<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 September 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)
Rigistrant'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 [ ]
111,045,729 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on September 30, 1998)
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
September 30 December 31 September 30
------------ ----------- ------------
($ In Millions) 1998 1997 1997
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Assets
Cash and Due from Banks $ 1,105.2 $ 1,738.9 $ 2,293.6
Federal Funds Sold and Securities Purchased under Agreements to Resell 2,878.1 2,991.7 2,762.4
Time Deposits with Banks 2,448.4 2,283.2 2,256.8
Other Interest-Bearing 15.4 34.5 45.5
Securities
Available for Sale 5,994.0 3,733.3 5,438.0
Held to Maturity (Fair value - $479.7 at September 1998, $473.4 at December 1997,
$493.1 at September 1997) 465.2 456.1 475.8
Trading Account 13.4 8.8 10.9
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Total Securities 6,472.6 4,198.2 5,924.7
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Loans and Leases
Commercial and Other 7,926.5 7,401.5 7,235.9
Residential Mortgages 5,674.3 5,186.7 4,987.8
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Total Loans and Leases (Net of unearned income - $219.2 at September 1998, $151.9 at
December 1997, $146.0 at September 1997) 13,600.8 12,588.2 12,223.7
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Reserve for Credit Losses (146.6) (147.6) (148.0)
Buildings and Equipment 334.4 316.4 312.4
Customers' Acceptance Liability 27.7 31.4 47.0
Trust Security Settlement Receivables 338.7 291.4 302.4
Other Assets 1,004.1 989.1 898.7
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Total Assets $28,078.8 $25,315.4 $26,919.2
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 3,383.5 $ 3,510.1 $ 3,189.7
Savings and Money Market Deposits 4,391.0 4,278.9 3,712.3
Savings Certificates 2,189.3 2,092.6 2,039.7
Other Time 668.6 572.0 743.9
Foreign Offices - Demand 433.5 451.0 526.2
- Time 5,975.7 5,455.4 5,631.6
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Total Deposits 17,041.6 16,360.0 15,843.4
Federal Funds Purchased 1,300.8 821.2 817.9
Securities Sold Under Agreements to Repurchase 1,011.3 1,139.7 834.6
Commercial Paper 119.5 146.8 137.9
Other Borrowings 4,513.6 2,876.6 5,299.4
Senior Notes 700.0 785.0 885.0
Long-Term Debt 462.7 439.5 443.7
Debt - Floating Rate Capital Securities 267.5 267.4 267.4
Liability on Acceptances 27.7 31.4 47.0
Other Liabilities 755.4 708.8 645.4
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Total Liabilities 26,200.1 23,576.4 25,221.7
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Stockholders' Equity
Preferred Stock 120.0 120.0 120.0
Common Stock, $1.66 2/3 Par Value; Authorized 280,000,000 shares at September 1998,
December 1997 and September 1997; Outstanding 111,045,729 at September 1998,
111,367,436 at December 1997 and 111,550,097 at September 1997 189.9 189.9 189.9
Capital Surplus 217.8 225.5 225.3
Retained Earnings 1,519.4 1,330.8 1,274.3
Net Unrealized Gain on Securities Available for Sale (.7) 2.1 2.1
Common Stock Issuable - Performance Plan 30.4 11.7 11.7
Deferred Compensation - ESOP and Other (44.5) (37.5) (37.5)
Treasury Stock - (at cost, 2,915,033 shares at September 1998, 2,593,326 shares at
December 1997, and 2,410,665 shares at September 1997) (153.6) (103.5) (88.3)
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Total Stockholders' Equity 1,878.7 1,739.0 1,697.5
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
Total Liabilities and Stockholders' Equity $28,078.8 $25,315.4 $26,919.2
- ------------------------------------------------------------------------------------------- ------------ ----------- ------------
</TABLE>
2
<PAGE>
CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended September 30 Ended September 30
---------------------------- ---------------------------
($ In Millions Except Per Share Information) 1998 1997 1998 1997
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Income
Loans and Leases $225.9 $203.3 $ 656.7 $ 582.8
Securities
Available For Sale 109.6 80.4 298.3 236.1
Held to Maturity 6.9 7.6 21.0 23.3
Trading Account .2 .1 .5 .4
- ---------------------------------------------------------------------- ------------- ------------- ------------- ------------
Total Securities 116.7 88.1 319.8 259.8
- ---------------------------------------------------------------------- ------------- ------------- ------------- ------------
Time Deposits with Banks 36.0 34.0 101.2 92.7
Federal Funds Sold and Securities Purchased under Agreements
to Resell and Other Interest-Bearing 14.3 13.8 42.8 35.7
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Total Interest Income 392.9 339.2 1,120.5 971.0
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Interest Expense
Deposits 154.0 136.4 431.1 375.0
Federal Funds Purchased 35.3 19.5 101.8 58.1
Securities Sold under Agreements to Repurchase 26.5 21.5 60.5 60.8
Commercial Paper 2.1 2.0 6.2 5.8
Other Borrowings 39.4 25.4 106.6 92.6
Senior Notes 5.2 12.2 27.0 19.4
Long-Term Debt 8.0 8.2 23.7 24.2
Debt - Floating Rate Capital Securities 4.4 4.4 12.8 10.2
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Total Interest Expense 274.9 229.6 769.7 646.1
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Net Interest Income 118.0 109.6 350.8 324.9
Provision for Credit Losses 1.0 5.0 8.0 6.0
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Net Interest Income after Provision for Credit Losses 117.0 104.6 342.8 318.9
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Noninterest Income
Trust Fees 203.6 177.4 599.6 504.0
Treasury Management Fees 17.6 14.8 50.9 44.4
Foreign Exchange Trading Profits 23.6 33.5 74.8 77.8
Security Commissions and Trading Income 6.9 6.9 21.3 19.4
Other Operating Income 12.9 22.0 39.1 40.9
Investment Security Gains .1 .1 1.3 .7
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Total Noninterest Income 264.7 254.7 787.0 687.2
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Income before Noninterest Expenses 381.7 359.3 1,129.8 1,006.1
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Noninterest Expenses
Salaries 126.3 116.4 373.2 325.4
Pension and Other Employee Benefits 23.0 20.1 69.3 61.7
Occupancy Expense 17.4 17.7 51.6 50.2
Equipment Expense 15.9 17.6 47.3 47.4
Other Operating Expenses 61.2 62.9 186.3 173.5
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Total Noninterest Expenses 243.8 234.7 727.7 658.2
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Income before Income Taxes 137.9 124.6 402.1 347.9
Provision for Income Taxes 47.7 43.6 139.8 119.8
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Net Income $ 90.2 $ 81.0 $ 262.3 $ 228.1
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Net Income Applicable to Common Stock $ 89.0 $ 79.7 $ 258.6 $ 224.4
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Net Income Per Common Share - Basic $ .81 $ .72 $ 2.34 $ 2.02
- Diluted .78 .70 2.25 1.96
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
Average Number of Common Shares Outstanding - Basic 110,518,171 111,065,939 110,741,579 111,008,921
- Diluted 114,714,190 114,719,797 114,924,110 114,618,221
- ---------------------------------------------------------------------- ------------- ------------- ------------- -------------
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NORTHERN TRUST CORPORATION
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended September 30 Ended September 30
------------------- --------------------
($ In Millions) 1998 1997 1998 1997
- -------------------------------------------------------------------------------- ------ ------- -------
<S> <C> <C> <C> <C>
Net Income $90.2 $81.0 $262.3 $228.1
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 - $.2 million in Third
Quarter 1998 and $0.07 million in 1997; and $.8 million
during first nine months of 1998 and $(.5) million in 1997 (0.3) (0.1) (1.4) 0.8
Less: Reclassification Adjustments for Gains Included in Net Income
(Net of tax (provision) benefit - zero in Third
Quarter of 1998 and zero in 1997; and $(.4) million during
first nine months of 1998 and $(.2) million in 1997).
