall be delivered to the
Bank, a new Senior Note of like tenor will be issued by the Bank in exchange for
the Senior Note so mutilated, or in lieu of the Senior Note so destroyed or lost
or stolen. All expenses and reasonable charges associated with procuring the
indemnity referred to above and with the preparation, authentication and
delivery of a new Senior Note shall be borne by the holder of the Senior Note so
mutilated, destroyed, lost or stolen. If any Senior Note which has matured or is
about to mature shall become mutilated, destroyed, lost or stolen, the Bank may,
instead of issuing a substitute Senior Note, pay or authorize the payment of the
same (without surrender thereof except in the case of a mutilated Senior Note)
upon compliance by the holder thereof with the provisions of this paragraph.
No recourse shall be had for the payment of the principal of, premium, if
any, or interest on, this Senior Note, for any claim based hereon, or otherwise
in respect hereof, against any shareholder, employee, officer or director, as
such, past, present or future, of the Bank or of any successor corporation,
either directly or through the Bank or any successor corporation, whether by
virtue of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and part of the consideration for the issue hereof, expressly waived and
released.
The occurrence of any of the following events shall constitute an "Event of
Default" with respect to this Senior Note: (i) default in the payment of any
interest with respect to this Senior Note when due, which continues for 30 days;
(ii) default in the payment of any principal of, or premium, if any, on, this
Senior Note when due; (iii) the entry by a court having jurisdiction in the
premises of (a) a decree or order for relief in respect of the Bank in an
involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, reorganization or other similar law or (b) a
decree or order appointing a conservator, receiver, liquidator, assignee,
trustee, sequestrator or any other similar official of the Bank, or of
substantially all of the property of the Bank, or ordering the winding up or
liquidation of the affairs of the
-7-
<PAGE>
Bank, and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60 consecutive
days; or (iv) the commencement by the Bank of a voluntary case or proceeding
under any applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated as bankrupt or insolvent, or the consent by the Bank to the entry of
a decree or order for relief in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding, or the filing by the Bank of a petition or answer or consent
seeking reorganization or relief under any applicable United States federal or
state law, or the consent by the Bank to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Bank or of
substantially all of the property of the Bank, or the making by the Bank of an
assignment for the benefit of creditors, or the taking of corporate action by
the Bank in furtherance of any such action. If an Event of Default shall occur
and be continuing, the holder of this Senior Note may declare the principal
amount of, and accrued interest and premium, if any, on, this Senior Note due
and payable immediately by written notice to the Bank. Upon such declaration and
notice, such principal amount, accrued interest and premium, if any, shall
become due and payable seven calendar days after such notice. Any Event of
Default with respect to this Senior Note may be waived by the holder hereof.
No provision of this Senior Note shall alter or impair the obligation of
the Bank, which is absolute and unconditional, to pay the principal of, and
premium, if any, and interest on, this Senior Note in U.S. dollars at the times,
places and rate herein prescribed.
The Bank shall cause to be kept at the corporate trust office of the Senior
Note Registrar designated below a register (the register maintained in such
corporate trust office or any other office or agency of the Bank in the Place of
Payment herein referred to as the "Senior Note Register") in which, subject to
such reasonable regulations as it may prescribe, the Bank shall provide for the
registration of the Senior Notes and of transfers
-8-
<PAGE>
of the Senior Notes. The Bank is hereby initially appointed "Senior Note
Registrar" for the purpose of registering the Senior Notes and transfers of the
Senior Notes as herein provided.
The transfer of this Senior Note is registrable in the Senior Note
Register, upon surrender of this Senior Note for registration of transfer at the
office or agency of the Bank in the Place of Payment, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the Bank
and the Paying Agent duly executed by, the holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Senior Notes of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees. Notwithstanding the
foregoing, the Bank shall not be required to register the transfer of any Senior
Note that has been called for redemption during a period beginning at the
opening of business fifteen calendar days before the day of mailing of a notice
of such redemption and ending at the close of business on the day of such
mailing.
No service charge shall be made for any such registration of transfer or
exchange, but the Bank may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
The Senior Notes are issuable only in registered form without coupons in
minimum denominations of $250,000 and any integral multiple of $1,000 in excess
thereof. Each owner of a beneficial interest in this Senior Note is required to
hold a beneficial interest in $250,000 principal amount or any integral multiple
of $1,000 in excess thereof of this Senior Note at all times.
Prior to due presentment of this Senior Note for registration of transfer,
the Bank, the Paying Agent or any agent of the Bank or the Paying Agent may
treat the person in whose name this Senior Note is registered as the owner
hereof for all purposes, whether or not this Senior Note be overdue, and neither
the Bank, the Paying Agent nor any such agent shall be affected by notice to the
contrary.
-9-
<PAGE>
All notices to the Bank under this Senior Note shall be in writing and
addressed to the Bank at 50 South LaSalle Street (Level BB-A), Chicago, Illinois
60675, Attention: Securities Services, or to such other address of the Bank as
the Bank may notify the holders of the Senior Notes.
This Senior Note shall be governed by, and construed in accordance with,
the laws of the State of Illinois.
IN WITNESS WHEREOF, the Bank has caused this instrument to be duly
executed.
THE NORTHERN TRUST COMPANY
By:
-----------------------------------
Authorized Signatory
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Senior Note, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT - Custodian
----------------------- --------------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------
(State)
Additional abbreviations may also be used
though not in the above list.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto ______________________________________________________________
_______________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
-------------------------
-------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(Please print or typewrite name and address,
including postal zip code, of assignee)
- - --------------------------------------------------------------------------------
the within Senior Note and all rights thereunder, and hereby irrevocably
constitutes and appoints________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
to transfer said Senior Note on the books of the Bank, with full power of
substitution in the premises.
Dated:
------------------
---------------------------------
Notice: The signature to this
assignment must correspond with
the name as written upon the face
of the within Senior Note in
every particular, without
alteration or enlargement or any
change whatsoever.
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the Bank
to repay this Senior Note (or portion hereof specified below) pursuant to its
terms and at a price equal to 100% of the principal amount hereof to be repaid,
together with accrued and unpaid interest hereon, payable to the date of
repayment, to the undersigned, at
-----------------------------------------------
- - --------------------------------------------------------------------------------
(Please print or typewrite name and address of the undersigned)
For this Senior Note to be repaid, the undersigned must give to the Paying
Agent at its offices located at 50 South LaSalle Street (Level BB-A), Chicago,
Illinois 60675, Attention: Securities Services, or at such other place or places
of which the Bank shall from time to time notify the holders of the Senior
Notes, not more than 60 days nor less than 30 days prior to the date of
repayment, this Senior Note with this "Option to Elect Repayment" form duly
completed.
If less than the entire principal amount of this Senior Note is to be
repaid, specify the portion hereof (which shall be increments of $1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be $250,000 or an integral multiple of $1,000 in excess thereof) of
the Senior Notes to be issued to the holder for the portion of this Senior Note
not being repaid (in the absence of any such specification, one such Senior Note
will be issued for the portion not being repaid):
$
------------
Dated:
-------
---------------------------------
NOTICE: The signature on this
"Option to Elect Repayment" form
must correspond with the name as
written upon the face of the
within Senior Note in every
particular, without alteration or
enlargement or any change
whatsoever.
<PAGE>
Exhibit Number(4)(ii)
To 6/30/98 Form 10-Q
Rev. 7/98
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE BANK OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SENIOR NOTE
ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF, THIS
SENIOR NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
IF THIS SENIOR NOTE IS ISSUED WITH "ORIGINAL ISSUE DISCOUNT" FOR PURPOSES
OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE FOLLOWING
SHALL BE COMPLETED: THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF
APPLYING SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE CODE
OF 1986, AS AMENDED, TO THIS SENIOR NOTE. THE ISSUE DATE OF THIS SENIOR NOTE IS
_____________. THE ISSUE PRICE OF THIS SENIOR NOTE IS _____% OF ITS PRINCIPAL
AMOUNT. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS SENIOR NOTE IS $_________
PER $1,000 OF THE INITIAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY IS ____%, AND
THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT ALLOCABLE TO THE INITIAL SHORT ACCRUAL
PERIOD, IF ANY, IS $_____ PER $1,000 OF THE INITIAL PRINCIPAL AMOUNT, DETERMINED
ON THE BASIS OF THE EXACT METHOD.
No. SEN FLR-______________ REGISTERED
CUSIP NO.: ________________________
THE NORTHERN TRUST COMPANY
GLOBAL SENIOR BANK NOTE
(FLOATING RATE)
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INITIAL INTEREST RATE: ______% MATURITY DATE:
INTEREST RATE BASIS: INDEX MATURITY:
<PAGE>
SPREAD AND/OR SPREAD REGULAR RECORD DATES (If
MULTIPLIER: other than the 15th day
prior to each Interest
Payment Date):
MAXIMUM INTEREST RATE: MINIMUM INTEREST RATE:
INTEREST PAYMENT DATES: INTEREST PAYMENT PERIOD:
INTEREST RESET DATES: INTEREST RESET PERIOD:
INITIAL REDEMPTION DATE: ANNUAL REDEMPTION PERCENTAGE
REDUCTION:
INITIAL REDEMPTION PERCENTAGE: HOLDER'S OPTIONAL REPAYMENT
DATE:
ORIGINAL ISSUE DISCOUNT NOTE: OID AMOUNT:
Yes: ______ No: _____
OTHER PROVISIONS: CALCULATION AGENT:
DEFAULT RATE: ____ %
ALTERNATE RATE EVENT SPREAD:
The Northern Trust Company, an Illinois banking corporation (the "Bank"),
for value received, hereby promises to pay to Cede & Co., or registered assigns,
the principal amount specified on the face hereof in United States Dollars on
the Maturity Date specified above and to pay interest thereon from the Original
Issue Date specified above or from the most recent interest payment date (or, if
the Interest Reset Period specified above is daily or weekly, from, and
including, the day following the most recent Regular Record Date) to which
interest on this Senior Note (or any predecessor Senior Note) has been paid or
duly provided for (each, an "Interest Payment Date"), on the Interest Payment
Dates specified above and at maturity or upon earlier redemption or repayment,
if applicable, commencing on the first Interest Payment Date next succeeding the
Original Issue Date (or, if the Original Issue Date is between a Regular Record
Date and the Interest Payment Date immediately following such Regular Record
Date, on the second Interest Payment Date following the Original Issue Date), at
a rate per annum equal to the Initial Interest Rate specified above until the
first Interest Reset Date
-2-
<PAGE>
following the Original Issue Date and, on and after such Interest Reset Date, at
the rate determined in accordance with the provisions set forth herein, until
the principal hereof is paid or made available for payment, and (to the extent
that the payment of such interest shall be legally enforceable) at the last rate
in effect prior to any payment default (or the Default Rate per annum specified
above, if such Default Rate is specified above) on any overdue principal and
premium, if any, and on any overdue installment of interest. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will be paid to the person in whose name this Senior Note (or any predecessor
Senior Note) is registered at the close of business on the Regular Record Date
for such interest, which shall be the 15th calendar day (whether or not a
Business Day (as defined below)) before such Interest Payment Date (unless
otherwise specified on the face hereof); provided, however, that interest
payable at maturity or upon earlier redemption or repayment, if applicable, will
be payable to the person to whom principal shall be payable. Any such interest
not so punctually paid or duly provided for shall forthwith cease to be payable
to the holder on such Regular Record Date and may either be paid to the person
in whose name this Senior Note (or any predecessor Senior Note) is registered at
the close of business on a special record date for the payment of such defaulted
interest (the "Special Record Date") to be fixed by the Bank, notice of which
shall be given to the holders of Senior Notes not less than 10 calendar days
prior to such Special Record Date, or be paid at any time in any other lawful
manner.
Payment of principal of, and premium, if any, and interest on, this Senior
Note will be made in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
The Bank will at all times appoint and maintain a paying agent (the "Paying
Agent") authorized by the Bank to pay the principal of, and premium, if any, and
interest on, this Senior Note on behalf of the Bank and having an office or
agency (the "Paying Agent Office") in The City of New York or the City of
Chicago, Illinois (the "Place of Payment"), where this Senior Note may be
presented or surrendered for payment and where notices, designations or requests
in respect of payments with respect to this Senior Note may be served. The Bank
has initially appointed itself as such Paying Agent, with the Paying Agent
Office currently located at
-3-
<PAGE>
50 South LaSalle Street (Level BB-A), Chicago, Illinois 60675, Attention:
Securities Services.
THIS SENIOR NOTE IS A DIRECT, UNCONDITIONAL, UNSECURED AND UNSUBORDINATED
GENERAL OBLIGATION OF THE BANK AND DOES NOT EVIDENCE A DEPOSIT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS
SENIOR NOTE RANKS PARI PASSU WITH ALL OTHER UNSECURED AND UNSUBORDINATED
OBLIGATIONS OF THE BANK, EXCEPT DEPOSITS AND OTHER OBLIGATIONS THAT ARE SUBJECT
TO A PRIORITY OR PREFERENCE. UNDER APPLICABLE LAW, CLAIMS OF CERTAIN CREDITORS,
INCLUDING HOLDERS OF DEPOSITS IN THE BANK, WOULD BE ENTITLED TO PRIORITY OVER
CLAIMS OF UNSECURED GENERAL CREDITORS OF THE BANK, INCLUDING THE HOLDER OF THIS
SENIOR NOTE, IN THE EVENT OF A LIQUIDATION OR OTHER RESOLUTION OF THE BANK.
Payment of the principal of, and premium, if any, and interest on, this
Senior Note due at maturity or upon earlier redemption or repayment, if
applicable, will be made in immediately available funds upon presentation and
surrender of this Senior Note to the Paying Agent at the Paying Agent Office in
the Place of Payment; provided that this Senior Note is presented to the Paying
Agent in time for the Paying Agent to make such payment in accordance with its
normal procedures. Payments of interest on this Senior Note (other than at
maturity or upon earlier redemption or repayment) will be made by wire transfer
to such account as has been appropriately designated to the Paying Agent by the
person entitled to such payments.
This Senior Note is one of a duly authorized issue of Senior Bank Notes due
from 30 days to fifteen years from date of issue of the Bank (herein called the
"Senior Notes").
Unless otherwise indicated on the face hereof, if the rate of interest on
this Senior Note resets daily, weekly or monthly the Interest Payment Date for
this Senior Note will be the third Wednesday of each month; if the rate of
interest on this Senior Note resets quarterly, the Interest Payment Date for
this Senior Note will be the third Wednesday of March, June, September and
December of each year; if the rate of interest on this Senior Note resets semi-
annually, the Interest Payment Date for this Senior Note will be the third
Wednesday of each of two months of each year specified on the face hereof that
are six months apart;
-4-
<PAGE>
and if the rate of interest on this Senior Note resets annually, the Interest
Payment Date for this Senior Note will be the third Wednesday of the month
specified on the face hereof. If any Interest Payment Date, Maturity Date or
date of earlier redemption or repayment of this Senior Note falls on a day that
is not a Business Day, such Interest Payment Date, Maturity Date or date of
earlier redemption or repayment will be the next succeeding Business Day;
provided, however, that if the Interest Rate Basis specified on the face hereof
is LIBOR and such next succeeding Business Day is in the next succeeding
calendar month, such Interest Payment Date, Maturity Date or date of earlier
redemption or repayment will be the immediately preceding Business Day.
"Business Day" means any day that is not a Saturday or Sunday and that is not a
day on which banking institutions in The City of New York or the City of
Chicago, Illinois generally are authorized or obligated by law or executive
order to close, and with respect to Senior Notes with respect to which the
Interest Rate Basis specified on the face hereof is LIBOR, any day on which
dealings in deposits in U.S. dollars are transacted in the London interbank
market (a "London Business Day").
This Senior Note will not be subject to any sinking fund. If so provided on
the face of this Senior Note, this Senior Note may be redeemed by the Bank on
and after the Initial Redemption Date, if any, specified on the face hereof. If
no Initial Redemption Date is specified on the face hereof, this Senior Note may
not be redeemed prior to the Maturity Date. On and after the Initial Redemption
Date, if any, this Senior Note may be redeemed at any time either in whole or in
part from time to time in increments of $1,000 (provided that any remaining
principal amount hereof shall be at least $250,000) at the option of the Bank at
the applicable Redemption Price (as defined below), together with accrued and
unpaid interest hereon at the applicable rate borne by this Senior Note to the
date of redemption (each such date, a "Redemption Date"), on written notice
given not more than 60 nor less than 30 calendar days prior to the Redemption
Date by the Bank to the registered holder hereof. Whenever less than all the
Senior Notes at any time outstanding are to be redeemed, the terms of the Senior
Notes to be so redeemed shall be selected by the Bank. If less than all the
Senior Notes with identical terms at any time outstanding are to be redeemed,
the Senior Notes to be so redeemed shall be
-5-
<PAGE>
selected by the Paying Agent by lot or in any usual manner approved by it. In
the event of redemption of this Senior Note in part only, a new Senior Note for
the unredeemed portion hereof shall be issued in the name of the holder hereof
upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Senior Note to be
redeemed and shall decline at each anniversary of the Initial Redemption Date
specified on the face hereof by the Annual Redemption Percentage Reduction, if
any, specified on the face hereof, of the principal amount to be redeemed until
the Redemption Price is 100% of such principal amount.
This Senior Note may be subject to repayment at the option of the holder
hereof in accordance with the terms hereof on the Holder's Optional Repayment
Date(s), if any, specified on the face hereof. If no Holder's Optional
Repayment Date is specified on the face hereof, this Senior Note will not be so
repayable at the option of the holder hereof prior to maturity. On any Holder's
Optional Repayment Date, this Senior Note will be repayable in whole or in part
in increments of $1,000 (provided that any remaining principal amount hereof
will be at least $250,000) at the option of the holder hereof at a repayment
price equal to 100% of the principal amount to be repaid, together with accrued
and unpaid interest hereon payable to the date of repayment. For this Senior
Note to be repaid in whole or in part at the option of the holder hereof on a
Holder's Optional Repayment Date, this Senior Note must be given, with the form
entitled "Option to Elect Repayment" below duly completed, to the Paying Agent
at its offices located at 50 South LaSalle Street (Level BB-A), Chicago,
Illinois 60675, Attention: Securities Services, or at such address which the
Bank shall from time to time notify the holders of the Senior Notes, not more
than 60 nor less than 30 days prior to such Holder's Optional Repayment Date.
Exercise of such repayment option by the holder hereof shall be irrevocable.
The rate of interest on this Senior Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each such period, an "Interest
Reset Period" for this Senior Note, and the first calendar day of an Interest
Reset Period, an
-6-
<PAGE>
"Interest Reset Date"), as specified on the face hereof. Unless otherwise
indicated on the face hereof, if this Senior Note resets daily, the Interest
Reset Date will be each Business Day; if this Senior Note resets weekly and the
Interest Rate Basis is not the Treasury Rate, the Interest Reset Date will be
the Wednesday of each week; if this Senior Note resets weekly and the Interest
Rate Basis is the Treasury Rate, the Interest Reset Date will be the Tuesday of
each week (except as provided below); if this Senior Note resets monthly and the
Interest Rate Basis is not the 11th District Cost of Funds Rate, the Interest
Reset Date will be the third Wednesday of each month; if this Senior Note resets
monthly and the Interest Rate Basis is the 11th District Cost of Funds Rate, the
Interest Reset Date will be the first calendar day of each month; if this Senior
Note resets quarterly, the Interest Reset Date will be the third Wednesday of
March, June, September and December; if this Senior Note resets semi-annually,
the Interest Reset Date will be the third Wednesday of each of two months of
each year that are six months apart, as specified on the face hereof; and if
this Senior Note resets annually, the Interest Reset Date will be the third
Wednesday of one month of each year, as specified on the face hereof; provided,
however, that (i) the interest rate in effect from the Original Issue Date to
the first Interest Reset Date will be the Initial Interest Rate specified on the
face hereof, and (ii) the interest rate in effect for the ten calendar days
immediately prior to maturity or earlier redemption or repayment of any
installment of principal hereof will be the interest rate in effect on the tenth
calendar day preceding such Maturity Date or date of earlier redemption or
repayment, as the case may be. If any Interest Reset Date with respect to this
Senior Note would otherwise be a day that is not a Business Day, such Interest
Reset Date will be the next succeeding Business Day, except that in the case
that the Interest Rate Basis specified on the face hereof is LIBOR, if such
Business Day is in the next succeeding calendar month, such Interest Reset Date
will be the immediately preceding Business Day.
Except as otherwise specified in this paragraph, the rate of interest on
this Senior Note for each Interest Reset Date shall be the rate determined in
accordance with the provisions set forth under the applicable heading below
corresponding to the Interest Rate Basis specified on the face hereof:
-7-
<PAGE>
Commercial Paper Rate. If the Interest Rate Basis of this Senior Note is
---------------------
the Commercial Paper Rate, the interest rate hereon for any Interest Reset Date
shall equal the Commercial Paper Rate (as determined below), as adjusted (x) by
the addition or subtraction of the Spread, if any, specified on the face hereof
and/or (y) by the multiplication by the Spread Multiplier, if any, specified on
the face hereof. "Commercial Paper Rate" means, with respect to any Commercial
Paper Interest Determination Date (as defined below), the Money Market Yield
(calculated as described below) of the rate on the relevant Commercial Paper
Interest Determination Date for commercial paper having the Index Maturity
specified on the face hereof as such rate is published by the Board of Governors
of the Federal Reserve System in the weekly statistical release entitled
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication published by the Board of Governors of the Federal Reserve System
("H.15(519)") under the heading "Commercial Paper - Nonfinancial". If such rate
is not published prior to 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Commercial Paper Interest Determination Date, then the
Commercial Paper Rate will be the Money Market Yield (calculated as described
below) of the rate on such Commercial Paper Interest Determination Date for
commercial paper having the Index Maturity specified on the face hereof as such
rate is published by the Federal Reserve Bank of New York in its daily
statistical release entitled "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication published by the Federal Reserve Bank
of New York ("Composite Quotations") under the heading "Commercial Paper". If
such rate is published in neither H.15(519) nor in Composite Quotations by 3:00
P.M., New York City time, on such Calculation Date, the Commercial Paper Rate
for such Commercial Paper Interest Determination Date will be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Commercial Paper Interest Determination Date, of three
leading dealers of commercial paper in The City of New York (which may include
one or more of the Agents (as defined below)) selected by the Calculation Agent
for commercial paper having the Index Maturity specified on the face hereof
placed for an industrial issuer whose senior unsecured bond rating is "AA", or
the equivalent, from at least two nationally recognized rating agencies;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned
-8-
<PAGE>
in this sentence, the Commercial Paper Rate determined on such Commercial Paper
Interest Determination Date will be the Commercial Paper Rate in effect on such
Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D X 360
------------- X 100
360 - (D x M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
LIBOR. If the Interest Rate Basis of this Senior Note is LIBOR, the
-----
interest rate hereon for any Interest Reset Date shall equal LIBOR (as
determined below), as adjusted (x) by the addition or subtraction of the Spread,
if any, specified on the face hereof and/or (y) by the multiplication by the
Spread Multiplier, if any, specified on the face hereof. LIBOR shall be
determined by the Calculation Agent in accordance with the following provisions:
(a) With respect to any LIBOR Interest Determination Date (as defined
below), LIBOR will be either: (i) if "LIBOR Reuters" is specified on the
face hereof, the arithmetic mean of the offered rates for deposits in U.S.
dollars having the Index Maturity specified on the face hereof, commencing
on the second London Business Day immediately following such LIBOR Interest
Determination Date, that appear on the Reuters Screen LIBO Page (as defined
below) as of 11:00 A.M. London time on such LIBOR Interest Determination
Date, if at least two such offered rates appear on the Reuters Screen LIBO
Page, or (ii) if "LIBOR Telerate" is specified on the face hereof, the rate
for deposits in U.S. dollars having the Index Maturity specified on the
face hereof, commencing on the second London Business Day immediately
following such LIBOR Interest Determination Date, that appears on Telerate
Page 3750 (as defined below) as of 11:00 A.M. London time, on such LIBOR
Interest
-9-
<PAGE>
Determination Date. The "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or
such other page as may replace the LIBO page on that service for purposes
of displaying London interbank offered rates of major banks). "Telerate
Page 3750" means the display designated as page 3750 on the Dow Jones
Telerate Service (or such other page or pages as may replace the 3750 page
on that service or such other service or services as may be nominated by
the British Bankers' Association for the purpose of displaying London
interbank offered rates for U.S. dollar deposits). If neither LIBOR Reuters
nor LIBOR Telerate is specified on the face hereof, LIBOR will be
determined as if LIBOR Reuters has been specified. Notwithstanding the
foregoing, if fewer than two offered rates appear on the Reuters Screen
LIBO Page, or no rate appears on Telerate Page 3750, as applicable, LIBOR
in respect of a related LIBOR Interest Determination Date will be
determined as if the parties had specified the rate described in paragraph
(b) below.
(b) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Reuters Screen LIBO Page, as specified
in paragraph (a)(i) above, or on which no rate appears on Telerate Page
3750, as specified in paragraph (a)(ii) above, as the case may be, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits for the period of the Index Maturity specified on
the face hereof, commencing on the second London Business Day immediately
following such LIBOR Interest Determination Date, to prime banks in the
London interbank market at approximately 11:00 A.M., London time, on such
LIBOR Interest Determination Date and in a principal amount of not less
than $1,000,000 that is representative for a single transaction in such
market at such time. If at least two such quotations are provided, LIBOR
determined on such LIBOR Interest Determination Date will be the arithmetic
mean of such quotations. If fewer than two quotations are provided, LIBOR
determined on such LIBOR Interest Determination Date will be the arithmetic
mean of the rates quoted at approximately 11:00 A.M. New York City time on
such LIBOR
-10-
<PAGE>
Interest Determination Date by three major banks in The City of New York
selected by the Calculation Agent for loans in U.S. dollars to leading
European banks, having the Index Maturity specified on the face hereof,
commencing on the second London Business Day following such LIBOR Interest
Determination Date, and in a principal amount of not less than $1,000,000
that is representative for a single transaction in such market at such
time; provided, however, that if the banks so selected by the Calculation
Agent are not quoting as mentioned in this sentence, LIBOR determined on
such LIBOR Interest Determination Date will be LIBOR as in effect on such
LIBOR Interest Determination Date.
Treasury Rate. If the Interest Rate Basis of this Senior Note is the
-------------
Treasury Rate, the interest rate hereon for any Interest Reset Date shall equal
the Treasury Rate (as determined below) as adjusted (x) by the addition or
subtraction of the Spread, if any, specified on the face hereof and/or (y) by
the multiplication by the Spread Multiplier, if any, specified on the face
hereof. "Treasury Rate" means the rate for the most recent auction of direct
obligations of the United States ("Treasury bills") having the Index Maturity
specified on the face hereof, as such rate is published in H.15(519) under the
heading "U.S. Government Securities/Treasury Bills/Auction Average (Investment)"
or, if such rate is not so published by 3:00 P.M., New York City time, on the
Calculation Date, the auction average rate (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) for such auction as otherwise announced by the United States Department
of the Treasury by 3:00 P.M., New York City time, on such Calculation Date. If
the results of the auction of Treasury bills having the Index Maturity specified
on the face hereof are neither published in H.15(519) nor otherwise published or
reported as provided above by 3:00 P.M., New York City time, on such Calculation
Date, or if no such auction is held in a particular week, then the Treasury Rate
will be calculated by the Calculation Agent and will be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates as of 3:30 P.M., New York City time, on such Treasury
Interest Determination Date (as defined below), of three leading primary United
States government securities dealers in The City of New York selected by the
-11-
<PAGE>
Calculation Agent, for the issue of Treasury bills with a remaining maturity
closest to the Index Maturity specified on the face hereof or, if there are two
such issues which are equidistant from the Index Maturity specified on the face
hereof, then the longer of the two; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined on such Treasury Interest
Determination Date will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
CD Rate. If the Interest Rate Basis of this Senior Note is the CD Rate,
-------
the interest rate hereon for any Interest Reset Date shall equal the CD Rate (as
determined below), as adjusted (x) by the addition or subtraction of the Spread,
if any, specified on the face hereof and/or (y) by the multiplication by the
Spread Multiplier, if any, specified on the face hereof. "CD Rate" means the
rate on the relevant CD Interest Determination Date (as defined below) for
negotiable certificates of deposit having the Index Maturity specified on the
face hereof, as published in H.15(519) under the heading "CDs (Secondary
Market)". If such rate is not so published before 3:00 P.M., New York City
time, on the Calculation Date pertaining to such CD Interest Determination Date,
then the CD Rate will be the rate on such CD Interest Determination Date for
negotiable certificates of deposit having the Index Maturity specified on the
face hereof as published in Composite Quotations under the heading "Certificates
of Deposit". If such rate is published neither in H.15(519) nor in Composite
Quotations by 3:00 P.M., New York City time, on such Calculation Date, the CD
Rate will be calculated by the Calculation Agent and will be the arithmetic mean
of the secondary market offered rates as of 10:00 A.M., New York City time, on
such CD Interest Determination Date, of three leading non-bank dealers of
negotiable U.S. dollar certificates of deposit in The City of New York (which
may include one or more of the Agents) selected by the Calculation Agent for
negotiable certificates of deposit of the four highest rated banks (as rated by
two nationally recognized rating agencies) of the 25 largest United States banks
based on the most recent year-end survey published in The American Banker (or a
-------------------
comparable publication) with a remaining maturity closest to the Index Maturity
specified on the face hereof in a denomination of $5,000,000; provided, however,
that, if the dealers selected as aforesaid by the Calculation Agent are
-12-
<PAGE>
not quoting as mentioned in this sentence, the CD Rate determined on such CD
Interest Determination Date will be the CD Rate in effect on such CD Interest
Determination Date.
Federal Funds Rate. If the Interest Rate Basis of this Senior Note is the
------------------
Federal Funds Rate, the interest rate hereon for any Interest Reset Date shall
equal the Federal Funds Rate (as determined below, as adjusted (x) by the
addition or subtraction of the Spread, if any, specified on the face hereof
and/or (y) by the multiplication by the Spread Multiplier, if any, specified on
the face hereof. "Federal Funds Rate" means the rate on the relevant Federal
Funds Interest Determination Date (as defined below) for Federal Funds having
the Index Maturity specified on the face hereof, as published in H.15(519) under
the heading "Federal Funds (Effective)". If such rate is not published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Federal
Funds Interest Determination Date, then the Federal Funds Rate will be the rate
on such Federal Funds Interest Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate". If such rate is
published neither in H.15(519) nor in Composite Quotations by 3:00 P.M., New
York City time, on such Calculation Date, the Federal Funds Rate will be
calculated by the Calculation Agent and will be the arithmetic mean of the
rates, as of 3:00 P.M., New York City time, on such Federal Funds Interest
Determination Date, for the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in The City of New York
(which may include one or more of the Agents) selected by the Calculation Agent;
provided, however, that if the brokers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined on such Federal Funds Interest Determination Date will be the Federal
Funds Rate in effect on such Federal Funds Interest Determination Date.
Prime Rate. If the Interest Rate Basis of this Senior Note is the Prime
----------
Rate, the interest rate hereon for any Interest Reset Date shall equal the Prime
Rate (as determined below), as adjusted (x) by the addition or subtraction of
the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"Prime Rate" means the rate set forth on the
-13-
<PAGE>
relevant Prime Interest Determination Date (as defined below) in H.15(519) under
the heading "Bank Prime Loan". If such rate is not published prior to 9:00 A.M.,
New York City time, on the Calculation Date pertaining to such Prime Interest
Determination Date, then the Prime Rate will be determined by the Calculation
Agent and will be the arithmetic mean of the rates of interest publicly
announced by each bank that appears on the Reuters Screen USPRIME1 Page (as
defined below) as such bank's prime rate or base lending rate as in effect for
such Prime Interest Determination Date. If fewer than four such rates appear on
the Reuters Screen USPRIME1 Page on such Prime Interest Determination Date, the
Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on such
Prime Interest Determination Date by four major money center banks in The City
of New York selected by the Calculation Agent. If fewer than four such
quotations are so provided, then the Prime Rate will be the arithmetic mean of
four prime rates quoted on the basis of the actual number of days in the year
divided by a 360-day year as of the close of business on such Prime Interest
Determination Date as furnished in The City of New York by the major money
center banks, if any, that have provided such quotations and by as many
substitute banks or trust companies as necessary in order to obtain four such
prime rate quotations, provided such substitute banks or trust companies are
organized and doing business under the laws of the United States, or any State
thereof, each having total equity capital of at least $500,000,000 and being
subject to supervision or examination by Federal or State authority, selected by
the Calculation Agent to provide such rate or rates; provided, however, that if
-------- -------
the banks or trust companies selected as aforesaid by the Calculation Agent are
not quoting as mentioned in this sentence, the Prime Rate determined on such
Prime Interest Determination Date will be the Prime Rate in effect on such Prime
Interest Determination Date. "Reuters Screen USPRIME1 Page" means the display
designated as page "USPRIME1" on the Reuters Monitor Money Rates Service (or
such other page as may replace the USPRIME1 page on that service for the purpose
of displaying prime rates or base lending rates of major United States banks).
11th District Cost of Funds Rate Notes. If the Interest Rate Basis of this
--------------------------------------
Senior Note is the 11th District Cost of Funds
-14-
<PAGE>
Rate, the interest rate hereon for any Interest Reset Date shall equal the 11th
District Cost of Funds Rate (as determined below), as adjusted (x) by the
addition or subtraction of the Spread, if any, specified on the face hereof
and/or (y) by the multiplication by the Spread Multiplier, if any, specified on
the face hereof.
"11th District Cost of Funds Rate" means the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which the relevant 11th District Cost of Funds Interest Determination
Date (as defined below) falls, as set forth under the caption "11th District" on
Telerate Page 7058 (as defined below) as of 11:00 A.M., San Francisco time, on
such 11th District Cost of Funds Interest Determination Date. If such rate does
not appear on Telerate Page 7058 on any related 11th District Cost of Funds
Interest Determination Date, the 11th District Cost of Funds Rate for such 11th
District Cost of Funds Interest Determination Date shall be the monthly weighted
average cost of funds paid by member institutions of the 11th Federal Home Loan
Bank District that was most recently announced (the "11th District Cost of Funds
Index") by the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") as such cost of funds for the calendar month immediately preceding
the date of such announcement. If the FHLB of San Francisco fails to announce
such rate for the calendar month immediately preceding such 11th District Cost
of Funds Interest Determination Date, then the 11th District Cost of Funds Rate
determined as of such 11th District Cost of Funds Interest Determination Date
will be the 11th District Cost of Funds Rate in effect on such 11th District
Cost of Funds Interest Determination Date.
"Telerate Page 7058" means the display designated as page "7058" on the Dow
Jones Telerate Service (or such other page as may replace the 7058 page on that
service for the purpose of displaying the monthly weighted average cost of funds
paid by member institutions of the 11th Federal Home Loan Bank District).
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, specified on the face hereof and
shall not be lower than the Minimum Interest Rate, if any, specified on the face
hereof. In addition, the interest rate hereon will in no event be higher
-15-
<PAGE>
than the maximum rate permitted by Illinois law, as the same may be modified by
United States law of general application.