-- -- (0.7) (0.3)
- -------------------------------------------------------------------------------- ------ ------- -------
Other Comprehensive Income (0.3) (0.1) (2.1) 0.5
- -------------------------------------------------------------------------------- ------ ------- -------
Comprehensive Income $89.9 $80.9 $260.2 $228.6
- -------------------------------------------------------------------------------- ------ ------- -------
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NORTHERN TRUST CORPORATION
<TABLE>
<CAPTION>
Nine Months
Ended September 30
----------------------------
(In Millions) 1998 1997
- ------------------------------------------------------------------------ ----------------------------
<S> <C> <C>
Preferred Stock
Balance at January 1 and September 30 $ 120.0 $ 120.0
- ------------------------------------------------------------------------ ----------------------------
Common Stock
Balance at January 1 and September 30 189.9 189.9
- ------------------------------------------------------------------------ ----------------------------
Capital Surplus
Balance at January 1 225.5 231.7
Stock Issued - Incentive Plan and Awards (7.7) (6.4)
- ------------------------------------------------------------------------ ----------------------------
Balance at September 30 217.8 225.3
- ------------------------------------------------------------------------ ----------------------------
Retained Earnings
Balance at January 1 1,330.8 1,110.2
Net Income 262.3 228.1
Dividends Declared - Common Stock (70.1) (60.3)
Dividends Declared - Preferred Stock (3.6) (3.7)
- ------------------------------------------------------------------------ ----------------------------
Balance at September 30 1,519.4 1,274.3
- ------------------------------------------------------------------------ ----------------------------
Net Unrealized Gain (Loss) on Securities Available for Sale
Balance at January 1 2.1 1.6
Unrealized Gain (Loss), net (2.8) .5
- ------------------------------------------------------------------------ ----------------------------
Balance at September 30 (.7) 2.1
- ------------------------------------------------------------------------ ----------------------------
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 September 30 30.4 11.7
- ------------------------------------------------------------------------ ----------------------------
Deferred Compensation - ESOP and Other
Balance at January 1 (37.5) (35.5)
Compensation Deferred (16.7) (7.8)
Compensation Amortized 9.7 5.8
- ------------------------------------------------------------------------ ----------------------------
Balance at September 30 (44.5) (37.5)
- ------------------------------------------------------------------------ ----------------------------
Treasury Stock
Balance at January 1 (103.5) (84.2)
Stock Options and Awards 47.2 44.5
Stock Purchased (97.3) (48.6)
- ------------------------------------------------------------------------ ----------------------------
Balance at September 30 (153.6) (88.3)
- ------------------------------------------------------------------------ ----------------------------
Total Stockholders' Equity at September 30 $1,878.7 $1,697.5
- ------------------------------------------------------------------------ ----------------------------
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION
<TABLE>
<CAPTION>
Nine Months
Ended September 30
----------------------------------------
(In Millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 262.3 $ 228.1
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 8.0 6.0
Depreciation on Buildings and Equipment 39.7 37.5
(Increase) Decrease in Interest Receivable 1.2 (13.0)
Increase (Decrease) in Interest Payable (9.8) 25.0
Amortization and Accretion of Securities and Unearned Income (175.4) (129.7)
Amortization of Software, Goodwill and Other Intangibles 40.4 39.3
Net Increase in Trading Account Securities (4.6) (6.1)
Other Noncash, net 38.1 (46.6)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 199.1 140.5
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Federal Funds Sold and Securities Purchased under
Agreements to Resell 113.6 (1,739.8)
Net Increase in Time Deposits with Banks (165.2) (196.8)
Net Decrease in Other Interest-Bearing Assets 19.1 68.8
Purchases of Securities-Held to Maturity (2,480.9) (120.2)
Proceeds from Maturity and Redemption of Securities-Held to Maturity 2,473.8 145.3
Purchases of Securities-Available for Sale (81,697.8) (52,648.3)
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 79,685.2 51,688.5
Net Increase in Loans and Leases (1,090.7) (1,332.2)
Purchases of Buildings and Equipment (57.7) (38.4)
Net (Increase) Decrease in Trust Security Settlement Receivables (47.3) 59.9
Decrease in Cash Due to Acquisitions (15.0) -
Other, net (.9) (1.2)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (3,263.8) (4,114.4)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase in Deposits 681.6 2,047.2
Net Increase in Federal Funds Purchased 479.6 164.9
Net Decrease in Securities Sold under Agreements to Repurchase (128.4) (131.5)
Net Decrease in Commercial Paper (27.3) (11.1)
Net Increase in Short-Term Other Borrowings 1,155.0 2,259.6
Proceeds from Term Federal Funds Purchased 1,387.9 1,156.8
Repayments of Term Federal Funds Purchased (905.9) (1,259.1)
Proceeds from Senior Notes & Long-Term Debt 801.0 803.1
Repayments on Senior Notes & Long-Term Debt (862.8) (227.2)
Proceeds from Debt-Floating Rate Capital Securities - 267.3
Treasury Stock Purchased (96.6) (44.8)
Net Proceeds from Stock Options 12.1 10.5
Cash Dividends Paid on Common and Preferred Stock (73.9) (63.9)
Other, net 7.9 3.2
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 2,430.2 4,975.0
- --------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Due from Banks (633.7) 1,001.1
Cash and Due from Banks at Beginning of Year 1,738.9 1,292.5
- --------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks at September 30 $ 1,105.2 $ 2,293.6