The Bank will at all times appoint and maintain a banking institution as
Calculation Agent hereunder. Unless otherwise specified on the face hereof, the
Bank has initially appointed itself as Calculation Agent. Upon the request of
the holder of this Senior Note, the Calculation Agent will provide the interest
rate then in effect, and, if different, the interest rate which will become
effective as a result of a determination made on the most recent Interest
Determination Date with respect to this Senior Note.
Unless otherwise specified on the face hereof, all percentages resulting
from any calculation on this Senior Note will be rounded, if necessary, to the
nearest one-hundred thousandth of a percentage point, with five one-millionths
of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) being
----
rounded to 9.87655% (or .0987655) and 9.876544% (or .09876544) being rounded to
9.87654% (or .0987654)), and all dollar amounts used in or resulting from such
calculation on this Senior Note will be rounded to the nearest cent (with one-
half cent being rounded upwards). The interest rate in effect on any Interest
Reset Date will be the applicable rate as reset on such Interest Reset Date.
The interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate). The Calculation Agent's determination of any interest rate will be final
and binding in the absence of manifest error.
The Interest Determination Date pertaining to an Interest Reset Date if the
rate of interest hereon shall be determined in accordance with the provisions
under the headings above entitled "Commercial Paper Rate" (the "Commercial Paper
Interest Determination Date"), "CD Rate" (the "CD Interest Determination Date"),
"Federal Funds Rate" (the "Federal Funds Interest Determination Date") or "Prime
Rate" (the "Prime Interest Determination Date") will be the second Business Day
preceding such Interest Reset Date. The Interest Determination Date pertaining
to an Interest Reset Date if the rate of interest hereon shall be determined in
accordance with the provisions under the heading above entitled "11th District
Cost of Funds Rate" (the "11th District Cost of Funds Interest Determination
-16-
<PAGE>
Date") will be the last working day of the month immediately preceding such
Interest Reset Date on which the FHLB of San Francisco publishes the 11th
District Cost of Funds Index. The Interest Determination Date pertaining to an
Interest Reset Date if the rate of interest hereon shall be determined in
accordance with the provisions under the heading above entitled "LIBOR" (the
"LIBOR Interest Determination Date") will be the second London Business Day
preceding such Interest Reset Date. The Interest Determination Date pertaining
to an Interest Reset Date if the rate of interest hereon shall be determined in
accordance with the provisions under the heading above entitled "Treasury Rate"
(the "Treasury Interest Determination Date") will be that day of the week in
which such Interest Reset Date falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on Monday of each week,
unless that day is a legal holiday, in which case the auction is usually held on
the following Tuesday, except that such auction may be held on the preceding
Friday. If, as the result of a legal holiday, an auction is so held on the
preceding Friday, such Friday will be the Treasury Interest Determination Date
pertaining to the Interest Reset Date occurring in the next succeeding week. If
an auction date shall fall on any Interest Reset Date for a Senior Note with
respect to which the Interest Rate Basis specified on the face hereof is the
Treasury Rate, then such Interest Reset Date shall instead be the first Business
Day immediately following such auction date.
The Calculation Date pertaining to the Interest Determination Date for any
Senior Note shall be the tenth calendar day after such Interest Determination
Date or, if any such day is not a Business Day, the next succeeding Business
Day.
Payments of interest hereon with respect to any Interest Payment Date will
include interest accrued from, and including, the Original Issue Date or from,
and including, the last date on which interest has been paid to, but excluding,
such Interest Payment Date; provided, however, that, if the Interest Reset
Period with respect to this Senior Note is daily or weekly, the interest payable
on any Interest Payment Date, other than interest payable on any date on which
principal of this Senior Note is payable, will include interest accrued from,
and including, the Original Issue Date or from, but excluding, the last date in
respect of which interest has been paid or made
-17-
<PAGE>
available for payment, as the case may be, to, and including, the Regular Record
Date next preceding such Interest Payment Date, except that the interest payable
at maturity or upon earlier redemption or repayment will include interest
accrued to, but excluding, the Maturity Date or the date of earlier redemption
or repayment, as the case may be.
Accrued interest on this Senior Note from the Original Issue Date or from
the last date to which interest has been paid or duly provided is calculated by
multiplying the face amount of this Senior Note by an accrued interest factor.
Such accrued interest factor is computed by adding the interest factor
calculated for each day from the Original Issue Date or from the last date to
which interest has been paid or duly provided for, as the case may be, to the
date for which accrued interest is being calculated in the period for which
interest is being calculated. The interest factor for each such day is computed
by dividing the interest rate applicable to such date by 360, in the case that
the Interest Rate Basis specified on the face hereof is the Commercial Paper
Rate, LIBOR, CD Rate, Federal Funds Rate, Prime Rate or 11th District Cost of
Funds Rate, or by the actual number of days in the year, in the case that the
Interest Rate Basis specified on the face hereof is the Treasury Rate.
If this Senior Note is an Original Issue Discount Note and if an Event of
Default with respect to the Senior Notes shall have occurred and be continuing,
the Default Amount (as defined hereafter) of this Senior Note may be declared
due and payable in the manner and with the effect provided herein. The "Default
Amount" shall be equal to the adjusted issue price as of the first day of the
accrual period as determined under Proposed Treasury Regulation Section 1.1272-
1(e) (or successor regulation) under the United States Internal Revenue Code of
1986, as amended, in which the date of acceleration occurs increased by the
daily portion of the original issue discount for each day in such accrual period
ending on the date of acceleration, as determined under Proposed Treasury
Regulation Section 1.1272-1(c) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended. Upon payment of (i) the amount of
principal or premium, if any, so declared due and payable and (ii) interest on
any overdue principal and overdue interest or premium, if any (in each case to
the extent that the payment of such interest shall be legally enforceable), all
of the Bank's
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<PAGE>
obligations in respect of the payment of the principal of, and interest or
premium, if any, on, this Senior Note shall terminate.
In case any Senior Note shall at any time become mutilated, destroyed, lost
or stolen and such Senior Note or evidence satisfactory to the Bank of the loss,
theft or destruction thereof (together with indemnity satisfactory to the Bank
and such other documents or proof as may be required in the premises) shall be
delivered to the Bank, a new Senior Note of like tenor will be issued by the
Bank in exchange for the Senior Note so mutilated, or in lieu of the Senior Note
so destroyed or lost or stolen. All expenses and reasonable charges associated
with procuring the indemnity referred to above and with the preparation,
authentication and delivery of a new Senior Note shall be borne by the holder of
the Senior Note so mutilated, destroyed, lost or stolen. If any Senior Note
which has matured or is about to mature shall become mutilated, destroyed, lost
or stolen, the Bank may, instead of issuing a substitute Senior Note, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Senior Note) upon compliance by the holder thereof with the
provisions of this paragraph.
No recourse shall be had for the payment of the principal of, premium, if
any, or interest on, this Senior Note, for any claim based hereon, or otherwise
in respect hereof, against any shareholder, employee, officer or director, as
such, past, present or future, of the Bank or of any successor corporation,
either directly or through the Bank or any successor corporation, whether by
virtue of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
The occurrence of any of the following events shall constitute an "Event of
Default" with respect to this Senior Note: (i) default in the payment of any
interest with respect to this Senior Note when due, which continues for 30 days;
(ii) default in the payment of any principal of, or premium, if any, on, this
Senior Note when due; (iii) the entry by a court having jurisdiction in the
premises of (a) a decree or order for relief
-19-
<PAGE>
in respect of the Bank in an involuntary case or proceeding under any applicable
United States federal or state bankruptcy, insolvency, reorganization or other
similar law or (b) a decree or order appointing a conservator, receiver,
liquidator, assignee, trustee, sequestrator or any other similar official of the
Bank, or of substantially all of the property of the Bank, or ordering the
winding up or liquidation of the affairs of the Bank, and the continuance of any
such decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or (iv) the commencement by the
Bank of a voluntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, reorganization or other similar law or
of any other case or proceeding to be adjudicated as bankrupt or insolvent, or
the consent by the Bank to the entry of a decree or order for relief in an
involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding, or the filing
by the Bank of a petition or answer or consent seeking reorganization or relief
under any applicable United States federal or state law, or the consent by the
Bank to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Bank or of substantially all of the property of the
Bank, or the making by the Bank of an assignment for the benefit of creditors,
or the taking of corporate action by the Bank in furtherance of any such action.
If an Event of Default shall occur and be continuing, the holder of this Senior
Note may declare the principal amount of, and accrued interest and premium, if
any, on, this Senior Note due and payable immediately by written notice to the
Bank. Upon such declaration and notice, such principal amount, accrued interest
and premium, if any, shall become due and payable seven calendar days after such
notice. Any Event of Default with respect to this Senior Note may be waived by
the holder hereof.
No provision of this Senior Note shall alter or impair the obligation of
the Bank, which is absolute and unconditional, to pay the principal, and
premium, if any, and interest on, this Senior Note in U.S. dollars at the times,
places and rate herein prescribed.
-20-
<PAGE>
The Bank shall cause to be kept at the corporate trust office of the Senior
Note Registrar designated below a register (the register maintained in such
corporate trust office or any other office or agency of the Bank in the Place of
Payment herein referred to as the "Senior Note Register") in which, subject to
such reasonable regulations as it may prescribe, the Bank shall provide for the
registration of the Senior Notes and of transfers of the Senior Notes. The Bank
is hereby initially appointed "Senior Note Registrar" for the purposes of
registering the Senior Notes and transfers of the Senior Notes as herein
provided.
The transfer of this Senior Note is registrable in the Senior Note
Register, upon surrender of this Senior Note for registration of transfer at the
office or agency of the Bank in the Place of Payment, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the Bank
and the Paying Agent duly executed by, the holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Senior Notes of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees. Notwithstanding the
foregoing, the Bank shall not be required to register the transfer of any Senior
Note that has been called for redemption during a period beginning at the
opening of business fifteen calendar days before the date of mailing of a notice
of such redemption and ending at the close of business on the date of such
mailing.
No service charge shall be made for any such registration of transfer or
exchange, but the Bank may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
The Senior Notes are issuable only in registered form without coupons in
minimum denominations of $250,000 and any integral multiple of $1,000 in excess
thereof. Each owner of a beneficial interest in this Senior Note is required to
hold a beneficial interest in $250,000 principal amount or any integral multiple
of $1,000 in excess thereof of this Senior Note at all times.
-21-
<PAGE>
Prior to due presentment of this Senior Note for registration of transfer,
the Bank, the Paying Agent or any agent of the Bank or the Paying Agent may
treat the person in whose name this Senior Note is registered as the owner
hereof for all purposes, whether or not this Senior Note be overdue, and neither
the Bank, the Paying Agent nor any such agent shall be affected by notice to the
contrary.
All notices to the Bank under this Senior Note shall be in writing and
addressed to the Bank at 50 South LaSalle Street, Chicago, Illinois 60675, or to
such other address of the Bank as the Bank may notify the holders of the Senior
Notes.
This Senior Note shall be governed by, and construed in accordance with,
the laws of the State of Illinois.
As used in this Senior Note, the term "Agents" shall mean Goldman Sachs &
Co., CS First Boston Corporation, J.P. Morgan Securities Inc., Lehman Brothers,
Lehman Brothers Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce Fenner &
Smith Incorporated, and any other person, firm or entity which shall hereafter
be designated as an "Agent" under that certain Amended and Restated Distribution
Agreement, dated September 6, 1995, among the Bank, Northern Trust Corporation
and the Agents (as hereinabove defined).
IN WITNESS WHEREOF, the Bank has caused this instrument to be duly
executed.
THE NORTHERN TRUST COMPANY
By:
------------------------------------------
Authorized Signatory
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<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of the within Senior Note, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - Custodian
------------ -----------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------------
(State)
Additional abbreviations may also be used
though not in the above list.
-23-
<PAGE>
ASSIGNMENT
FOR VALVE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
---------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(Please print or typewrite name and address,
including postal zip code, of assignee)
- - --------------------------------------------------------------------------------
the within Senior Note and all rights thereunder, and hereby irrevocably
constitutes and appoints ______________________________________________________
________________________________________________________________________________
________________________________________________________________________________
to transfer said Senior Note on the books of the Bank, with full power of
substitution in the premises.
Dated: _______________
------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within Senior Note in every
particular, without alteration or
enlargement or any change
whatsoever.
-24-
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the Bank
to repay this Senior Note (or portion hereof specified below) pursuant to its
terms and at a price equal to 100% of the principal amount hereof to be repaid,
together with accrued and unpaid interest hereon, payable to the date of
repayment, to the undersigned, at ______________________________________________
________________________________________________________________________________
(Please print or typewrite name and address of the undersigned)
For this Senior Note to be repaid, the undersigned must give to the Paying
Agent at its offices located at 50 South LaSalle Street (Level BB-A), Chicago,
Illinois 60675, Attention: Securities Services, or at such other place or places
of which the Bank shall from time to time notify the holders of the Senior
Notes, not more than 60 days nor less than 30 days prior to the date of
repayment, this Senior Note with this "Option to Elect Repayment" form duly
completed.
If less than the entire principal amount of this Senior Note is to be
repaid, specify the portion hereof (which shall be increments of $1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be $250,000 or an integral multiple of $1,000 in excess thereof) of
the Senior Notes to be issued to the holder for the portion of this Senior Note
not being repaid (in the absence of any such specification, one such Senior Note
will be issued for the portion not being repaid):
$_____________________
Dated:________________
-------------------------------
NOTICE: The signature on this
"Option to Elect Repayment"
form must correspond with the
name as written upon the face
of the within Senior Note in
every particular, without
alteration or enlargement or
any change whatsoever.
-25-
<PAGE>
Exhibit Number (4)(iii)
To 6/30/98 Form 10-Q
UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE
BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
SUBORDINATED NOTE ISSUED UPON REGISTRATION OR TRANSFER OF, OR IN EXCHANGE FOR,
OR IN LIEU OF, THIS SUBORDINATED NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
IF THIS SUBORDINATED NOTE IS ISSUED WITH "ORIGINAL ISSUE DISCOUNT" FOR
PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE
FOLLOWING SHALL BE COMPLETED: THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR
PURPOSES OF APPLYING SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED, TO THIS SUBORDINATED NOTE. THE ISSUE DATE OF
THIS SUBORDINATED NOTE IS _______________. THE ISSUE PRICE OF THIS SUBORDINATED
NOTE IS _____% OF ITS PRINCIPAL AMOUNT. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
ON THIS SUBORDINATED NOTE IS $______________ PER $1,000 OF THE INITIAL PRINCIPAL
AMOUNT, THE YIELD TO MATURITY IS _____%, AND THE AMOUNT OF THE ORIGINAL ISSUE
DISCOUNT ALLOCABLE TO THE INITIAL SHORT ACCRUAL PERIOD, IF ANY, IS $_________
PER $1,000 OF THE INITIAL PRINCIPAL AMOUNT, DETERMINED ON THE BASIS OF THE EXACT
METHOD.
No. SUB FXR-______________ REGISTERED
CUSIP NO.: ________________________
THE NORTHERN TRUST COMPANY
GLOBAL SUBORDINATED BANK NOTE
(Fixed Rate)
PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE: _______% MATURITY DATE:
INTEREST PAYMENT REGULAR RECORD DATES (If
DATES: other than the April 1 or
October 1, prior to each
Interest Payment Date):
INITIAL REDEMPTION DATE: INITIAL REDEMPTION
PERCENTAGE:
<PAGE>
ANNUAL REDEMPTION
PERCENTAGE REDUCTION:
ORIGINAL ISSUE OID AMOUNT:
DISCOUNT NOTE:
Yes: No:
----- -----
OTHER PROVISIONS:
The Northern Trust Company, an Illinois banking corporation (the "Bank"),
for value received, hereby promises to pay to Cede & Co., or registered assigns,
the principal amount specified on the face hereof in United States Dollars on
the Maturity Date specified above and to pay interest thereon from the Original
Issue Date specified above or from the most recent interest payment date to
which interest on this Subordinated Note (or any predecessor Subordinated Note)
has been paid or duly provided for, semi-annually on April 15 and October 15 of
each year (unless otherwise specified on the face hereof) (each, an "Interest
Payment Date") and at maturity or upon earlier redemption, if applicable,
commencing on the first Interest Payment Date next succeeding the Original Issue
Date (or, if the Original Issue Date is between a Regular Record Date and the
Interest Payment Date immediately following such Regular Record Date, on the
second Interest Payment Date following the Original Issue Date), at the Interest
Rate per annum specified above, until the principal hereof is paid or made
available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at such Interest Rate on any overdue principal and
premium, if any, and on any overdue installment of interest. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will be paid to the person in whose name this Subordinated Note (or any
predecessor Subordinated Note) is registered at the close of business on the
Regular Record Date for such interest, which shall be the April 1 and October 1
(whether or not a Business Day (as defined below)), as the case may be, next
preceding the applicable Interest Payment Date (unless otherwise specified on
the face hereof); provided, however, that interest payable at maturity or upon
earlier redemption, if applicable, will be payable to the person to whom
principal shall be payable. Any such interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the holder on such Regular
Record Date and may either be paid to the person in whose name this Subordinated
Note (or any predecessor Subordinated Note) is registered at the close of
business on a special record date for the payment of such defaulted interest
(the "Special Record Date") to be fixed by the Bank, notice of which shall be
given to the holders of Subordinated
-2-
<PAGE>
Notes not less than 10 calendar days prior to such Special Record Date, or be
paid at any time in any other lawful manner.