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 779.6 $ 621.2
Income Taxes Paid 79.1 65.4
- --------------------------------------------------------------------------------------------------------------------
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 September 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 Note 1 of 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>
September 30, 1998 December 31, 1997 September 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 $ 55.2 $ 55.4 $ 72.0 $ 72.0 $ 81.0 $ 81.0
Obligations of States and
Political Subdivisions 265.6 282.3 276.7 295.1 285.7 304.0
Federal Agency 5.0 5.1 14.3 14.3 14.2 14.3
Other 139.4 136.9 93.1 92.0 94.9 93.8
- ------------------------------------------------------------------------------------------------------------------
Subtotal 465.2 479.7 456.1 473.4 475.8 493.1
- ------------------------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 271.8 271.8 470.0 470.0 698.7 698.7
Obligations of States and
Political Subdivisions 194.6 194.6 130.2 130.2 119.7 119.7
Federal Agency 5,389.9 5,389.9 2,969.8 2,969.8 4,496.3 4,496.3
Preferred Stock 118.6 118.6 128.8 128.8 91.5 91.5
Other 19.1 19.1 34.5 34.5 31.8 31.8
- ------------------------------------------------------------------------------------------------------------------
Subtotal 5,994.0 5,994.0 3,733.3 3,733.3 5,438.0 5,438.0
- ------------------------------------------------------------------------------------------------------------------
Trading Account 13.4 13.4 8.8 8.8 10.9 10.9
- ------------------------------------------------------------------------------------------------------------------
Total Securities $6,472.6 $6,487.1 $4,198.2 $4,215.5 $5,924.7 $5,942.0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity September 30, 1998
- ------------------------------------------------------------------------------------------------------------------
Gross Unrealized
Book -------------------------- Fair
(In Millions) Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 55.2 $ .2 $ -- $ 55.4
Obligations of States and Political Subdivisions 265.6 16.7 -- 282.3
Federal Agency 5.0 .1 -- 5.1
Other 139.4 -- 2.5 136.9
- ------------------------------------------------------------------------------------------------------------------
Total $ 465.2 $ 17.0 $2.5 $479.7
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale September 30, 1998
- ----------------------------------------------------------------------------------------------------------------
Gross Unrealized
Amortized --------------------------- Fair
(In Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 270.1 $ 1.7 $ -- $ 271.8
Obligations of States and Political Subdivisions 183.6 11.0 -- 194.6
Federal Agency 5,388.3 2.0 .4 5,389.9
Preferred Stock 118.0 .7 .1 118.6
Other 20.1 -- 1.0 19.1
- ----------------------------------------------------------------------------------------------------------------
Total $ 5,980.1 $15.4 $1.5 $5,994.0
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Unrealized gains and losses on off-balance sheet financial instruments used to
hedge securities available for sale totaled zero and $15.0 million,
respectively, as of September 30, 1998. At September 30, 1998, stockholders'
equity included a charge of $.7 million, net of tax, to recognize the
depreciation on securities available for sale and the related hedges.
3. Pledged Assets - Securities and loans pledged to secure public and trust
deposits, repurchase agreements and for other purposes as required or permitted
by law were $6.4 billion on September 30, 1998, $6.2 billion on December 31,
1997 and $8.5 billion on September 30, 1997.
4. Contingent Liabilities - Standby letters of credit outstanding were $1.6
billion on September 30, 1998, $1.5 billion on December 31, 1997 and $1.5
billion on September 30, 1997.
8
<PAGE>
5. Loans and Leases - Amounts outstanding in selected loan categories are shown
below.
<TABLE>
<CAPTION>
(In Millions) September 30, 1998 December 31, 1997 September 30, 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic
Residential Real Estate $ 5,674.3 $ 5,186.7 $ 4,987.8
Commercial 3,987.9 3,734.8 3,848.2
Broker 100.1 170.1 171.5
Commercial Real Estate 624.2 582.1 617.1
Personal 1,366.7 1,207.2 1,141.9
Other 697.3 890.1 615.5
Lease Financing 452.7 347.0 311.8
- --------------------------------------------------------------------------------------
Total Domestic 12,903.2 12,118.0 11,693.8
International 697.6 470.2 529.9
- --------------------------------------------------------------------------------------
Total Loans and Leases $13,600.8 $12,588.2 $12,223.7
- --------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998, other domestic and international loans included $879.1
million of overnight trust-related advances primarily in connection with next
day security settlements, compared with $924.5 million at December 31, 1997 and
$752.5 million at September 30, 1997.
At September 30, 1998, nonperforming loans totaled $29.6 million. Included in
this amount were loans with a recorded investment of $25.6 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 $7.8 million had no portion of the reserve for credit
losses allocated to them, while impaired loans totaling $17.8 million had an
allocated reserve of $1.6 million. For the third quarter of 1998, the total
recorded investment in impaired loans averaged $24.4 million. Total interest
income recorded on impaired loans for the quarter ended September 30, 1998 was
$25 thousand.
At September 30, 1997, nonperforming loans totaled $46.3 million and included
$43.3 million of impaired loans. Of these impaired loans, $10.0 million had no
reserve allocation while $33.3 million had an allocated reserve of $5.8 million.
Impaired loans for the third quarter of 1997 averaged $49.3 million with $43
thousand of interest income recognized.