Payment of principal of, and premium, if any, and interest on, this
Subordinated Note will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. The Bank will at all times appoint and maintain a paying agent
(the "Paying Agent") authorized by the Bank to pay the principal of, and
premium, if any, and interest on, this Subordinated Note on behalf of the Bank
and having an office or agency (the "Paying Agent Office") in The City of New
York or the City of Chicago, Illinois (the "Place of Payment"), where this
Subordinated Note may be presented or surrendered for payment and where notices,
designations or requests in respect of payments with respect to this
Subordinated Note may be served. The Bank has initially appointed itself as the
Paying Agent, with the Paying Agent Office currently located at 50 South LaSalle
Street (Level BB-A), Chicago, Illinois 60675, Attention: Securities Services.
THIS SUBORDINATED NOTE IS A DIRECT, UNCONDITIONAL AND UNSECURED GENERAL
OBLIGATION OF THE BANK, DOES NOT EVIDENCE A DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS
SUBORDINATED NOTE IS SUBORDINATE TO THE CLAIMS OF DEPOSITORS AND GENERAL
CREDITORS OF THE BANK.
Payment of the principal of, and premium, if any, and interest on, this
Subordinated Note due at maturity or upon earlier redemption, if applicable,
will be made in immediately available funds upon presentation and surrender of
this Subordinated Note to the Paying Agent at the Paying Agent Office in the
Place of Payment; provided that this Subordinated Note is presented to the
Paying Agent in time for the Paying Agent to make such payment in accordance
with its normal procedures. Payments of interest on this Subordinated Note
(other than at maturity or upon earlier redemption) will be made by wire
transfer to such account as has been appropriately designated to the Paying
Agent by the person entitled to such payments.
This Subordinated Note is one of a duly authorized issue of Subordinated
Bank Notes due from five to fifteen years from date of issue of the Bank (herein
called the "Subordinated Notes").
Payments of interest hereon on any Interest Payment Date will include
interest accrued to, but excluding, such Interest Payment Date. Interest hereon
shall be computed on the basis of a 360-day year of twelve 30-day months.
-3-
<PAGE>
If any Interest Payment Date, Maturity Date or date of earlier redemption
of this Subordinated Note falls on a day which is not a Business Day, the
related payment of principal, premium, if any, or interest shall be made on the
next succeeding Business Day with the same force and effect as if made on the
date such payment were due, and no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date, Maturity Date
or date of earlier redemption, as the case may be. "Business Day" means any day
that is not a Saturday or Sunday and that is not a day on which banking
institutions in The City of New York or the City of Chicago, Illinois generally
are authorized or obligated by law or executive order to close.
The indebtedness of the Bank evidenced by this Subordinated Note, including
principal and interest, is unsecured and subordinate and junior in right of
payment to the Bank's obligations to its depositors, its obligations under
bankers' acceptances and letters of credit, and its obligations to its other
creditors (including any obligations to any Federal Reserve Bank and the Federal
Deposit Insurance Corporation), whether now outstanding or hereafter incurred,
other than any obligations which rank on a parity with, or junior to, the
Subordinated Notes. In the event of any insolvency proceeding, receivership,
conservatorship, reorganization, readjustment of debt, marshalling of assets and
liabilities or similar proceedings or any liquidation or winding-up of the Bank,
whether voluntary or involuntary, all such obligations (except obligations which
rank on a parity with, or junior to, the Subordinated Notes) shall be entitled
to be paid in full before any payment shall be made on account of the principal
of, or interest on, the Subordinated Notes. In the event of any such
proceeding, after payment in full of all sums owing with respect to such prior
obligations, the holders of the Subordinated Notes, together with the holders of
any obligations of the Bank ranking on a parity with the Subordinated Notes,
shall be entitled to be paid, from the remaining assets of the Bank, the unpaid
principal of, and the unpaid interest on, the Subordinated Notes or such other
obligations before any payment or other distribution, whether in cash, property,
or otherwise, shall be made on account of any capital stock or any obligations
of the Bank ranking junior to the Subordinated Notes.
The Subordinated Notes shall rank on a parity with the $100,000,000
aggregate principal amount of 6.5% Subordinated Notes due 2003 issued by the
Bank in 1993, and such other obligations which may be issued by the Bank which
are specifically designated as ranking on a parity with the Subordinated Notes
by express provision in the instruments creating or evidencing such obligations.
-4-
<PAGE>
This Subordinated Note will not be subject to any sinking fund. If so
provided on the face of this Subordinated Note and subject to the approval of
the Federal Reserve Bank of Chicago, this Subordinated Note may be redeemed by
the Bank on and after the Initial Redemption Date, if any, specified on the face
hereof. If no Initial Redemption Date is specified on the face hereof, this
Subordinated Note may not be redeemed prior to the Maturity Date. On and after
the Initial Redemption Date, if any, and subject to the approval of the Federal
Reserve Bank of Chicago, this Subordinated Note may be redeemed at any time
either in whole or in part from time to time in increments of $1,000 (provided
that any remaining principal amount hereof shall be at least $250,000) at the
option of the Bank at the applicable Redemption Price (as defined below),
together with accrued and unpaid interest hereon at the applicable rate borne by
this Subordinated Note to the date of redemption (each such date, a "Redemption
Date"), on written notice given not more than 60 nor less than 30 calendar days
prior to the Redemption Date by the Bank to the registered holder hereof.
Whenever less than all the Subordinated Notes at any time outstanding are to be
redeemed, the terms of the Subordinated Notes to be so redeemed shall be
selected by the Bank. If less than all the Subordinated Notes with identical
terms at any time outstanding are to be redeemed, the Subordinated Notes to be
so redeemed shall be selected by the Paying Agent by lot or in any usual manner
approved by it. In the event of redemption of this Subordinated Note in part
only, a new Subordinated Note for the unredeemed portion hereof shall be issued
in the name of the holder hereof upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Subordinated Note
to be redeemed and shall decline at each anniversary of the Initial Redemption
Date specified on the face hereof by the Annual Redemption Percentage Reduction,
if any, specified on the face hereof, of the principal amount to be redeemed
until the Redemption Price is 100% of such principal amount.
This Subordinated Note will not be repayable at the option of the holder
hereof prior to maturity.
If this Subordinated Note is an Original Issue Discount Note and if an
Event of Default with respect to this Subordinated Note shall have occurred and
be continuing, the Default Amount (as defined hereafter) of this Subordinated
Note may be declared due and payable in the manner and with the effect provided
herein. The "Default Amount" shall be equal to the adjusted issue price as of
the first day of the accrual period as determined under Proposed Treasury
Regulation Section 1.1272-1(e) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended, in which the date of
-5-
<PAGE>
acceleration occurs increased by the daily portion of the original issue
discount for each day in such accrual period ending on the date of acceleration,
as determined under Proposed Treasury Regulation Section 1.1272-1(c) (or
successor regulation) under the United States Internal Revenue Code of 1986, as
amended. Upon payment of (i) the amount of principal or premium, if any, so
declared due and payable and (ii) interest on any overdue principal and overdue
interest or premium, if any, (in each case to the extent that the payment of
such interest shall be legally enforceable), all of the Bank's obligations in
respect of the payment of the principal of, and interest or premium, if any, on,
this Subordinated Note shall terminate.
In case any Subordinated Note shall at any time become mutilated,
destroyed, lost or stolen and such Subordinated Note or evidence satisfactory to
the Bank of the loss, theft or destruction thereof (together with indemnity
satisfactory to the Bank and such other documents or proof as may be required in
the premises) shall be delivered to the Bank, a new Subordinated Note of like
tenor will be issued by the Bank in exchange for the Subordinated Note so
mutilated, or in lieu of the Subordinated Note so destroyed or lost or stolen.
All expenses and reasonable charges associated with procuring the indemnity
referred to above and with the preparation, authentication and delivery of a new
Subordinated Note shall be borne by the holder of the Subordinated Note so
mutilated, destroyed, lost or stolen. If any Subordinated Note which has
matured or is about to mature shall become mutilated, destroyed, lost or stolen,
the Bank may, instead of issuing a substitute Subordinated Note, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Subordinated Note) upon compliance by the holder thereof with the
provisions of this paragraph.
No recourse shall be had for the payment of the principal of, premium, if
any, or interest on, this Subordinated Note, for any claim based hereon, or
otherwise in respect hereof, against any shareholder, employee, officer or
director, as such, past, present or future, of the Bank or of any successor
corporation, either directly or through the Bank or any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and part of the consideration for the issue hereof,
expressly waived and released.
An "Event of Default" with respect to this Subordinated Note will occur if
the Bank shall consent to, or a court or other governmental agency shall enter a
decree or order for, the appointment of a receiver or other similar official in
any liquidation, insolvency or similar proceeding with respect to the Bank or
all or substantially
-6-
<PAGE>
all of its property and, in the case of a decree or order, such decree or order
shall have remained in force for a period of 60 days. If an Event of Default
shall occur and be continuing, the holder of this Subordinated Note may declare
the principal amount of, and accrued interest and premium, if any, on, this
Subordinated Note due and payable immediately by written notice to the Bank.
Upon such declaration and notice, such principal amount, accrued interest and
premium, if any, shall become due and payable seven calendar days after such
notice. Any Event of Default with respect to this Subordinated Note may be
waived by the holder hereof. NO PAYMENT MAY BE MADE ON THIS SUBORDINATED NOTE IN
THE EVENT OF ACCELERATION RESULTING FROM AN EVENT OF DEFAULT WITHOUT THE PRIOR
WRITTEN CONSENT OF THE FEDERAL RESERVE BANK OF CHICAGO. THERE IS NO RIGHT OF
ACCELERATION IN THE CASE OF A DEFAULT IN THE PAYMENT OF PRINCIPAL OF, OR
INTEREST ON, THIS SUBORDINATED NOTE OR IN THE PERFORMANCE OF ANY OTHER
OBLIGATION OF THE BANK UNDER THIS SUBORDINATED NOTE OR UNDER ANY OTHER SECURITY
ISSUED BY THE BANK.
No provision of this Subordinated Note shall alter or impair the obligation
of the Bank, which is absolute and unconditional, to pay the principal of, and
premium, if any, and interest on, this Subordinated Note in U.S. dollars at the
times, places and rate herein prescribed.
The Bank shall cause to be kept at the corporate trust office of the
Subordinated Note Registrar designated below a register (the register maintained
in such corporate trust office or any other office or agency of the Bank in the
Place of Payment herein referred to as the "Subordinated Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Bank
shall provide for the registration of the Subordinated Notes and of transfers of
the Subordinated Notes. The Bank is hereby initially appointed "Subordinated
Note Registrar" for the purpose of registering the Subordinated Notes and
transfers of the Subordinated Notes as herein provided.
The transfer of this Subordinated Note is registrable in the Subordinated
Note Register, upon surrender of this Subordinated Note for registration of
transfer at the office or agency of the Bank in the Place of Payment, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Bank and the Paying Agent duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Subordinated Notes of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. Notwithstanding the foregoing, the Bank shall not be required to
register the transfer of any Subordinated
-7-
<PAGE>
Note that has been called for redemption during a period beginning at the
opening of business fifteen calendar days before the day of mailing of a notice
of such redemption and ending at the close of business on the day of such
mailing.
No service charge shall be made for any such registration of transfer or
exchange, but the Bank may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
The Subordinated Notes are issuable only in registered form without coupons
in minimum denominations of $250,000 and any integral multiple of $1,000 in
excess thereof. Each owner of a beneficial interest in this Subordinated Note
is required to hold a beneficial interest in $250,000 principal amount or any
integral multiple of $1,000 in excess thereof of this Subordinated Note at all
times.
Prior to due presentment of this Subordinated Note for registration of
transfer, the Bank, the Paying Agent or any agent of the Bank or the Paying
Agent may treat the person in whose name this Subordinated Note is registered as
the owner hereof for all purposes, whether or not this Subordinated Note be
overdue, and neither the Bank, the Paying Agent nor any such agent shall be
affected by notice to the contrary.
All notices to the Bank under this Subordinated Note shall be in writing
and addressed to the Bank at 50 South LaSalle Street (Level BB-A), Chicago,
Illinois 60675, Attention: Securities Services, or to such other address of the
Bank as the Bank may notify the holders of the Subordinated Notes.
This Subordinated Note shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
IN WITNESS WHEREOF, the Bank has caused this instrument to be duly
executed.
THE NORTHERN TRUST COMPANY
By:
-----------------------
Authorized Signatory
-8-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Subordinated Note, shall be construed as though they were written out
in full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT - Custodian
-------------- -------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
-----------------------
(State)
Additional abbreviations may also be used
though not in the above list.
-9-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
-----------------------------------------------------
- - ----------------------------------------------------------------------
PLEASE INSET SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
----------------------------
----------------------------
- - ----------------------------------------------------------------------
- - ----------------------------------------------------------------------
(Please print or typewrite name and address,
including postal zip code, of assignee)
- - ----------------------------------------------------------------------
the within Subordinated Note and all rights thereunder, and hereby
irrevocably constitutes and appoints
----------------------------------
- - ----------------------------------------------------------------------
- - ----------------------------------------------------------------------
to transfer said Subordinated Note on the books of the Bank, with full
power of substitution in the premises.
Dated:
----------------
--------------------------------
Notice: The signature to this
assignment must correspond with
the names as written upon the
face of the within Subordinated
Note in every particular,
without alteration or
enlargement or any change
whatsoever.
-10-
<PAGE>
Exhibit Number (4)(iv)
To 6/30/98 Form 10-Q
Rev. 7/98
UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE
BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
SUBORDINATED NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR,
OR IN LIEU OF, THIS SUBORDINATED NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
IF THIS SUBORDINATED NOTE IS ISSUED WITH "ORIGINAL ISSUE DISCOUNT" FOR
PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE
FOLLOWING SHALL BE COMPLETED: THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR
PURPOSES OF APPLYING SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED, TO THIS SUBORDINATED NOTE. THE ISSUE DATE OF
THIS SUBORDINATED NOTE IS . THE ISSUE PRICE OF THIS SUBORDINATED
-------------
NOTE IS % OF ITS PRINCIPAL AMOUNT. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
-----
ON THIS SUBORDINATED NOTE IS $ PER $1,000 OF THE INITIAL PRINCIPAL
---------
AMOUNT, THE YIELD TO MATURITY IS %, AND THE AMOUNT OF THE ORIGINAL ISSUE
----
DISCOUNT ALLOCABLE TO THE INITIAL SHORT ACCRUAL PERIOD, IF ANY, IS $ PER
-----
$1,000 OF THE INITIAL PRINCIPAL AMOUNT, DETERMINED ON THE BASIS OF THE EXACT
METHOD.
No. SUB FLR- REGISTERED
--------------
CUSIP NO.:
------------------------
THE NORTHERN TRUST COMPANY
GLOBAL SUBORDINATED BANK NOTE
(FLOATING RATE)
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INITIAL INTEREST RATE: % MATURITY DATE:
------
INTEREST RATE BASIS: INDEX MATURITY:
<PAGE>
SPREAD AND/OR SPREAD REGULAR RECORD DATES (If
MULTIPLIER: other than the 15th day
prior to each Interest
Payment Date):
MAXIMUM INTEREST RATE: MINIMUM INTEREST RATE:
INTEREST PAYMENT DATES: INTEREST PAYMENT PERIOD:
INTEREST RESET DATES: INTEREST RESET PERIOD:
INITIAL REDEMPTION DATE: ANNUAL REDEMPTION
PERCENTAGE
REDUCTION:
INITIAL REDEMPTION PERCENTAGE:
ORIGINAL ISSUE DISCOUNT NOTE: OID AMOUNT:
Yes: No:
------ -----
OTHER PROVISIONS: CALCULATION AGENT:
ALTERNATE RATE EVENT SPREAD:
The Northern Trust Company, an Illinois banking corporation (the "Bank"),
for value received, hereby promises to pay to Cede & Co., or registered assigns,
the principal amount specified on the face hereof in United States Dollars on
the Maturity Date specified above and to pay interest thereon from the Original
Issue Date specified above or from the most recent interest payment date (or, if
the Interest Reset Period specified above is daily or weekly, from, and
including, the day following the most recent Regular Record Date) to which
interest on this Subordinated Note (or any predecessor Subordinated Note) has
been paid or duly provided for (each, an "Interest Payment Date"), on the
Interest Payment Dates specified above and at maturity or upon earlier
redemption, if applicable, commencing on the first Interest Payment Date next
succeeding the Original Issue Date (or, if the Original Issue Date is between a
Regular Record Date and the Interest Payment Date immediately following such
Regular Record Date, on the second Interest Payment Date following the Original
Issue Date), at a rate per annum equal to the Initial Interest Rate specified
above until the first Interest Reset Date following the Original Issue Date and,
on and after such Interest
-2-
<PAGE>
Reset Date, at the rate determined in accordance with the provisions set forth
herein, until the principal hereof is paid or made available for payment, and
(to the extent that the payment of such interest shall be legally enforceable)
at the last rate in effect prior to any payment default on any overdue principal
and premium, if any, and on any overdue installment of interest. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will be paid to the person in whose name this Subordinated Note (or any
predecessor Subordinated Note) is registered at the close of business on the
Regular Record Date for such interest, which shall be the 15th calendar day
(whether or not a Business Day (as defined below)) before such Interest Payment
Date (unless otherwise specified on the face hereof); provided, however, that
interest payable at maturity or upon earlier redemption, if applicable, will be
payable to the person to whom principal shall be payable. Any such interest not
so punctually paid or duly provided for shall forthwith cease to be payable to
the holder on such Regular Record Date and may either be paid to the person in
whose name this Subordinated Note (or any predecessor Subordinated Note) is
registered at the close of business on a special record date for the payment of
such defaulted interest (the "Special Record Date") to be fixed by the Bank,
notice of which shall be given to the holders of Subordinated Notes not less
than 10 calendar days prior to such Special Record Date, or be paid at any time
in any other lawful manner.