9
<PAGE>
6. Reserve for Credit Losses - Changes in the reserve for credit losses were as
follows:
<TABLE>
<CAPTION>
Nine Months
Ended September 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 (10.6) (8.4)
International -- --
- ------------------------------------------------------------
Total Charge-Offs (10.8) (9.0)
- ------------------------------------------------------------
Recoveries 1.6 2.7
- ------------------------------------------------------------
Net Charge-Offs (9.2) (6.3)
Provision for Credit Losses 8.0 6.0
Reserve Related to Acquisitions .2 --
- ------------------------------------------------------------
Balance at End of Period $146.6 $148.0
- ------------------------------------------------------------
</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 credit exposures 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
and also estimates losses inherent in other credit exposures. The amount of the
specific allocation is based on expected future cash flows, the value of
collateral and other factors that may impact the borrower's ability to pay. The
estimate of inherent loss factors is based on loss factors assigned to Northern
Trust's other credit exposures based on internal credit ratings. The losses are
determined based on historical charge-off experience, regulatory guidance, and
the effect of the business cycle on the creditworthiness 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 the basis of
factors that cannot be associated with a specific credit. These factors include
management's subjective evaluation of local and national economic and 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>
Third Quarter Nine Months
Ended September 30 Ended September 30
-----------------------------------------------------------------------------
($ In Millions Except Per Share Information) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Net Income Per Common Share:
Net Income $ 90.2 $ 81.0 $ 262.3 $ 228.1
Less Dividends on Preferred Stock (1.2) (1.3) (3.7) (3.7)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 89.0 $ 79.7 $ 258.6 $ 224.4
Average Number of Common Shares Outstanding 110,518,171 111,065,939 110,741,579 111,008,921
Basic Net Income Per Common Share $ 0.81 $ 0.72 $ 2.34 $ 2.02
Diluted Net Income Per Common Share:
Net Income Applicable to Common Stock $ 89.0 $ 79.7 $ 258.6 $ 224.4
Average Number of Common Shares Outstanding 110,518,171 111,065,939 110,741,579 111,008,921
Plus Dilutive Potential Common Shares:
Stock Options 3,177,807 2,827,563 3,251,476 2,783,251
Performance Shares 666,301 567,377 597,784 576,961
Other 351,911 258,918 333,271 249,088
- ------------------------------------------------------------------------------------------------------------------------------
Average Common and Potential Common Shares 114,714,190 114,719,797 114,924,110 114,618,221
Diluted Net Income Per Common Share $ 0.78 $ 0.70 $ 2.25 $ 1.96
- ------------------------------------------------------------------------------------------------------------------------------
</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. It is estimated that
salary and related costs of approximately $10 million, relating to currently
planned software development projects, will be capitalized in 1999 following
Northern Trust's adoption of SOP 98-1.
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 activities" 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 9, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 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. SFAS
No. 133 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 formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
A company may elect to implement SFAS No. 133 at the start of any quarter
beginning with the third quarter of 1998, but must adopt the new statement by
January 1, 2000. SFAS No. 133 cannot be applied retroactively.
Northern Trust has not yet quantified the impact of adopting SFAS 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.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER EARNINGS HIGHLIGHTS
Net income increased 11% to a record $90.2 million from the $81.0 million earned
in the third quarter of last year. Net income per common share on a diluted
basis also increased 11% to a record $.78 for the third quarter, up from $.70
earned a year ago. This earnings performance produced an annualized return on
average common equity (ROE) of 20.55% versus 20.68% reported last year, and an
annualized return on average assets (ROA) of 1.30% versus 1.33% in 1997. Trust
fees grew by 15% and continue to represent the key driver of revenue growth. The
11% earnings per share growth, 161% productivity ratio, and 20.55% ROE exceeded
Northern Trust's strategic financial targets.
Noninterest Income
Noninterest income, after adjusting for a $10.0 million nonrecurring gain in
1997, increased 8% and totaled $264.7 million for the quarter, accounting for
67% of total taxable equivalent revenue. Trust fees of $203.6 million increased
15% or $26.2 million over the like period of 1997, and represented 77% of
noninterest income and 52% 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
12% from a year ago and totaled $1.13 trillion at September 30, 1998 but,
reflecting the decline in the equity markets during the quarter, decreased 6%
from June 30, 1998. Trust assets under the management of Northern Trust grew 34%
to $220.7 billion from September 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.
Effective January 1, 1998, the trust activities for Middle Market clients were
transferred to C&IS from the Personal Financial Services business unit (PFS).
Trust assets and fees for all periods presented have been restated.
13
<PAGE>
Noninterest Income (continued)
Trust fees from PFS increased 18% from the prior year level of $83.7 million and
totaled $98.8 million for the third quarter, reflecting strong growth in new
business throughout Northern Trust's PFS office network. In addition, trust fees
benefited from favorable equity markets that prevailed at June 30 since most of
Northern Trust's market-based trust fees for a quarter are determined at the
prior quarter-end. Trust fees in each state increased more than 15% from last
year's third 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 15% to $9.4 million. The Group now administers $31.8 billion of
trust assets. Total personal trust assets under administration increased $13.1
billion from the prior year and $8.9 billion since December 31, 1997, and
totaled $104.8 billion at September 30, 1998 but, reflecting the decline in the
equity markets during the quarter, decreased 5% from June 30, 1998. Of the
personal trust assets under administration, $65.0 billion is managed by Northern
Trust compared to $55.7 billion one year ago and $58.5 billion at December 31,
1997. Net recurring new business sold through September 30, 1998 and expected to
transition by year-end, was $29.0 million in annualized trust fees, up 33% from
the same period of 1997.
During the quarter, Northern Trust Bank, FSB commenced operations in Bloomfield
Hills, Michigan and Northern Trust's California bank established a new branch in
Beverly Hills. With the opening of these offices, Northern Trust's network of
Personal Financial Services offices now includes 66 locations in seven states.
Three additional offices will open in the fourth quarter of 1998 or early 1999.