Payment of principal of, and premium, if any, and interest on, this
Subordinated Note will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. The Bank will at all times appoint and maintain a paying agent
(the "Paying Agent") authorized by the Bank to pay the principal of, and
premium, if any, and interest on, this Subordinated Note on behalf of the Bank
and having an office or agency (the "Paying Agent Office") in The City of New
York or the City of Chicago, Illinois (the "Place of Payment"), where this
Subordinated Note may be presented or surrendered for payment and where notices,
designations or requests in respect of payments with respect to this
Subordinated Note may be served. The Bank has initially appointed itself as
such Paying Agent, with the Paying Agent Office currently located at 50 South
LaSalle Street (Level BB-A), Chicago, Illinois 60675, Attention: Securities
Services.
-3-
<PAGE>
THIS SUBORDINATED NOTE IS A DIRECT, UNCONDITIONAL AND UNSECURED GENERAL
OBLIGATION OF THE BANK, DOES NOT EVIDENCE A DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS
SUBORDINATED NOTE IS SUBORDINATE TO THE CLAIMS OF DEPOSITORS AND GENERAL
CREDITORS OF THE BANK.
Payment of the principal of, and premium, if any, and interest on, this
Subordinated Note due at maturity or upon earlier redemption, if applicable,
will be made in immediately available funds upon presentation and surrender of
this Subordinated Note to the Paying Agent at the Paying Agent Office in the
Place of Payment; provided that this Subordinated Note is presented to the
Paying Agent in time for the Paying Agent to make such payment in accordance
with its normal procedures. Payments of interest on this Subordinated Note
(other than at maturity or upon earlier redemption) will be made by wire
transfer to such account as has been appropriately designated to the Paying
Agent by the person entitled to such payments.
This Subordinated Note is one of a duly authorized issue of Subordinated
Bank Notes due from five to fifteen years from date of issue of the Bank (herein
called the "Subordinated Notes").
Unless otherwise indicated on the face hereof, if the rate of interest on
this Subordinated Note resets daily, weekly or monthly, the Interest Payment
Date for this Subordinated Note will be the third Wednesday of each month; if
the rate of interest on this Subordinated Note resets quarterly, the Interest
Payment Date for this Subordinated Note will be the third Wednesday of March,
June, September and December of each year; if the rate of interest on this
Subordinated Note resets semi-annually, the Interest Payment Date for this
Subordinated Note will be the third Wednesday of each of two months of each year
specified on the face hereof that are six months apart; and if the rate of
interest on this Subordinated Note resets annually, the Interest Payment Date
for this Subordinated Note will be the third Wednesday of the month specified on
the face hereof. If any Interest Payment Date, Maturity Date or date of earlier
redemption of this Subordinated Note falls on a day that is not a Business Day,
such Interest Payment Date, Maturity Date or date of earlier redemption will be
the next succeeding Business Day; provided, however, that, if the Interest Rate
Basis specified on
-4-
<PAGE>
the face hereof is LIBOR and such next succeeding Business Day is in the next
succeeding calendar month, such Interest Payment Date, Maturity Date or date of
earlier redemption will be the immediately preceding Business Day. "Business
Day" means any day that is not a Saturday or Sunday and that is not a day on
which banking institutions in The City of New York or the City of Chicago,
Illinois generally are authorized or obligated by law or executive order to
close, and with respect to Subordinated Notes with respect to which the Interest
Rate Basis specified on the face hereof is LIBOR, any day on which dealings in
deposits in U.S. dollars are transacted in the London interbank market (a
"London Business Day").
The indebtedness of the Bank evidenced by this Subordinated Note, including
principal and interest, is unsecured and subordinate and junior in right of
payment to the Bank's obligations to its depositors, its obligations under
bankers' acceptances and letters of credit, and its obligations to its other
creditors (including any obligations to any Federal Reserve Bank and the Federal
Deposit Insurance Corporation), whether now outstanding or hereafter incurred,
other than any obligations which rank on a parity with, or junior to, the
Subordinated Notes. In the event of any insolvency proceeding, receivership,
conservatorship, reorganization, readjustment of debt, marshalling of assets and
liabilities or similar proceedings or any liquidation or winding-up of the Bank,
whether voluntary or involuntary, all such obligations (except obligations which
rank on a parity with, or junior to, the Subordinated Notes) shall be entitled
to be paid in full before any payment shall be made on account of the principal
of, or interest on, the Subordinated Notes. In the event of any such
proceeding, after payment in full of all sums owing with respect to such prior
obligations, the holders of the Subordinated Notes, together with the holders of
any obligations of the Bank ranking on a parity with the Subordinated Notes,
shall be entitled to be paid, from the remaining assets of the Bank, the unpaid
principal of, and the unpaid interest on, the Subordinated Notes or such other
obligations before any payment or other distribution, whether in cash, property,
or otherwise, shall be made on account of any capital stock or any obligations
of the Bank ranking junior to the Subordinated Notes.
-5-
<PAGE>
The Subordinated Notes shall rank on a parity with the $100,000,000
aggregate principal amount of 6.5% Subordinated Notes due 2003 issued by the
Bank in 1993, and such other obligations which may be issued by the Bank which
are specifically designated as ranking on a parity with the Subordinated Notes
by express provision in the instruments creating or evidencing such obligations.
This Subordinated Note will not be subject to any sinking fund. If so
provided on the face of this Subordinated Note and subject to the approval of
the Federal Reserve Bank of Chicago, this Subordinated Note may be redeemed by
the Bank on and after the Initial Redemption Date, if any, specified on the face
hereof. If no Initial Redemption Date is specified on the face hereof, this
Subordinated Note may not be redeemed prior to the Maturity Date. On and after
the Initial Redemption Date, if any, and subject to the approval of the Federal
Reserve Bank of Chicago, this Subordinated Note may be redeemed at any time
either in whole or in part from time to time in increments of $1,000 (provided
that any remaining principal amount hereof shall be at least $250,000) at the
option of the Bank at the applicable Redemption Price (as defined below),
together with accrued and unpaid interest hereon at the applicable rate borne by
this Subordinated Note to the date of redemption (each such date, a "Redemption
Date"), on written notice given not more than 60 nor less than 30 calendar days
prior to the Redemption Date by the Bank to the registered holder hereof.
Whenever less than all the Subordinated Notes at any time outstanding are to be
redeemed, the terms of the Subordinated Notes to be so redeemed shall be
selected by the Bank. If less than all the Subordinated Notes with identical
terms at any time outstanding are to be redeemed, the Subordinated Notes to be
so redeemed shall be selected by the Paying Agent by lot or in any usual manner
approved by it. In the event of redemption of this Subordinated Note in part
only, a new Subordinated Note for the unredeemed portion hereof shall be issued
in the name of the holder hereof upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Subordinated Note
to be redeemed and shall decline at each anniversary of the Initial Redemption
Date specified on the face hereof by the Annual Redemption Percentage
-6-
<PAGE>
Reduction, if any, specified on the face hereof, of the principal amount to be
redeemed until the Redemption Price is 100% of such principal amount.
This Subordinated Note will not be repayable at the option of the holder
hereof prior to maturity.
The rate of interest on this Subordinated Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each such period, an "Interest
Reset Period" for this Subordinated Note, and the first calendar day of an
Interest Reset Period, an "Interest Reset Date"), as specified on the face
hereof. Unless otherwise indicated on the face hereof, if this Subordinated
Note resets daily, the Interest Reset Date will be each Business Day; if this
Subordinated Note resets weekly and the Interest Rate Basis is not the Treasury
Rate, the Interest Reset Date will be the Wednesday of each week; if this
Subordinated Note resets weekly and the Interest Rate Basis is the Treasury
Rate, the Interest Reset Date will be the Tuesday of each week (except as
provided below); if this Subordinated Note resets monthly and the Interest Rate
Basis is not the 11th District Cost of Funds Rate, the Interest Reset Date will
be the third Wednesday of each month; if this Subordinated Note resets monthly
and the Interest Rate Basis is the 11th District Cost of Funds Rate, the
Interest Reset Date will be the first calendar day of each month; if this
Subordinated Note resets quarterly, the Interest Reset Date will be the third
Wednesday of March, June, September and December; if this Subordinated Note
resets semi-annually, the Interest Reset Date will be the third Wednesday of
each of two months of each year which are six months apart, as specified on the
face hereof; and if this Subordinated Note resets annually, the Interest Reset
Date will be the third Wednesday of one month of each year, as specified on the
face hereof; provided, however, that (i) the interest rate in effect from the
Original Issue Date to the first Interest Reset Date will be the Initial
Interest Rate specified on the face hereof, and (ii) the interest rate in effect
for the ten calendar days immediately prior to maturity or earlier redemption
hereof will be the interest rate in effect on the tenth calendar day preceding
such Maturity Date or date of earlier redemption, as the case may be. If any
Interest Reset Date with respect to this Subordinated Note would otherwise be a
day that is not a Business Day, such Interest Reset Date will be the next
succeeding
-7-
<PAGE>
Business Day, except that in the case that the Interest Rate Basis specified on
the face hereof is LIBOR, if such Business Day is in the next succeeding
calendar month, such Interest Reset Date will be the immediately preceding
Business Day.
Except as otherwise specified in this paragraph, the rate of interest on
this Subordinated Note for each Interest Reset Date shall be the rate determined
in accordance with the provisions set forth under the applicable heading below
corresponding to the Interest Rate Basis specified on the face hereof:
Commercial Paper Rate. If the Interest Rate Basis of this Subordinated
---------------------
Note is the Commercial Paper Rate, the interest rate hereon for any Interest
Reset Date shall equal the Commercial Paper Rate (as determined below), as
adjusted (x) by the addition or subtraction of the Spread, if any, specified on
the face hereof and/or (y) by the multiplication by the Spread Multiplier, if
any, specified on the face hereof. "Commercial Paper Rate" means, with respect
to any Commercial Paper Interest Determination Date (as defined below), the
Money Market Yield (calculated as described below) of the rate on the relevant
Commercial Paper Interest Determination Date for commercial paper having the
Index Maturity specified on the face hereof as such rate is published by the
Board of Governors of the Federal Reserve System in the weekly statistical
release entitled "Statistical Release H.15(519), Selected Interest Rates" or any
successor publication published by the Board of Governors of the Federal Reserve
System ("H.15(519)") under the heading "Commercial Paper - Nonfinancial". If
such rate is not published prior to 3:00 P.M., New York City time, on the
Calculation Date pertaining to such Commercial Paper Interest Determination
Date, then the Commercial Paper Rate will be the Money Market Yield (calculated
as described below) of the rate on such Commercial Paper Interest Determination
Date for commercial paper having the Index Maturity specified on the face hereof
as such rate is published by the Federal Reserve Bank of New York in its daily
statistical release entitled "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication published by the Federal Reserve Bank
of New York ("Composite Quotations") under the heading "Commercial Paper". If
such rate is published in neither H.15(519) nor in Composite Quotations by 3:00
P.M., New York City time, on such Calculation Date, the Commercial Paper Rate
for such Commercial Paper Interest
-8-
<PAGE>
Determination Date will be the Money Market Yield of the arithmetic mean of the
offered rates as of 11:00 A.M., New York City time, on such Commercial Paper
Interest Determination Date, of three leading dealers of commercial paper in The
City of New York (which may include one or more of the Agents (as defined
below)) selected by the Calculation Agent for commercial paper having the Index
Maturity specified on the face hereof placed for an industrial issuer whose
senior unsecured bond rating is "AA", or the equivalent, from at least two
nationally recognized rating agencies; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the Commercial Paper Rate determined on such Commercial Paper
Interest Determination Date will be the Commercial Paper Rate in effect on such
Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
D x 360
Money Market Yield = ------------- x 100
360 - (D x M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
LIBOR. If the Interest Rate Basis of this Subordinated Note is LIBOR, the
-----
interest rate hereon for any Interest Reset Date shall equal LIBOR (as
determined below), as adjusted (x) by the addition or subtraction of the Spread,
if any, specified on the face hereof and/or (y) by the multiplication by the
Spread Multiplier, if any, specified on the face hereof. LIBOR shall be
determined by the Calculation Agent in accordance with the following provisions:
(a) With respect to any LIBOR Interest Determination Date (as defined
below), LIBOR will be either: (i) if "LIBOR Reuters" is specified on the
face hereof, the arithmetic mean of the offered rates for deposits in U.S.
dollars having the Index Maturity specified on the face hereof, commencing
on the second London Business Day immediately following such LIBOR Interest
Determination Date, that appear on the Reuters Screen LIBO Page (as defined
below) as of 11:00 A.M. London time on such LIBOR Interest Determination
Date, if at least two such offered rates appear on the Reuters Screen LIBO
Page, or (ii) if "LIBOR Telerate" is specified on the face hereof, the rate
for deposits in U.S. dollars having the Index Maturity specified on the
face hereof, commencing on the second London Business Day immediately
-9-
<PAGE>
following such LIBOR Interest Determination Date, that appears on Telerate
Page 3750 (as defined below) as of 11:00 A.M. London time, on such LIBOR
Interest Determination Date. The "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service
for purposes of displaying London interbank offered rates of major banks).
"Telerate Page 3750" means the display designated as page 3750 on the Dow
Jones Telerate Service (or such other page or pages as may replace the 3750
page on that service or such other service or services as may be nominated
by the British Bankers' Association for the purpose of displaying London
interbank offered rates for U.S. dollar deposits). If neither LIBOR
Reuters nor LIBOR Telerate is specified on the face hereof, LIBOR will be
determined as if LIBOR Reuters has been specified. Notwithstanding the
foregoing, if fewer than two offered rates appear on the Reuters Screen
LIBO Page, or no rate appears on Telerate Page 3750, as applicable, LIBOR
in respect of a related LIBOR Interest Determination Date will be
determined as if the parties had specified the rate described in paragraph
(b) below.
(b) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Reuters Screen LIBO Page, as specified
in paragraph (a)(i) above, or on which no rate appears on Telerate Page
3750, as specified in paragraph (a)(ii) above, as the case may be, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits for the period of the Index Maturity specified on
the face hereof, commencing on the second London Business Day immediately
following such LIBOR Interest Determination
-10-
<PAGE>
Date, to prime banks in the London interbank market at approximately 11:00
A.M., London time, on such LIBOR Interest Determination Date and in a
principal amount of not less than $1,000,000 that is representative for a
single transaction in such market at such time. If at least two such
quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date will be the arithmetic mean of such quotations. If fewer
than two quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 A.M. New York City time on such LIBOR Interest
Determination Date by three major banks in The City of New York selected by
the Calculation Agent for loans in U.S. dollars to leading European banks,
having the Index Maturity specified on the face hereof, commencing on the
second London Business Day following such LIBOR Interest Determination
Date, and in a principal amount of not less than $1,000,000 that is
representative for a single transaction in such market at such time;
provided, however, that if the banks so selected by the Calculation Agent
are not quoting as mentioned in this sentence, LIBOR determined on such
LIBOR Interest Determination Date will be LIBOR as in effect on such LIBOR
Interest Determination Date.
Treasury Rate. If the Interest Rate Basis of this Subordinated Note is the
-------------
Treasury Rate, the interest rate hereon for any Interest Reset Date shall equal
the Treasury Rate (as determined below) as adjusted (x) by the addition or
subtraction of the Spread, if any, specified on the face hereof and/or (y) by
the multiplication by the Spread Multiplier, if any, specified on the face
hereof. "Treasury Rate" means the rate for the most recent auction of direct
obligations of the United States ("Treasury bills") having the Index Maturity
specified on the face hereof, as such rate is published in H.15(519) under the
heading "U.S. Government Securities/Treasury Bills/Auction Average (Investment)"
or, if such rate is not so published by 3:00 P.M., New York City time, on the
Calculation Date, the auction average rate (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) for such auction as otherwise announced by the United States Department
of the Treasury by 3:00 P.M., New York City time, on such Calculation Date. If
the results of the auction of Treasury bills having the Index Maturity specified
on
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<PAGE>
the face hereof are neither published in H.15(519) nor otherwise published or
reported as provided above by 3:00 P.M., New York City time, on such Calculation
Date, or if no such auction is held in a particular week, then the Treasury Rate
will be calculated by the Calculation Agent and will be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates as of 3:30 P.M., New York City time, on such Treasury
Interest Determination Date (as defined below), of three leading primary United
States government securities dealers in The City of New York selected by the
Calculation Agent, for the issue of Treasury bills with a remaining maturity
closest to the Index Maturity specified on the face hereof or, if there are two
such issues which are equidistant from the Index Maturity specified on the face
hereof, then the longer of the two; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined on such Treasury Interest
Determination Date will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
CD Rate. If the Interest Rate Basis of this Subordinated Note is the CD
-------
Rate, the interest rate hereon for any Interest Reset Date shall equal the CD
Rate (as determined below), as adjusted (x) by the addition or subtraction of
the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"CD Rate" means the rate on the relevant CD Interest Determination Date (as
defined below) for negotiable certificates of deposit having the Index Maturity
specified on the face hereof, as published in H.15(519) under the heading "CDs
(Secondary Market)". If such rate is not so published before 3:00 P.M., New
York City time, on the Calculation Date pertaining to such CD Interest
Determination Date, then the CD Rate will be the rate on such CD Interest
Determination Date for negotiable certificates of deposit having the Index
Maturity specified on the face hereof as published in Composite Quotations under
the heading "Certificates of Deposit". If such rate is published neither in
H.15(519) nor in Composite Quotations by 3:00 P.M., New York City time, on such
Calculation Date, the CD Rate will be calculated by the Calculation Agent and
will be the arithmetic mean of the secondary market offered rates as of 10:00
A.M., New
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<PAGE>
York City time, on such CD Interest Determination Date, of three leading non-
bank dealers of negotiable U.S. dollar certificates of deposit in The City of
New York (which may include one or more of the Agents) selected by the
Calculation Agent for negotiable certificates of deposit of the four highest
rated banks (as rated by two nationally recognized rating agencies) of the 25
largest United States banks based on the most recent year-end survey published
in The American Banker (or a comparable publication) with a remaining maturity
-------------------
closest to the Index Maturity specified on the face hereof in a denomination of
$5,000,000; provided, however, that, if the dealers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the CD Rate
determined on such CD Interest Determination Date will be the CD Rate in effect
on such CD Interest Determination Date.