Trust fees from C&IS increased 12% to $104.8 million from $93.7 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 third quarter fee growth. Strong custody
fees contributed approximately one-fourth of the growth in C&IS trust fees. New
business drove a 30% increase in retirement services recordkeeping and
consulting fees. Securities lending fees increased 11%, or $1.9 million, from
the prior year quarter to $20.1 million. Corporate trust fees also benefited
from $3.5 million in fees generated by Northern Trust Quantitative Advisors,
Inc. (NTQA), a December 31, 1997 acquisition. On a sequential quarter basis,
C&IS trust fees were down slightly because international securities lending fees
benefited from increased borrowing in the second quarter due to the seasonal
nature of dividends on certain international securities. C&IS trust assets under
administration increased 11% or $104.1 billion from the prior year to $1.02
trillion but, reflecting the decline in equity markets during the quarter,
decreased 6% from June 30, 1998. Of the C&IS trust assets under administration,
$155.7 billion is managed by Northern Trust. Trust assets under administration
included approximately $176 billion of global custody assets.
14
<PAGE>
Noninterest Income (continued)
Net new business sold, through September 30, 1998 and expected to transition by
year-end, was $45.3 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.
Foreign exchange trading profits were $23.6 million compared to the record $33.5
million in the third quarter of last year. The prior year's results benefited
from high levels of volatility in the Asian currencies and higher trading
volumes as clients repositioned their securities portfolios with respect to
these markets. Also, the current year's results were impacted by decreased
volatility in the EMU currencies and lower client portfolio holdings in emerging
markets.
Total treasury management revenues from both fees and the computed value of
compensating deposit balances increased 8% from the third quarter of 1997 to
$24.4 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 $17.6 million, up from $14.8 million in the
comparable quarter last year.
Security commissions and trading income at $6.9 million was unchanged from a
year ago. Other operating income was $12.9 million for the third quarter
compared with $22.0 million in the same period of last year. The prior year's
quarter included $10.0 million of nonrecurring income resulting from a
settlement reached with Illinois banking regulators concerning the disposition
of certain unclaimed balances accumulated over a number of years. Exclusive of
this nonrecurring item, the increase over last year is primarily attributable to
higher fees from trust deposit activities and banking services.
Net Interest Income
Net interest income for the quarter totaled $118.0 million, 8% higher than the
$109.6 million reported in the third 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 $127.7 million, up 9% from the $117.6 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 16% growth in average earning assets. The net interest margin
declined to 2.01% from 2.14% 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 to 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 third quarter averaged $25.2 billion, up 16% from the
$21.8 billion average for the same quarter of 1997. The $3.4 billion growth in
average earning assets was concentrated in the loan portfolio which increased
12% to average $13.4 billion and in securities which increased 35% to $8.4
billion. Money market assets averaged $3.4 billion in the quarter, down slightly
from last year.
The loan growth was concentrated predominantly in the domestic portfolio which
increased $1.3 billion to average $12.7 billion. Residential mortgage loans
accounted for one-half of the domestic growth, increasing 13% to average $5.6
billion for the quarter, comprising 41% of the total average loan portfolio.
Commercial and industrial loans averaged $4.1 billion during the third quarter
compared to $3.6 billion in the prior year quarter. The securities portfolio
increased $2.2 billion or 35% 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 $13.0 billion, up 9% or $1.1 billion from the
third quarter of 1997. This growth came principally from foreign office time
deposits (up $667 million), and savings and money market deposits (up $423
million). The increase in foreign office time deposits resulted primarily from
growth in global custody activity. Other interest-related funds grew 31% or $2.0
billion resulting from higher levels of federal funds purchased, securities sold
under agreements to repurchase and treasury tax and loan balances. Noninterest-
related funds increased 9% to average $3.7 billion, due to demand and
noninterest-bearing deposit growth and a $188 million increase in common
stockholders' equity resulting from retained earnings.
Provision for Credit Losses
The provision for credit losses of $1.0 million in the third quarter was $4.0
million below the comparable quarter in 1997. For a discussion of the provision
and reserve for credit losses, refer to the Asset Quality section.
Noninterest Expenses
Noninterest expenses totaled $243.8 million for the quarter, an increase of 4%
or $9.1 million from the $234.7 million in the year-ago quarter. The prior year
quarter included $8.9 million of technology-related special charges. Of these
charges, $5.4 million were for Year 2000 related costs and $3.5 million were
related to the now-completed relocation of the computer data facility. Exclusive
of these special charges, noninterest expenses increased 8% from the year-ago
level. Approximately 70% of the increase in recurring expenses related to
salaries and employee benefits resulting from staff growth and merit increases,
partially offset by lower performance-based compensation. In addition, the
noninterest expense increase in the third quarter reflects $3.9 million of
incremental expenses resulting from the NTQA and Trust Bank of Colorado
acquisitions, the opening of additional PFS offices and costs associated with
technology investments and business promotion.
16
<PAGE>
Noninterest Expenses (continued)
Salaries and benefits, which represent 61% of total noninterest expenses,
increased to $149.3 million from $136.5 million in the year-ago quarter. The
increase was primarily attributable to staff growth and merit increases,
partially offset by lower performance-based compensation. Staff levels increased
from one year ago to support growth initiatives and strong new business in both
PFS and C&IS. Staff on a full-time equivalent basis at September 30, 1998
totaled 7,950, up 8% from 7,337 at September 30, 1997. Lower performance-based
compensation principally reflects lower accruals for stock-based compensation
plans.
Net occupancy expense totaled $17.4 million, down 1% from $17.7 million in the
third quarter of 1997. Excluding the nonrecurring items in the prior year
quarter, occupancy expenses increased a modest 2%, due primarily to the opening
of additional PFS offices over the past twelve months and additional space
leased to support business growth.
Equipment expense, comprised of depreciation, rental and maintenance costs,
totaled $15.9 million, down 10% from the $17.6 million reported in the third
quarter of 1997. Exclusive of $2.6 million in technology-related special charges
in last year's third quarter, equipment expense increased 6% over the prior
year. Higher levels of lease expense for data lines and depreciation for
computer hardware were partially 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 $61.2 million compared to $62.9
million last year. Excluding technology-related special charges of $4.8 million
in last year's third quarter, other expenses increased 5% from the prior 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, telecommunications,
and amortization of goodwill and other intangible assets. Partially offsetting
these increases were lower levels of subcustodian expense, and costs associated
with legal claims.