Federal Funds Rate. If the Interest Rate Basis of this Subordinated Note
------------------
is the Federal Funds Rate, the interest rate hereon for any Interest Reset Date
shall equal the Federal Funds Rate (as determined below, as adjusted (x) by the
addition or subtraction of the Spread, if any, specified on the face hereof
and/or (y) by the multiplication by the Spread Multiplier, if any, specified on
the face hereof. "Federal Funds Rate" means the rate on the relevant Federal
Funds Interest Determination Date (as defined below) for Federal Funds having
the Index Maturity specified on the face hereof, as published in H.15(519) under
the heading "Federal Funds (Effective)". If such rate is not published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Federal
Funds Interest Determination Date, then the Federal Funds Rate will be the rate
on such Federal Funds Interest Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate". If such rate is
published neither in H.15(519) nor in Composite Quotations by 3:00 P.M., New
York City time, on such Calculation Date, the Federal Funds Rate will be
calculated by the Calculation Agent and will be the arithmetic mean of the
rates, as of 3:00 P.M., New York City time, on such Federal Funds Interest
Determination Date, for the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in The City of New York
(which may include one or more of the Agents) selected by the Calculation Agent;
provided, however, that if the brokers selected as aforesaid by the Calculation
Agent are not quoting as mentioned
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<PAGE>
in this sentence, the Federal Funds Rate determined on such Federal Funds
Interest Determination Date will be the Federal Funds Rate in effect on such
Federal Funds Interest Determination Date.
Prime Rate. If the Interest Rate Basis of this Subordinated Note is the
----------
Prime Rate, the interest rate hereon for any Interest Reset Date shall equal the
Prime Rate (as determined below), as adjusted (x) by the addition or subtraction
of the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"Prime Rate" means the rate set forth on the relevant Prime Interest
Determination Date (as defined below) in H.15(519) under the heading "Bank Prime
Loan". If such rate is not published prior to 9:00 A.M., New York City time, on
the Calculation Date pertaining to such Prime Interest Determination Date, then
the Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as defined below) as such bank's
prime rate or base lending rate as in effect for such Prime Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page on such Prime Interest Determination Date, the Prime Rate will be
determined by the Calculation Agent and will be the arithmetic mean of the prime
rates quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Interest Determination
Date by four major money center banks in The City of New York selected by the
Calculation Agent. If fewer than four such quotations are so provided, then the
Prime Rate will be the arithmetic mean of four prime rates quoted on the basis
of the actual number of days in the year divided by a 360-day year as of the
close of business on such Prime Interest Determination Date as furnished in The
City of New York by the major money center banks, if any, that have provided
such quotations and by as many substitute banks or trust companies as necessary
in order to obtain four such prime rate quotations, provided such substitute
banks or trust companies are organized and doing business under the laws of the
United States, or any State thereof, each having total equity capital of at
least $500,000,000 and being subject to supervision or examination by Federal or
State authority, selected by the Calculation Agent to provide such rate or
rates; provided, however, that if the banks
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<PAGE>
or trust companies selected as aforesaid by the Calculation Agent are not
quoting as mentioned in this sentence, the Prime Rate determined on such Prime
Interest Determination Date will be the Prime Rate in effect on such Prime
Interest Determination Date. "Reuters Screen USPRIME1 Page" means the display
designated as page "USPRIME1" on the Reuters Monitor Money Rates Service (or
such other page as may replace the USPRIME1 page on that service for the purpose
of displaying prime rates or base lending rates of major United States banks).
11th District Cost of Funds Rate Notes. If the Interest Rate Basis of this
--------------------------------------
Subordinated Note is the 11th District Cost of Funds Rate, the interest rate
hereon for any Interest Reset Date shall equal the 11th District Cost of Funds
Rate (as determined below), as adjusted (x) by the addition or subtraction of
the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"11th District Cost of Funds Rate" means the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which the relevant 11th District Cost of Funds Interest Determination
Date (as defined below) falls, as set forth under the caption "11th District" on
Telerate Page 7058 (as defined below) as of 11:00 A.M., San Francisco time, on
such 11th District Cost of Funds Interest Determination Date. If such rate does
not appear on Telerate Page 7058 on any related 11th District Cost of Funds
Interest Determination Date, the 11th District Cost of Funds Rate for such 11th
District Cost of Funds Interest Determination Date shall be the monthly weighted
average cost of funds paid by member institutions of the 11th Federal Home Loan
Bank District that was most recently announced (the "11th District Cost of Funds
Index") by the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") as such cost of funds for the calendar month immediately preceding
the date of such announcement. If the FHLB of San Francisco fails to announce
such rate for the calendar month immediately preceding such 11th District Cost
of Funds Interest Determination Date, then the 11th District Cost of Funds Rate
determined as of such 11th District Cost of Funds Interest Determination Date
will be the 11th District Cost of Funds Rate in effect on such 11th District
Cost of Funds Interest Determination Date.
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<PAGE>
"Telerate Page 7058" means the display designated as page "7058" on the Dow
Jones Telerate Service (or such other page as may replace the 7058 page on that
service for the purpose of displaying the monthly weighted average cost of funds
paid by member institutions of the 11th Federal Home Loan Bank District).
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, specified on the face hereof and
shall not be lower than the Minimum Interest Rate, if any, specified on the face
hereof. In addition, the interest rate hereon will in no event be higher than
the maximum rate permitted by Illinois law, as the same may be modified by
United States law of general application.
The Bank will at all times appoint and maintain a banking institution as
Calculation Agent hereunder. Unless otherwise specified on the face hereof, the
Bank has initially appointed itself as Calculation Agent. Upon the request of
the holder of this Subordinated Note, the Calculation Agent will provide the
interest rate then in effect, and, if different, the interest rate which will
become effective as a result of a determination made on the most recent Interest
Determination Date with respect to this Subordinated Note.
Unless otherwise specified on the face hereof, all percentages resulting
from any calculation on this Subordinated Note will be rounded, if necessary, to
the nearest one-hundred thousandth of a percentage point, with five one-
millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545)
----
being rounded to 9.87655% (or .0987655) and 9.876544% (or .09876544) being
rounded to 9.87654% (or .0987654)), and all dollar amounts used in or resulting
from such calculation on this Subordinated Note will be rounded to the nearest
cent (with one-half cent being rounded upwards). The interest rate in effect on
any Interest Reset Date will be the applicable rate as reset on such Interest
Reset Date. The interest rate applicable to any other day is the interest rate
from the immediately preceding Interest Reset Date (or, if none, the Initial
Interest Rate). The Calculation Agent's determination of any interest rate will
be final and binding in the absence of manifest error.
The Interest Determination Date pertaining to an Interest Reset Date if the
rate of interest hereon shall be determined in
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<PAGE>
accordance with the provisions under the headings above entitled "Commercial
Paper Rate" (the "Commercial Paper Interest Determination Date"), "CD Rate" (the
"CD Interest Determination Date"), "Federal Funds Rate" (the "Federal Funds
Interest Determination Date") or "Prime Rate" (the "Prime Interest Determination
Date") will be the second Business Day preceding such Interest Reset Date. The
Interest Determination Date pertaining to an Interest Reset Date if the rate of
interest hereon shall be determined in accordance with the provisions under the
heading above entitled "11th District Cost of Funds Rate" (the "11th District
Cost of Funds Interest Determination Date") will be the last working day of the
month immediately preceding such Interest Reset Date on which the FHLB of San
Francisco publishes the 11th District Cost of Funds Index. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "LIBOR" (the "LIBOR Interest Determination Date") will be the
second London Business Day preceding such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "Treasury Rate" (the "Treasury Interest Determination Date") will
be that day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is usually held on the following Tuesday, except that such
auction may be held on the preceding Friday. If, as the result of a legal
holiday, an auction is so held on the preceding Friday, such Friday will be the
Treasury Interest Determination Date pertaining to the Interest Reset Date
occurring in the next succeeding week. If an auction date shall fall on any
Interest Reset Date for a Subordinated Note with respect to which the Interest
Rate Basis specified on the face hereof is the Treasury Rate, then such Interest
Reset Date shall instead be the first Business Day immediately following such
auction date.
The Calculation Date pertaining to the Interest Determination Date for any
Subordinated Note shall be the tenth calendar day after such Interest
Determination Date or, if any such day is not a Business Day, the next
succeeding Business Day.
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Payments of interest hereon with respect to any Interest Payment Date will
include interest accrued from, and including, the Original Issue Date or from,
and including, the last date on which interest has been paid to, but excluding,
such Interest Payment Date; provided, however, that, if the Interest Reset
Period with respect to this Subordinated Note is daily or weekly, the interest
payable on any Interest Payment Date, other than interest payable on any date on
which principal of this Subordinated Note is payable, will include interest
accrued from, and including, the Original Issue Date or from, but excluding, the
last date in respect of which interest has been paid or made available for
payment, as the case may be, to, and including, the Regular Record Date next
preceding such Interest Payment Date, except that the interest payable at
maturity or upon earlier redemption will include interest accrued to, but
excluding, the Maturity Date or the date of earlier redemption, as the case may
be.
Accrued interest on this Subordinated Note from the Original Issue Date or
from the last date to which interest has been paid or duly provided is
calculated by multiplying the face amount of this Subordinated Note by an
accrued interest factor. Such accrued interest factor is computed by adding the
interest factor calculated for each day from the Original Issue Date or from the
last date to which interest has been paid or duly provided for, as the case may
be, to the date for which accrued interest is being calculated in the period for
which interest is being calculated. The interest factor for each such day is
computed by dividing the interest rate applicable to such date by 360, in the
case that the Interest Rate Basis specified on the face hereof is the Commercial
Paper Rate, LIBOR, CD Rate, Federal Funds Rate, Prime Rate or 11th District Cost
of Funds Rate, or by the actual number of days in the year, in the case that the
Interest Rate Basis specified on the face hereof is the Treasury Rate.
If this Subordinated Note is an Original Issue Discount Note and if an
Event of Default with respect to this Subordinated Note shall have occurred and
be continuing, the Default Amount (as defined hereafter) of this Subordinated
Note may be declared due and payable in the manner and with the effect provided
herein. The "Default Amount" shall be equal to the adjusted issue price as of
the first day of the accrual period as determined under Proposed Treasury
Regulation Section 1.1272-1(e) (or successor
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regulation) under the United States Internal Revenue Code of 1986, as amended,
in which the date of acceleration occurs increased by the daily portion of the
original issue discount for each day in such accrual period ending on the date
of acceleration, as determined under Proposed Treasury Regulation Section
1.1272- 1(c) (or successor regulation) under the United States Internal Revenue
Code of 1986, as amended. Upon payment of (i) the amount of principal or
premium, if any, so declared due and payable and (ii) interest on any overdue
principal and overdue interest or premium, if any (in each case to the extent
that the payment of such interest shall be legally enforceable), all of the
Bank's obligations in respect of the payment of the principal of, and interest
or premium, if any, on, this Subordinated Note shall terminate.
In case any Subordinated Note shall at any time become mutilated,
destroyed, lost or stolen and such Subordinated Note or evidence satisfactory to
the Bank of the loss, theft or destruction thereof (together with indemnity
satisfactory to the Bank and such other documents or proof as may be required in
the premises) shall be delivered to the Bank, a new Subordinated Note of like
tenor will be issued by the Bank in exchange for the Subordinated Note so
mutilated, or in lieu of the Subordinated Note so destroyed or lost or stolen.
All expenses and reasonable charges associated with procuring the indemnity
referred to above and with the preparation, authentication and delivery of a new
Subordinated Note shall be borne by the holder of the Subordinated Note so
mutilated, destroyed, lost or stolen. If any Subordinated Note which has
matured or is about to mature shall become mutilated, destroyed, lost or stolen,
the Bank may, instead of issuing a substitute Subordinated Note, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Subordinated Note) upon compliance by the holder thereof with the
provisions of this paragraph.
No recourse shall be had for the payment of the principal of, premium, if
any, or interest on, this Subordinated Note, for any claim based hereon, or
otherwise in respect hereof, against any shareholder, employee, officer or
director, as such, past, present or future, of the Bank or of any successor
corporation, either directly or through the Bank or any successor corporation,
whether by virtue of any constitution, statute or rule of law or
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by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
An "Event of Default" with respect to this Subordinated Note will occur if
the Bank shall consent to, or a court or other governmental agency shall enter a
decree or order for, the appointment of a receiver or other similar official in
any liquidation, insolvency or similar proceeding with respect to the Bank or
all or substantially all of its property and, in the case of a decree or order,
such decree or order shall have remained in force for a period of 60 days. If
an Event of Default shall occur and be continuing, the holder of this
Subordinated Note may declare the principal amount of, and accrued interest and
premium, if any, on, this Subordinated Note due and payable immediately by
written notice to the Bank. Upon such declaration and notice, such principal
amount, accrued interest and premium, if any, shall become due and payable seven
calendar days after such notice. Any Event of Default with respect to this
Subordinated Note may be waived by the holder hereof. No payment may be made on
this Subordinated Note in the event of acceleration resulting from an Event of
Default without the prior written consent of the Federal Reserve Bank of
Chicago. There is no right of acceleration in the case of a default in the
payment of principal of, or interest on, this Subordinated Note or in the
performance of any other obligation of the Bank under this Subordinated Note or
under any other security issued by the Bank.
No provision of this Subordinated Note shall alter or impair the obligation
of the Bank, which is absolute and unconditional, to pay the principal, and
premium, if any, and interest on, this Subordinated Note in U.S. dollars at the
times, places and rate herein prescribed.
The Bank shall cause to be kept at the corporate trust office of the
Subordinated Note Registrar designated below a register (the register maintained
in such corporate trust office or any other office or agency of the Bank in the
Place of Payment herein referred to as the "Subordinated Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Bank
shall provide for the registration of the Subordinated Notes and of transfers of
the Subordinated Notes. The Bank is hereby
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initially appointed "Subordinated Note Registrar" for the purposes of
registering the Subordinated Notes and transfers of the Subordinated Notes as
herein provided.
The transfer of this Subordinated Note is registrable in the Subordinated
Note Register, upon surrender of this Subordinated Note for registration of
transfer at the office or agency of the Bank in the Place of Payment, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Bank and the Paying Agent duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Subordinated Notes of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. Notwithstanding the foregoing, the Bank shall not be required to
register the transfer of any Subordinated Note that has been called for
redemption during a period beginning at the opening of business fifteen calendar
days before the day of mailing of a notice of such redemption and ending at the
close of business on the day of such mailing.
No service charge shall be made for any such registration of transfer or
exchange, but the Bank may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
The Subordinated Notes are issuable only in registered form without coupons
in minimum denominations of $250,000 and any integral multiple of $1,000 in
excess thereof. Each owner of a beneficial interest in this Subordinated Note
is required to hold a beneficial interest in $250,000 principal amount or any
integral multiple of $1,000 in excess thereof of this Subordinated Note at all
times.
Prior to due presentment of this Subordinated Note for registration of
transfer, the Bank, the Paying Agent or any agent of the Bank or the Paying
Agent may treat the person in whose name this Subordinated Note is registered as
the owner hereof for all purposes, whether or not this Subordinated Note be
overdue, and neither the Bank, the Paying Agent nor any such agent shall be
affected by notice to the contrary.
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All notices to the Bank under this Subordinated Note shall be in writing
and addressed to the Bank at 50 South LaSalle Street, Chicago, Illinois 60675,
or to such other address of the Bank as the Bank may notify the holders of the
Subordinated Notes.
This Subordinated Note shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
As used in this Subordinated Note, the term "Agents" shall mean Goldman,
Sachs & Co., CS First Boston Corporation, J.P. Morgan Securities Inc., Lehman
Brothers, Lehman Brothers Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce
Fenner & Smith Incorporated, and any other person, firm or entity which shall
hereafter be designated as an "Agent" under that certain Amended and Restated
Distribution Agreement, dated September 6, 1995, among the Bank, Northern Trust
Corporation and the Agents (as hereinabove defined).
IN WITNESS WHEREOF, the Bank has caused this instrument to be duly
executed.
THE NORTHERN TRUST COMPANY
By:
-------------------------------
Authorized Signatory
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<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of the within Subordinated Note, shall be construed as though they were written
out in full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - Custodian
-------- ---------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------------
(State)
Additional abbreviations may also be used
though not in the above list.
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<PAGE>
ASSIGNMENT
FOR VALVE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
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PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------
----------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(Please print or typewrite name and address,
including postal zip code, of assignee)
- - -------------------------------------------------------------------------------
the within Subordinated Note and all rights thereunder, and hereby irrevocably
constitutes and appoints
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- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
to transfer said Subordinated Note on the books of the Bank, with full power of
substitution in the premises.
Dated:
--------------------------------
----------------------------------
NOTICE: The signature to this
assignment must correspond
with the name as written upon
the face of the within
Subordinated Note in every
particular, without alteration
or enlargement or any change
whatsoever.