The components of other operating expenses were as follows:
<TABLE>
<CAPTION>
Third Quarter
Ended September 30
------------------
(In Millions) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Business Development $ 8.1 $ 6.6
Purchased Professional Services 20.6 20.9
Telecommunications 4.1 3.6
Postage and Supplies 5.3 5.5
Software Amortization 10.0 13.4
Goodwill and Other Intangibles Amortization 3.6 2.5
Other Expense 9.5 10.4
- ---------------------------------------------------------------
Total Other Operating Expenses $61.2 $62.9
- ---------------------------------------------------------------
</TABLE>
17
<PAGE>
Noninterest Expenses (continued)
On October 21, 1998, the Northern Trust Company announced an agreement in which
Fiserv, Inc. will manage the bank's check processing operations. The agreement
calls for Northern Trust's approximately 300 check processing operations
employees to move to parallel positions with Fiserv effective January 1, 1999.
In the near term this agreement is not expected to have a significant effect on
operating costs for item processing. Longer term, this partnership reinforces
the bank's commitment to increasing the cost efficiencies needed for maintaining
Northern's leadership position in treasury management. Fiserv, Inc.,
headquartered in Brookfield, Wisconsin, is an independent, full-service provider
of integrated data processing and information management systems to the
financial industry.
Provision for Income Taxes
The provision for income taxes was $47.7 million for the third quarter compared
with $43.6 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 both periods.
Year 2000 Project
"Year 2000" issues stem from the fact that 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. Failure to complete Year 2000 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 on whom Northern Trust relies or with
whom it otherwise 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. Failure to make satisfactory
progress toward Year 2000 readiness or take other agency-mandated steps could
also result in action by state or federal regulators that could adversely affect
Northern Trust's business.
Northern Trust has a dedicated Year 2000 Project Team whose members have
significant experience with Northern Trust's banking and trust applications. The
scope of the Project Team's work has been reduced by the fact that Northern
Trust has been developing systems using four digit years since the mid 1980s,
and the work has proceeded more efficiently because Northern Trust has licensed
a number of software tools that help automate the process of identifying and
making needed changes.
18
<PAGE>
Year 2000 Project (continued)
The information technology portion of Northern Trust's Year 2000 Project is
proceeding in phases, although the phases overlap in some cases. In the now-
completed awareness and assessment phases, the project was defined and
application software, systems software and hardware were systematically
inventoried and assessed for importance to Northern Trust's business. Northern
Trust has used an inclusive definition of "mission critical" items, with
approximately 90% of Northern Trust's core applications included in this
category.
Northern Trust is nearing completion of the remaining phases of the Year 2000
Project:
. Renovation involves reviewing programming code and altering it where necessary
to deal appropriately with years after 1999.
. Validation tests systems and software. Both renovated systems and systems that
do not require renovation both undergo Year 2000 testing, to verify that
accurate results are produced using key dates (including leap year) in the new
century. Renovated systems are also tested to make sure that other functions
have not been affected. Any needed follow-up renovation is then performed.
Hardware is similarly tested and either upgraded or replaced.
. Implementation, in which test results are reviewed by user groups and
documented and systems or applications returned to production, follows
validation.
Northern Trust has also commenced integration testing, which will continue into
1999. This testing is designed to assure that logically related systems work
with each other and that each system can run on compliant versions of hardware
and operating system software.
The project's progress can be measured by completion percentages for the
remaining phases or by completion percentages for categories of items. Northern
Trust also tracks the progress of its centrally-supported information
technology, which makes up the vast majority of the work, as well as the
progress of all of its information technology, wherever supported. For mission
critical information technology supported centrally (including purchased and
internally developed software), Northern Trust had completed approximately 97%
of the renovation, 91% of the validation and 80% of the implementation as of
September 30, 1998. For all mission critical applications, systems and hardware,
wherever supported and including purchased and internally developed software, as
of September 30, 1998 Northern Trust had completed the following approximate
percentages of all work through the implementation phase:
Application Software 76%
Systems Software 86%
Hardware 79%
19
<PAGE>
Year 2000 Project (continued)
Northern Trust expects that renovation, validation and implementation for
substantially all internally-developed mission critical items will be completed
by December 31, 1998. Testing and implementation for a few tax functions is
expected to be completed in early 1999. Validation testing and implementation of
systems provided by third parties will also be largely completed by year-end,
although testing of a few such systems will likely carry over into the first
quarter of 1999. With respect to non-mission critical applications, including
non-critical desktop software, Northern Trust's target for completion of Year
2000 work is June 1999.
Northern Trust has also established a Year 2000 Business Issues Task Force,
consisting of senior managers from across the Corporation's businesses and
support functions, in order to systematically address issues that are not
directly related to information technology. The Task Force and the Year 2000
Project Team provide regular reports to the Corporation's Management Committee
and Board of Directors.
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 assessment phase of this task has
been completed. Renovation, validation and implementation have been completed
for most of the equipment needing renovation. Some building alarm and employee
access systems will be renovated and tested in 1999. Contingency plans are also
being developed for Northern Trust's important locations, to allow critical
functions to continue in the event of infrastructure problems.
The Task Force is also monitoring programs to contact important vendors and
suppliers to verify their Year 2000 readiness. For example, during 1998,
Northern Trust is again reviewing the Year 2000 preparedness of its
subcustodians, and recently completed on-site due diligence visits with
subcustodians, who account for most of Northern Trust's global securities
processing -- approximately 95% measured by market value of holdings and 84%
measured by number of transactions. The great majority of these subcustodians
appear to be making adequate progress. Northern Trust will continue to monitor
subcustodians Year 2000 work and develop contingency plans where necessary and
feasible.
Northern Trust also relies on entities such as the Federal Reserve System,
Depository Trust Company, Participants Trust Company, Society for Worldwide
Interbank Financial Telecommunications (SWIFT), and the Clearing House Interbank
Payment Systems (CHIPS) in its securities processing and banking businesses, as
do other financial services providers in similar businesses. Testing of data
exchanges with these organizations is underway and is expected to be completed
by March 31, 1999.
Northern Trust also plans to test for all key dates in the new century with
critical third party service providers, although it may be necessary to rely on
proxy testing in some cases. The majority of this work is expected to be done in
the first half of 1999.
20
<PAGE>
Year 2000 Project (continued)
Northern Trust will offer testing opportunities to its clients for some of its
products and services. In appropriate circumstances, Northern Trust will make
available testing documentation, including test results, to clients instead of
conducting actual tests.