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Exhibit Number (10)(iii)
To 6/30/98 Form 10-Q
Northern Trust Corporation
Deferred Compensation Plan
Introduction
Northern Trust Corporation, a Delaware corporation (the "Company"), hereby
establishes, effective as of May 1, 1998, a deferred compensation plan for key
employees as described herein, which shall be known as the "Northern Trust
Corporation Deferred Compensation Plan" (the "Plan"). The primary purpose of
the Plan is to provide a select group of management or highly compensated
employees of the Company with the opportunity to voluntarily defer all or a
portion of their Incentive Compensation (as defined in Article I below). This
Plan is intended to provide participants in the Plan with the ability to save on
a tax-deferred basis.
Article I
Definitions
Wherever used herein the following terms shall have the meanings
hereinafter set forth:
Section 1.1. "Assigned Base Salary" means the regular annual base wage
rate of the Participant, excluding overtime wages or wages related to shift
differential.
Section 1.2. "Beneficiary" means any person eligible to receive a death
benefit under the respective Incentive Compensation Plan as designated by the
Participant under such plan, in the event of the death of the Participant.
Section 1.3. "Board" means the Board of Directors of Northern Trust
Corporation.
Section 1.4. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
Section 1.5. "Committee" means the Employee Benefit Administrative
Committee, which has the responsibility for administering various benefit plans
of The Northern Trust Company, as constituted from time to time.
Section 1.6. "Company" means Northern Trust Corporation, a Delaware
corporation, and, to the extent provided in Section 8.8 below, any successor
corporation or other entity resulting from a merger or consolidation into or
with the Company or a transfer or sale of substantially all of the assets of the
Company.
<PAGE>
Section 1.7. "Distribution Date" means the last business day of February
of any Plan Year as provided under Section 5.1 of the Plan and as irrevocably
set forth in each of the Participant's Deferral Election forms.
Section 1.8. "Deferred Compensation Account" means an individual
bookkeeping account for each Participant established hereunder. Such account
shall be valued no less frequently than annually on a date or dates determined
by the Committee.
Section 1.9. "Effective Date" means May 1, 1998.
Section 1.10. "Incentive Compensation" means compensation earned
pursuant to the Incentive Compensation Plans.
Section 1.11. "Incentive Compensation Plans" means the Annual Performance
Plan, the Management Performance Plan and/or applicable Specialized Incentive
Plans or any other bonus program defined by the Company to be included.
Section 1.12. "Initial Plan Year" means the eight-consecutive-month
period commencing on the Effective Date and ending on December 31, 1998.
Section 1.13. "Participant" means an employee of the Company (i) who
resides in the United States or is a United States expatriate on temporary
foreign assignment, (ii) who is eligible to participate in the Plan in
accordance with Article II and (iii) who has a Deferred Compensation Account
under the Plan.
Section 1.14. "Pension Plan" means The Northern Trust Company Pension Plan,
as amended from time to time.
Section 1.15. "Plan" means the Northern Trust Corporation Deferred
Compensation Plan, as amended from time to time.
Section 1.16. "Plan Year" means the calendar year.
Article II
Eligibility
Section 2.1. Conditions for Deferrals for 1998 and 1999 Incentive
Compensation Payments . For Incentive Compensation which otherwise would be
paid during the 1998 or 1999 Plan Years, an employee of the Company who
participates in an Incentive Compensation Plan and (i) whose Assigned Base
Salary, determined as of April 1, 1998, is at least $100,000, or (ii) whose
Assigned Base Salary determined as of April 1, 1998 plus Incentive Compensation
paid under the Incentive Compensation Plans during the period commencing on
April 1, 1997 and ending on March 31, 1998 is at least $150,000, shall be
eligible to defer Incentive Compensation under the Plan.
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Section 2.2. Conditions for Deferrals in Subsequent Plan Years. For
Plan Years subsequent to the Plan Years provided in Section 2.1, an employee of
the Company who participates in an Incentive Compensation Plan and (i) whose
Assigned Base Salary, determined as of November 30 immediately preceding the
Participant's deferral election made under Section 3.2 below, is at least
$100,000 (or such other amount as the Committee from time to time determines) or
(ii) whose Assigned Base Salary determined as of the November 30 immediately
preceding the Participant's deferral election made under Section 3.2 below plus
Incentive Compensation paid under the Incentive Compensation Plan during the
twelve-month period ending on March 31 immediately preceding such deferral
election (regardless of deferral under this Plan), is at least $150,000 (or such
other amount as the Committee from time to time determines), shall be eligible
to defer Incentive Compensation under the Plan.
Section 2.3. Conditions for Deferrals for Newly Hired Employees. A newly
hired employee of the Company who commences employment with the Company after
the applicable determination dates provided in Sections 2.1 or 2.2 above, shall
be eligible to complete a deferral election to defer Incentive Compensation
under the Plan if such employee participates in an Incentive Compensation Plan
and has an Assigned Base Salary determined as of his hire date of at least
$100,000 (or such other amount as the Committee from time to time determines.)
Article III
Deferral Opportunity
Section 3.1. Amount Which May Be Deferred. Each Participant may elect to
defer all or a portion of his or her annual Incentive Compensation as determined
by the Committee; provided, however, the amount of each deferral for each
payment of Incentive Compensation shall be at least $2,500. Participants shall
always be one hundred percent (100%) vested in the amount they defer.
Section 3.2. Deferral Election. Participants shall make the election to
defer Incentive Compensation under the Plan on a Deferral Election Form by such
dates as the Committee from time to time establishes. Participants shall make
the following irrevocable determinations on each Deferral Election Form:
(a) The amount to be deferred with respect to the Participant's Incentive
Compensation paid during the Plan Year for which the election
applies, pursuant to the terms of Section 3.1 herein;
(b) The deferral period after which payments of deferred amounts commence
(the "Deferral Period"), pursuant to the terms of Section 5.1 herein;
and
(c) The form of the payment of the deferred amount, pursuant to the terms
of Section 5.2 herein.
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Section 3.3. Partial Year Employment and Initial Election. In the event
that an employee commences employment with the Company after the beginning of a
Plan Year, the Committee may allow the employee to complete a Deferral Election
Form within thirty (30) calendar days of hire, such election to be valid and
applicable for the Plan Year then in progress. For employees who were employed
by the Company as of April 1 of the Plan Year in which the Plan is first
implemented, the Committee may allow the employee to complete a Deferral
Election Form within thirty (30) calendar days of the Plan's Effective Date,
such election to be valid and applicable for the Plan Year then in progress.
Section 3.4. Disability or Other Absence. If the Participant experiences a
disability, all previous Deferral Elections will remain in force unless the
Committee, in its sole discretion, determines that the Participant has incurred
a financial hardship pursuant to Section 5.3 of the Plan, in which case it will
waive, upon the Participant's request, such election(s). If the Participant
takes a paid or unpaid leave of absence, all previous Deferral Elections will
remain in full force.
Article IV
Investment of Deferred Incentive Compensation
Section 4.1. Investments. The Company shall contribute amounts allocated
hereunder to the Deferred Compensation Accounts of Participants to a rabbi trust
("Trust"), to be invested in such manner as determined by the Committee,
consistent with the Board resolutions establishing the Plan.
Section 4.2. Participant Statements. Statements that identify the
Participant's Account balance shall be provided to Participants no less
frequently than annually.
Article V
Distributions
Section 5.1. Deferral Period. Each Participant may irrevocably elect the
Deferral Period for the Incentive Compensation payments deferred in any Plan
Year; provided that the Deferral Period elected by a Participant shall be either
a Short-Term Deferral (as provided under Section 5.1(a)) or a Retirement
Deferral (as provided under Section 5.1(b)).
(a) If the Participant elects a Short-Term Deferral, payments under the
Plan shall commence only in the form provided under Section 5.2(a) of this Plan
on any Distribution Date elected by the Participant; provided that such
Distribution Date shall be no earlier than the Distribution Date, which is
subsequent to three (3) Plan Years following the end of the Plan Year in which
the Incentive Compensation would have otherwise been paid to the Participant.
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(b) If the Participant elects a Retirement Deferral, payments under the
Plan shall commence following the Participant's retirement date, as permitted
under the Pension Plan ("Retirement Date"), provided that payments under this
Plan shall commence, as elected by the Participant, either (i) within sixty (60)
days of the Participant's Retirement Date or (ii) on the Distribution Date
immediately following the Plan Year in which the Participant's Retirement Date
occurs (provided that payments must commence under (ii) if the Participant
elects to receive the payments in the form provided under Section 5.2(b) of the
Plan).
(c) Notwithstanding anything in the Plan to the contrary, Incentive
Compensation paid after a Participant's Retirement Date is not eligible for
deferral and will not be deferred, regardless of the Participant's prior
Deferral Election.
(d) Notwithstanding any Deferral Period(s) elected by a Participant
pursuant to Section 3.2(b) herein and this Section 5.1, if at any time before
the end of the elected Deferral Period, a Participant's employment with the
Company is terminated for any reason or a Participant has been on disability
leave for a period of twelve (12) months, such Participant shall be paid out of
the Plan in one (1) lump sum in cash within sixty (60) days after such receipt
of the Participant's final pay from the Company or, if applicable, within sixty
(60) days after such twelve (12) month disability period.
Section 5.2. Payment of Deferred Amounts. Payment of a Participant's
Deferred Compensation Account under the Plan shall be made in cash in one of the
following forms irrevocably elected by the Participant:
(a) Lump Sum Payment. Payments will be made in one (1) lump sum.
(b) Installment Payments. Payments will be made in either five (5) or ten
(10) annual installments, as irrevocably elected by the Participant.
The initial payment shall be made on the Distribution Date following
the Participant's Retirement Date. The remaining installment payments
shall be made in the form of cash each year thereafter (on each
anniversary date of the initial payment), until the Participant's
entire Deferred Compensation Account has been paid. The amount of
each installment payment shall be equal to the cash remaining in the
Participant's Deferred Compensation Account on the last business day
of January immediately prior to each such payment, multiplied by a
fraction, the numerator of which is one (1), and the denominator of
which is the number of installment payments remaining.
All benefits hereunder shall be paid from the Trust, as further described
in Article IV.
Section 5.3. Financial Hardship. The Committee shall have the sole
authority to alter the timing or manner of payment of deferred amounts in the
event that the Participant establishes, to the satisfaction of the Committee,
severe financial hardship. In such event, the Committee may, upon the request of
the Participant:
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(a) Provide that all, or a portion of, the amount previously deferred by
the Participant immediately shall be paid in a lump sum payment; or
(b) Provide that all, or a portion of, the installments payable over a
period of time immediately shall be paid in a lump sum payment; or
(c) Provide for such other installment payment schedule as deemed
appropriate by the Committee under the circumstances.
However, the amount distributed pursuant to this Section 5.3 shall not
exceed that amount which is reasonably necessary for the Participant to meet the
financial hardship at the time of distribution.
The severity of the financial hardship shall be judged by the Committee.
Severe financial hardship will be deemed to exist in the event of an
unforeseeable illness or accident of the Participant or the Participant's
dependent (as defined in Section 152(a) of the Code), loss of Participant's
property due to casualty, or other similar unforeseeable and extraordinary
circumstances arising as a result of events beyond the control of the
Participant. The Committee's decision with respect to the severity of financial
hardship and the manner in which, if at all, the payment of deferred amounts
shall be altered or modified, shall be final, conclusive, and not subject to
appeal.
Notwithstanding anything in this Section 5.3 to the contrary, no amounts
may be distributed on account of this Section 5.3 if such financial hardship may
be relieved:
(a) Through reimbursement or compensation by insurance or otherwise;
(b) By liquidation of the Participant's assets, to the extent the
liquidations of such assets would not itself cause severe financial
hardship; or
(c) By cessation of future deferrals under the Plan.
Section 5.4. Maximum Deductible Amount. In the case of a Participant to
whom the limitations under Section 162(m) of the Code apply, distributions to be
made to such Participant in a given year will be made only to the extent
deductible by the Corporation under such Section 162(m). Amounts not paid as a
result of this limitation shall be paid in subsequent years, to the extent
permissible under the above limitation.
Section 5.5. Death of Participant. A Participant, who at the time of his
death is employed by the Company and who dies before a complete distribution of
his Deferred Compensation Account has been made to him, shall have his Deferred
Compensation Account distributed in cash in one (1) lump sum to his Beneficiary.
Such distribution will be made within sixty (60) days following the receipt by
the Participant's beneficiary or estate of the Participant's final wage payment
following his death. A Participant, who at the time of his death is not employed
by the Company and who dies before his entire Deferred
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Compensation Account has been paid to him, shall have his Deferred Compensation
Account distributed to his Beneficiary in such manner as provided on his
Deferral Election Form.
Article VI
Administration of the Plan
Section 6.1. The Committee. The Plan shall be administered by the
Committee. The Committee may delegate any or all of its administrative
responsibilities hereunder.
Section 6.2. Authority of the Committee. The Committee shall have full
power to select employees for participation in the Plan and to determine the
terms and conditions of each employee's participation; to construe and interpret
the Plan and any agreement or instrument entered into hereunder; and to
establish, amend, or waive rules and regulations for the Plan's administration.
Further, the Committee shall have full power to make any other determination
which may be necessary or advisable for the Plan's administration.
Section 6.3. Decisions Binding. Subject to the provisions of Article VII,
all determinations and decisions made by the Committee pursuant to the
provisions of the Plan, and all related orders or resolutions of the Board shall
be final, conclusive, and binding on all persons, including the Company, its
stockholders, employees, Participants, and their estates and beneficiaries.
Article VII
Amendment or Termination
Section 7.1. Amendment or Termination. The Company has set no termination
date for the Plan but reserves the right to amend or terminate the Plan when, in
the sole discretion of the Company, such amendment or termination is advisable.
Any such amendment or termination shall be made pursuant to a resolution of the
Board and shall be effective as of the date set forth in such resolution.
Section 7.2. Effect of Amendment or Termination. No amendment or
termination of the Plan shall directly or indirectly reduce the balance of any
deferred compensation held hereunder as of the effective date of such amendment
or termination. Upon termination of the Plan, distribution of amounts in a
Participant's Deferred Compensation Account shall be made to him or his
Beneficiary in the manner and at the time described in Section 5 of the Plan.
No additional credits shall be made to the Deferred Compensation Account of a
Participant after termination of the Plan, but the Company shall continue to
credit gains and losses attributable to investments made pursuant to Section 4.1
to such Deferred Compensation Account until the balance of such Account has been
fully distributed to the Participant or his Beneficiary.
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Article VIII
General Provisions
Section 8.1. Participant's Rights Unsecured. If and to the extent
amounts allocated hereunder to the Deferred Compensation Accounts of
Participants are contributed by the Company to the Trust described in Section
4.1, benefits under the Plan shall be payable pursuant to the Trust Agreement.
Pursuant to the Trust Agreement, all asset's held thereunder shall remain
subject to the general creditors of the Company. The Plan at all times shall be
entirely unfunded and no provision shall at any time be made with respect to
segregating any assets of the Company for payment of any benefits hereunder. No
Participant, Beneficiary or any other person shall have any interest in any
particular assets of the Company by reason of the right to receive a benefit
under the Plan and Trust Agreement and any such Participant, Beneficiary or
other person shall have only the rights of a general unsecured creditor of the
Company with respect to any rights under the Plan and Trust Agreement.
Section 8.2. Tax Withholding. In connection with any deferral under the
Plan, the Company shall have the right to withhold from nondeferred Incentive
Compensation amounts or other compensation available at the time of the award an
amount sufficient to satisfy the FICA tax withholding requirements applicable to
such deferrals, or to require the Participant to remit to the Company an amount
sufficient to satisfy the tax obligation. In connection with any distribution to
the Participant of deferred Incentive Compensation, the Company shall have the
right to withhold from such distribution an amount sufficient to satisfy
Federal, State, and local tax withholding requirements applicable to such
distributions.
Section 8.3. No Guaranty of Benefits. Nothing contained in the Plan
shall constitute a guaranty by the Company or any other person or entity that
the assets of the Company will be sufficient to pay any benefit hereunder.
Section 8.4. No Enlargement of Employee Rights. No Participant shall
have any right to receive a distribution of contributions made under the Plan
except in accordance with the terms of the Plan. Establishment of the Plan
shall not be construed to give any Participant the right to be retained in the
service of the Company.
Section 8.5. Spendthrift Provision. No interest of any person or entity
in, or right to receive a distribution under, the Plan shall be subject in any
manner to sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest or right to receive
a distribution be taken, either voluntarily or involuntarily, for the
satisfaction of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate maintenance
and claims in bankruptcy proceedings.
Section 8.6. Applicable Law. To the extent not preempted by Federal law,
the Plan shall be construed and administered under the laws of the State of
Illinois.
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Section 8.7. Incapacity of Recipient. If any benefit under the Plan shall
be payable to a minor or a person not adjudicated incompetent but who, by reason
of illness or mental or physical disability, is, in the opinion of the
Committee, unable to properly manage his affairs, such benefit shall be paid in
such of the following ways as the Committee deems best: (a) to the person
directly; (b) in the case of a minor, to a custodian under any Uniform Gift to
Minors Act for the person; or (c) to the person's spouse, adult child or blood
relative. Any benefit so paid shall be a complete discharge of any liability of
the Company and the Plan therefor.
Section 8.8. Successors. The Plan shall not be automatically terminated by
a transfer or sale of assets of the Company or by the merger or consolidation of
the Company into or with any other corporation or other entity, but the Plan
shall be continued after such sale, merger or consolidation only if and to the
extent that the transferee, purchaser or successor entity agrees to continue the
Plan. In the event that the Plan is not continued by the transferee, purchaser
or successor entity, then the Plan shall terminate subject to the provisions of
Section 7.2.
Section 8.9. Unclaimed Benefit. Each Participant shall keep the Committee
informed of his current address and the current address of his designated
Beneficiary. Neither the Company nor the Committee shall be obligated to search
for the whereabouts of any person. If the location of a Participant is not made
known to the Committee within three (3) years after the date on which
distribution of the Participant's may first be made, distribution may be made as
though the Participant had died at the end of the three-year period. If, within
one additional year after such three-year period has elapsed, or within three
years after the actual death of a Participant, neither the Company nor the
Committee is able to locate any designated Beneficiary of the Participant, then
the Company shall have no further obligation to pay any benefit hereunder to
such Participant or designated Beneficiary and such benefit shall be forfeited;
provided, however, that if the Participant or designated Beneficiary makes a
valid claim for any benefit that has been so forfeited, the forfeited benefit
shall be reinstated.
Section 8.10. Limitations on Liability. Notwithstanding any of the
preceding provisions of the Plan, neither the Company, any member of the
Committee nor any individual acting as an employee or agent of the Company or
Committee shall be liable to any Participant, former Participant, Beneficiary or
any other person for any claim, loss, liability or expense incurred in
connection with the Plan.
Section 8.11. Gender; Headings. Words in the masculine gender shall
include the feminine and the singular shall include the plural, and vice versa,
unless qualified by the context. Any headings used herein are included for ease
of reference only, and are not to be construed so as to alter the terms hereof.
-9-
<PAGE>
In Witness Whereof, Northern Trust Corporation has caused this Plan to be
signed by its duly authorized officer as of the 1st day of May, 1998.
Northern Trust Corporation
By [SIGNATURE APPEARS HERE]
------------------------------------
Its Sr. Executive Vice President
--------------------------------
-10-
<PAGE>
Exhibit Number (10)(iv)
To 6/30/98 Form 10-Q
DEFERRED COMPENSATION PLANS
TRUST AGREEMENT
This Trust Agreement made this 11th day of May, 1998, by and between
Northern Trust Corporation ("Company") and Harris Trust & Savings Bank
("Trustee").
WHEREAS, Company has adopted the nonqualified deferred compensation Plans
as listed in Appendix A (hereinafter called "Plan");
WHEREAS, Company wishes to establish a trust (hereinafter called "Trust")
and to contribute Trust assets that shall be held therein, subject to the claims
of Company's creditors in the event of Company's insolvency, as herein defined,
until paid to Plan participants and their beneficiaries in such manner and at
such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) Company shall deposit with Trustee in trust $100, which shall become
the principal of the Trust to be held, administered and disposed of by Trustee
as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, Chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of Plan participants and general creditors as herein set
forth. Plan participants and their
-1-
<PAGE>
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Plan and
this Trust Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against Company. Any assets held by the
Trust will be subject to the claims of Company's general creditors under federal
and state law in the event of Insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) Company shall deliver to Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of each Plan participant (and his
or her beneficiaries), that provides a formula or other instructions acceptable
to Trustee for determining the amount so payable, the form in which such amount
is to be paid as provided for or available under the Plan), and the time of
commencement for payment of such amounts. Except as otherwise provided herein,
Trustee shall make payments to Plan participants and their beneficiaries in
accordance with such Payment Schedule. Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plan and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Company or such party as it shall
designate under the Plan, and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plan.
(c) Company may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan. Company
shall notify Trustee of its decision to make payment of benefits directly prior
to the time amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, Company shall make the balance of each such payment as it falls due.
Company may direct Trustee to reimburse it from the Trust for any direct
payments it has made pursuant to this paragraph. Company shall be responsible
for tax reporting and withholding applicable to such direct payments. Trustee
shall notify Company where principal and earnings are not sufficient.
-2-
<PAGE>
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
insolvency. If a person claiming to be a creditor of Company alleges in
writing to Trustee that Company has become insolvent, Trustee shall
determine whether Company is insolvent and, pending such determination,
Trustee shall discontinue payment of benefits to Plan participants or their
beneficiaries.
(2) Unless Trustee has actual knowledge of Company's insolvency
or has received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall have no duty to inquire
whether Company is insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan participants or their beneficiaries to
pursue their right as general creditors of Company with respect to benefits
due under the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after Trustee has determined that Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by Company in lieu of the payments provided
hereunder during any such period of discontinuance.
-3-
<PAGE>
Section 4. Payments to Company.
Except as provided in Sections 2 and 3 hereof, Company shall have no right
or power to direct Trustee to return to Company or to divert to others any of
the Trust assets before all payment of benefits have been made to Plan
participants and their beneficiaries pursuant to the terms of the Plan.
Section 5. Investment Authority.
(a) Subject to paragraph (b) below of this Section 5, subject further to
such investment guidelines as may be issued to Trustee from time to time by
Company, Trustee may invest and reinvest Trust assets in property of any kind.
(b) Company may, by written notice to Trustee, assume investment
responsibility for any portion of the Trust assets; Trustee shall act with
respect to such assets only as directed by Company and shall have no
responsibility to make any investment review of such assets.
Section 6. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and periodically reinvested.
Section 7. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 30 days following the close of each calendar year
and within 30 days after the removal or resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of
alike character and with like aims, provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated by, and
-4-
<PAGE>
in conformity with, the terms of the Plan for this Trust and is given in writing
by Company. In the event of a dispute between Company and a party, Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in connection
with this Trust, Company agrees to indemnify Trustee against Trustee's costs,
expenses and liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such payments. If
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any of
its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee.
Company shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 30 days after receipt of such notice unless Company and
Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days' notice or upon shorter
notice accepted by Trustee.
-5-
<PAGE>
(c) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be completed within 30 days after receipt of notice of
resignation, removal or transfer, unless Company extends the time limit.
(d) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this Section. If no such appointment
has been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 11. Appointment of Successor.
If Trustee resigns or is removed in accordance with Section 10(a) or (b)
hereof, Company may appoint any third party, such as a bank trust department or
other party that may be granted corporate trustee powers under state law, as a
successor to replace Trustee upon resignation or removal. The appointment shall
be effective when accepted in writing by the new Trustee, who shall have all of
the rights and powers of the former Trustee, including ownership rights in the
Trust assets. The former Trustee shall execute any instrument necessary or
reasonably requested by Company or the successor Trustee to evidence the
transfer.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee and Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plan, make the Trust revocable after it has
become irrevocable in accordance with Section 1(b) hereof or reduce or otherwise
affect any amounts held in the Trust as of the effective date of such amendment.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan. Upon termination of the Trust any assets remaining in
the Trust shall be returned to Company.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
-6-
<PAGE>
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of Illinois.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be May 11, 1998.
IN WITNESS WHEREOF, Company and Trustee have caused these presents to be
signed by their respective officers thereunto duly authorized on this 11th day
of May, 1998.
NORTHERN TRUST CORPORATION
By
-----------------------------------
Its:
---------------------------------
HARRIS TRUST & SAVINGS BANK
By:
----------------------------------
Its:
---------------------------------
-7-
<PAGE>
APPENDIX A TO DEFERRED COMPENSATION
PLANS TRUST AGREEMENT
1. The Northern Trust Corporation Deferred Compensation Plan.
<PAGE>
Exhibit Number (10)(v)
To 6/30/98 Form 10-Q
AMENDMENT NUMBER FIVE
TO
NORTHERN TRUST
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, The Northern Trust Company (the "Company") maintains the Northern Trust
Employee Stock Ownership Plan, as amended and restated effective January 1, 1989
(the "Plan");
WHEREAS, amendment of the Plan is deemed desirable;
NOW, THEREFORE, by virtue and in exercise of the amending power reserved to the
Company under Section 13.1 of the Plan, and pursuant to the authority delegated
to the undersigned officer by resolution of the Board of Directors dated April
21, 1998, the Plan is hereby amended in the following particular:
Effective May 14, 1998, Section 7.9(a) is amended by replacing the first
sentence thereof with the following:
"Prior to the date that section 2.1(ll)(2) becomes operative, a Participant who
is a Qualified Participant pursuant to section 2.1(ll)(1) may elect, within 90
days after the close of each Plan Year in the Qualified Election Period
described in 2.1(kk)(1), to have the Trustee dispose of a specified whole number
of shares of Company Stock not in excess of the Participant's "Applicable
Amount" and transfer the proceeds thereof to The Northern Trust Company Thrift
Incentive Plan."
IN WITNESS WHEREOF, the Company has caused this amendment to be executed on its
behalf by the undersigned officer this 14th day of May, 1998.
/s/ Martin J. Joyce, Jr.
- - -------------------------
Martin J. Joyce, Jr.
Senior Vice President
<PAGE>
Exhibit Number (10)(vi)
To 6/30/98 Form 10-Q
AMENDMENT NUMBER SIX
TO
NORTHERN TRUST
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, The Northern Trust Company (the "Company") maintains the Northern Trust
Employee Stock Ownership Plan, as amended and restated effective January 1, 1989
(the "Plan");
WHEREAS, amendment of the Plan is deemed desirable;
NOW, THEREFORE, by virtue and in exercise of the amending power reserved to the
Company under Section 13.1 of the Plan, and pursuant to the authority delegated
to the undersigned officer by resolutions of the Board of Directors dated May
19, 1998, the Plan is hereby amended in the following particulars, effective
August 1, 1998, or as otherwise specified:
1. The proviso in the second sentence of Section 7.1 is amended to read as
follows:
"provided, however, that each participant who is on an authorized leave of
absence, whose employment terminates by reason of death or early or normal
retirement under the terms of the Pension Plan, who becomes entitled to a
disability distribution under section 9.3, or whose employment terminates in
circumstances under which he or she is a Severance Eligible Participant, shall
be entitled to share in the allocation of Employer Contributions which have not
been used to make payments on a Loan, Company Stock released from the Suspense
Account according to section 6.1(c), for any Anniversary Date occurring with
respect to the Plan Year in which the leave of absence begins or employment
terminates."
2. Section 7.6(c) is amended to read as follows:
"In the event a Participant dies or becomes entitled to a disability
distribution under section 9.3, the Participant shall be 100 percent vested in
the adjusted balance of his or her Company Stock and Other Investment Accounts
if such Participant is an Employee on the date he or she dies or becomes
entitled to such distribution."
3. Section 9.3 is amended in its entirety to read as follows:
"9.3 Payments on Disability
In the case of a Member who is absent from employment by reason of disability,
the Committee shall direct the Trustee to make payment of the adjusted balances
of the Member's Accounts upon the earliest to occur of the following:
<PAGE>
(a) The absence continues without interruption for a period of 12 months;
(b) The Member is entitled to receive a benefit payable prior to death (a
"living benefit") under the terms of the Company's Non-Contributory Life
Insurance Plan (or would be entitled to a living benefit, as determined by
the Committee, if the Member participated in such Life Insurance Plan); or
(c) The Member has a Permanent Disability, provided that some portion of the
Member's Account is attributable to participation in the Plan on or before
August 1, 1998.
Such distribution shall be made as of the Valuation Date coinciding with or
immediately preceding the date a distribution is made to the Member. A Member
who receives a distribution under this section shall be entitled to share in the
allocation of Employer Contributions which have not been used to make payments
on a Loan, Company Stock released from the Suspense Account according to section
6.1(c), and Forfeitures for the Anniversary Date occurring with respect to any
Plan Year in which the Member continued to receive Compensation, including the
Plan Year in which such Member's employment terminates."
4. The first sentence of Section 9.4 is amended by replacing the words
"Permanent Disability" with "disability which entitles the Member to a
distribution under section 9.3,"
5. Effective July 1, 1998, Schedule A is amended to add "Northern Trust Bank
of Colorado ("NTBC") Acquired: 5/15/98" to the Affiliate Name Column and "Later
of 5/15/98 or DOH" to the ESOP Earliest Vesting Date Column.
IN WITNESS WHEREOF, the Company has caused this amendment to be executed on its
behalf by the undersigned officer this 22nd day of July, 1998.
- - -----------------------------------
Martin J. Joyce, Jr.
Senior Vice President
<PAGE>
Exhibit Number (10)(vii)
To 6/30/98 Form 10-Q
NORTHERN TRUST CORPORATION
MANAGEMENT PERFORMANCE PLAN
1998
I. Purpose of Plan
The purposes of the Management Performance Plan (the "Plan") are to
promote the achievement of superior financial and operating performance of
Northern Trust Corporation and its subsidiaries (the "Corporation"), and
to further the objective of delivering unrivaled service quality to
clients through the awarding of annual cash incentives to selected
officers. The Plan provides a means to reward executives who make
significant contributions to the Corporation's success, enabling them to
share in this success. The Plan is also intended to provide the
Corporation a means to attract, motivate and retain senior executive
talent.
II. ADMINISTRATION
The Plan is administered by the Compensation and Benefits Committee of the
Board of Directors. Subject to the provisions of the Plan, the Committee
is authorized to interpret the Plan and to establish, amend and rescind
any rules and regulations relating to the Plan. The determinations of the
Committee in the effective administration of the Plan will be final.
III. PLAN YEAR
The Plan year is from January 1, 1998 to December, 1998.
IV. ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the Plan is restricted to executives serving
on the Corporation's Management Committee.
V. PERFORMANCE OBJECTIVE
The Plan's performance objective (the "Performance Objective") will be
determined with reference to the Corporation's 1998 annual consolidated
statement of net income as determined in accordance with generally
accepted accounting principles.
<PAGE>
-2-
VI. Maximum Award Funding Opportunity
The maximum award funding opportunity (the "Funding Opportunity") for the
Chairman and Chief Executive Officer is 0.6% of the Corporation's 1998
consolidated net income. The Funding Opportunity for the President and
Chief Operating Officer is 0.4% of the Corporation's 1998 consolidated
net income. The Funding Opportunity for other Plan participants is 0.3%
of the Corporation's 1998 consolidated net income.
VII. AWARD DETERMINATION
As soon as practicable after completion of the Plan year the Committee
will determine each participant's Funding Opportunity solely on the basis
of the Performance Objective. The Committee will approve actual awards on
a discretionary basis, based on an assessment of individual contribution,
performance relative to performance expectations, competitive levels of
compensation and corporate performance. The Committee has discretion to
reduce a participant's award below the Funding Opportunity but not
increase a participant's final award above the Funding Opportunity.
VIII. PAYMENT OF AWARDS
Awards will be paid in cash as soon as practicable following completion
of the Plan year.
IX. OTHER PROVISIONS
The following miscellaneous provisions are applicable to the Plan:
(a) Awards paid under the provisions of the Plan are considered
pensionable earnings when paid.
(b) Awards paid from the Plan may be deferred into the Northern Trust
Corporation Deferred Compensation Plan. Deferred amounts will be
considered pensionable earnings under the provisions of the
Supplemental Pension Plan.
(c) Termination of employment of a participant during the Plan year,
either voluntarily, or involuntarily with cause for reasons other
than death, disability, or retirement, shall result in immediate
exclusion from the Plan.
<PAGE>
-3-
(d) Except in the event of the death of a participant, the rights and
interests of a participant under the Plan shall not be assigned,
encumbered, or transferred.
(e) No employee or other person shall have any claim or right to be
granted an award under the Plan. Neither the Plan, nor any action
taken thereunder, shall be construed as giving the participant or
other person any right to be retained in the employ of the
Corporation.
(f) The Corporation shall have the right to deduct from all payments
made under the Plan any taxes required by law to be withheld with
respect to such payment.
(g) All questions pertaining to the validity, construction and
administration of the Plan and any award hereunder shall be
determined in conformity with the laws of the State of Illinois.
(h) Each participant shall designate a beneficiary (the "Designated
Beneficiary") to receive the award, if any, allocated to a
participant, in the event of such participant's death. If no
Designated Beneficiary survives the participant, it shall be the
surviving spouse of the participant or, if there is no surviving
spouse, it shall be the participant's estate.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and the Consolidated Statement of Income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,389,415
<INT-BEARING-DEPOSITS> 1,790,802
<FED-FUNDS-SOLD> 3,430,759
<TRADING-ASSETS> 11,568
<INVESTMENTS-HELD-FOR-SALE> 7,675,986
<INVESTMENTS-CARRYING> 470,992
<INVESTMENTS-MARKET> 484,056
<LOANS> 13,617,673
<ALLOWANCE> 146,671
<TOTAL-ASSETS> 29,776,975
<DEPOSITS> 17,124,276
<SHORT-TERM> 9,246,680
<LIABILITIES-OTHER> 681,321
<LONG-TERM> 883,644
<COMMON> 189,935
0
120,000
<OTHER-SE> 1,531,119
<TOTAL-LIABILITIES-AND-EQUITY> 29,776,975
<INTEREST-LOAN> 430,752
<INTEREST-INVEST> 202,817
<INTEREST-OTHER> 94,064
<INTEREST-TOTAL> 727,633
<INTEREST-DEPOSIT> 277,085
<INTEREST-EXPENSE> 494,844
<INTEREST-INCOME-NET> 232,789
<LOAN-LOSSES> 7,000
<SECURITIES-GAINS> 1,177
<EXPENSE-OTHER> 483,846
<INCOME-PRETAX> 264,208
<INCOME-PRE-EXTRAORDINARY> 172,137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,137
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.48
<YIELD-ACTUAL> 2.13
<LOANS-NON> 24,527
<LOANS-PAST> 24,429
<LOANS-TROUBLED> 2,447
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 147,638
<CHARGE-OFFS> 9,359
<RECOVERIES> 1,243
<ALLOWANCE-CLOSE> 146,671
<ALLOWANCE-DOMESTIC> 102,324
<ALLOWANCE-FOREIGN> 3,677
<ALLOWANCE-UNALLOCATED> 40,670
</TABLE>