Although Northern Trust is attempting to monitor and validate the efforts of
other parties, it cannot control the success of these efforts. Northern Trust
has not tried to predict the severity of the various malfunctions that may
occur, alone or in combination with other external or internal problems.
Instead, Northern Trust is developing contingency plans where practical to
provide alternatives in situations where an entity furnishing a critical product
or service experiences significant Year 2000 difficulties that will affect
Northern Trust or internal problems develop. For example, the Task Force is
coordinating a review of the Year 2000 status of power and telecommunications
providers at each important location, as these services are critical to Northern
Trust's business. The contingency plan for Northern Trust's critical Chicago
data and operations complex calls for back-up generators to be used in the event
of extended power outages to run the data center and support the most critical
operations functions. Northern Trust is also updating its existing business
continuity plans for Year 2000. This process is well underway and will continue
through the third quarter of 1999, as plans are reviewed and refined.
As part of its credit analysis process, Northern Trust has developed a project
plan for assessing the Year 2000 readiness of its significant credit customers.
An initial assessment of Year 2000 readiness has been completed for the
customers who have responded to Northern Trust's inquiries about their progress,
which make up the majority of its credit customers and represent most of its
credit exposure. Northern Trust will continue to monitor the progress of these
customers, taking action (which may include additional loan loss provisions)
where appropriate. In addition, as part of its fiduciary activities, Northern
Trust has developed and is implementing a plan for taking the Year 2000 issue
into consideration in evaluating investment portfolios, and a plan to evaluate
and deal with the Year 2000 issues presented by other types of property held in
trust. Northern Trust is also contacting clients and customers to explain its
Year 2000 Program.
The estimated expense for Northern Trust's Year 2000 renovation project is $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 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.
All Year 2000 costs are expensed as incurred. As of September 30, 1998, $18.7
million of the estimated $35 million of project costs have been incurred. The
remaining costs are expected to be incurred roughly evenly through the first
quarter of 2000.
21
<PAGE>
Year 2000 Project (continued)
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.
Euro Conversion
On January 1, 1999, the existing or "legacy" currencies of eleven of the fifteen
members of the European Union are scheduled to become convertible at fixed rates
into the euro, which will become the common legal currency of the participating
members on that date. The legacy currencies are scheduled to remain legal tender
for public and private transactions, as denominations of the euro, until June
30, 2002. During the three year transition period, transactions may be settled
in either the legacy currency or the euro.
Because of its substantial global custody and investment management businesses,
Northern Trust has engaged in extensive preparations for the introduction of the
euro. Euro-complaint software has been installed in Northern Trust's global
securities processing system. Testing is well underway and will continue through
the balance of the year. Changes in other systems have been made and are also
well into testing. Northern Trust is also conducting tests with key industry
participants, counterparties and others with whom euro-denominated data must be
exchanged beginning in 1999. Transition to the euro will necessarily involve a
significant amount of work at year-end using new system functions, and the best
preparations cannot guarantee that all important participants will successfully
complete the transition. Detailed plans for accomplishing the necessary data
conversion at year end have been made, including contingency plans for work-
around solutions in the event that others are unable to transmit, receive or
process data as expected.
The effects of the euro on various aspects of Northern Trust's business are
difficult to predict. In the foreign exchange market, volatility in pricing for
transactions between legacy currencies has already decreased considerably, as
have volumes; after January 1, 1999 these transactions will not be conducted.
Northern Trust currently estimates that foreign exchange profits have been or
will be reduced by approximately 10% in the aggregate as a result of these
developments. Although a new market will develop for transactions involving the
euro and the US dollar, it is impossible to predict the extent to which foreign
exchange profits arising from this new market will replace profits from
transactions involving legacy currencies and the US dollar or the extent to
which reductions in foreign exchange profits will be offset by other foreign
exchange initiatives.
It is generally expected that the advent of the euro will increase liquidity in
European equity and debt markets, but its impact on trading strategies, which
have an effect on Northern Trust's global securities lending business, remains
unclear. Northern Trust will
22
<PAGE>
Euro Conversion (continued)
lend for clients securities denominated in euro, and is also creating vehicles
that allow delivery and investment of collateral denominated in euro. Northern
Trust has also developed euro-denominated deposit and money market fund products
for introduction early in 1999 and is reviewing other investment management
strategies in light of the euro.
NINE MONTH EARNINGS HIGHLIGHTS
Net income per common share increased 15% to $2.25 for the nine month period
ended September 30, up from $1.96 last year. Net income also increased 15% to
$262.3 million from $228.1 million in the year-ago period. The ROE rose to
20.58% from 20.21% last year, while the ROA improved to 1.31% from 1.30% in the
same period last year.
Total revenues stated on a FTE basis increased 12% from 1997 levels. Trust fees
totaled $599.6 million, up 19% from $504.0 million last year. Excluding the
$10.6 million of incremental fees resulting from the NTQA acquisition, trust
fees increased 17%.
Foreign exchange trading profits totaled $74.8 million, down 4% from last year's
record performance. Treasury management revenues from both fees and the computed
value of compensating deposit balances increased 6% to $72.0 million. The fee
portion of these revenues accrued in the period totaled $50.9 million, up from
$44.4 million in 1997.
Security commissions and trading income totaled $21.3 million, up 10% from $19.4
million reported last year. Other operating income totaled $39.1 million in the
period compared with $40.9 million in 1997. Excluding the $10.0 million of
nonrecurring income included in the prior year, other operating income increased
26% over 1997. The improvement from the prior year was due primarily to higher
banking and trust deposit-related fees, and the second quarter gains on a
mortgage loan sale and the sale of Northern Futures Corporation exchange
memberships.
Net interest income stated on a FTE basis totaled $377.9 million, up 8% from the
$349.4 million reported last year. The $8.0 million provision for credit losses
was $2.0 million higher than the provision required in the first nine months of
1997. Net loan charge-offs increased to $9.2 million from $6.3 million in the
prior year. Noninterest expenses were up 11% and totaled $727.7 million compared
to $658.2 million a year ago. Exclusive of the $8.9 million of technology-
related special charges, total noninterest expenses increased 12% from last
year.
BALANCE SHEET
Total assets at September 30, 1998 were $28.1 billion and averaged $27.6 billion
for the third quarter, up 14% from last year's average of $24.2 billion. Due to
strong demand for credit, loans and leases grew to $13.6 billion at September
30, 1998, and averaged $13.4 billion for the quarter. This compares with $12.2
billion in total loans and leases at September 30, 1997 and $12.0 billion on
average for the third quarter of last year.
23
<PAGE>
BALANCE SHEET (continued)
Driven by continued strong earnings growth, offset in part by stock repurchases
under Northern Trust's ongoing stock buyback program, common stockholders'
equity increased to $1.76 billion at September 30, 1998 and averaged $1.72
billion for the quarter, up 12% from the $1.53 billion average in last year's
third quarter. Total stockholders' equity averaged $1.84 billion for the third
quarter compared with $1.65 billion in 1997.
During the quarter, Northern Trust acquired a total of 508,414 of its common
shares at a cost of $36.1 million pursuant to the stock buyback program
authorized by the Board of Directors. An additional 1.9 million shares may be
purchased after September 30, 1998 under the buyback program.
Northern Trust Corporation risk-based capital ratios remained strong at 9.4% for
tier 1 capital and 12.7% for total capital at September 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
third quarter average assets) of 6.9% at September 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, 11.1% for total
risk-based capital, and 5.9% for the leverage ratio.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans, restructured loans and other
real estate owned (OREO). Nonperforming assets at September 30, 1998 totaled
$31.2 million, compared with $43.3 million at December 31, 1997 and $50.4
million at September 30, 1997. Domestic nonaccrual loans and leases, consisting
primarily of commercial loans, totaled $27.2 million, or .21% of total domestic
loans and leases at September 30, 1998. At December 31, 1997 and September 30,
1997, domestic nonaccrual loans and leases totaled $38.9 million and $43.8
million, respectively.
The Nonperforming Asset table on the following page 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.
24
<PAGE>
ASSET QUALITY (continued)
<TABLE>
<CAPTION>
September 30 June 30 December 31 September 30
----------------------------------------------------------------
(In Millions) 1998 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual Loans
Domestic
Residential Real Estate $ 4.6 $ 3.7 $ 5.3 $ 4.1
Commercial 18.4 18.0 26.3 32.9
Commercial Real Estate 3.4 2.6 7.1 6.2
Personal .8 .2 .2 .6
- -------------------------------------------------------------------------------------------------------------
Total Domestic 27.2 24.5 38.9 43.8
International - - - -
- -------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 27.2 24.5 38.9 43.8
Restructured Loans 2.4 2.5 2.5 2.5
Other Real Estate Owned 1.6 2.0 1.9 4.1
- -------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $31.2 $29.0 $43.3 $50.4
- -------------------------------------------------------------------------------------------------------------
Total 90 Day Past Due Loans (still accruing) $35.4 $24.4 $13.9 $20.7
- -------------------------------------------------------------------------------------------------------------
</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 that have been identified
with specific borrower relationships (specific loss component) and for probable
losses that are believed to be inherent in the loan and lease portfolios and
other credit undertakings but that have not yet been specifically identified
(inherent loss component).
The 1998 third quarter provision for credit losses was $1.0 million, compared
with $5.0 million in the third quarter of 1997. Net charge-offs totaled $1.1
million in the third quarter of 1998, versus $5.4 million last year. The reserve
for credit losses was $146.6 million or 1.08% of outstanding loans at September
30, 1998. This compares with $147.6 million or 1.17% of outstanding loans at
December 31, 1997 and $148.0 million or 1.21% of outstanding loans at September
30, 1997.
The size of the loan loss reserve is determined by management's analysis of its
two component parts, the specific loss component and the inherent loss component
and developments affecting them. Industry paractice and regulatory requirements
affect the analysis of both components.
During the third 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 deteriorated and
needed to be charged-off. Higher allocations needed for these credits and other
credits, however, more than offset these charge-offs, so that the reserve levels
required for the specific loss component increased by $1.2 million from June 30,
1998.
25
<PAGE>
Provision and Reserve for Credit Losses (continued)
The inherent loss component of the reserve declined slightly. This 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. The net decrease in the reserve level required
for the inherent loss component is the result of many minor changes in these
essentially judgmental factors. Management's evaluation of these factors led to
the conclusion that losses inherent in the portfolio are larger than would
otherwise be suggested by the favorable charge-off experience in recent periods.
The combination of these factors resulted in a loan loss reserve of $146.6
million and, with recoveries realized during the quarter of $.4 million,
produced a provision for credit losses of $1.0 million in the third quarter.
Recently, there have been press reports of discussions in various forums
concerning the appropriate application of accounting standards to the manner in
which financial institutions determine loan loss reserves. Northern Trust
believes that it has maintained its loan loss reserve on a consistent basis in
accordance with applicable accounting standards, industry practices and
regulatory requirements. The continuing discussion, however, may produce
guidance that would lead financial institutions, including Northern Trust, to
revisit reserve methodology and could result in changes in the level of loan
loss reserves unrelated to the type of factors described above.
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,
outlook and reserves, new business results, expansion plans, anticipated
expenses, planned schedules or expected completion dates for the Year 2000 and
Euro related work, and the effect of various matters (including Year 2000 issues
and the Euro conversion) on Northern
26
<PAGE>
FORWARD-LOOKING INFORMATION (Continued)
Trust's business. These statements speak of Northern Trust's plans, goals or
expectations, refer to estimates, or use similar terms. Those relating to Year
2000 matters also constitute Year 2000 readiness disclosures. Actual results or
effects could differ materially from the results or effects 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.
. Regulatory developments and changes in accounting requirements or
interpretations 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 the Year 2000 and the
introduction of the Euro.
. The ability of various vendors, clients, counterparties and governmental or
private entities on which Northern Trust's business depends, or 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 accuracy and effectiveness of Northern Trust's assessment of and work on
issues such as those described under the captions "Year 2000 Project" and
"Euro Conversion".
. The ability of each of Northern Trust's principal businesses to maintain a
product mix that achieves satisfactory margins.
27
<PAGE>
FORWARD-LOOKING INFORMATION (continued)
. 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.
28
<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.
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Third Quarter
--------------------------------------------------------
(Interest and rate on a taxable equivalent basis) 1998 1997
--------------------------- ---------------------------
($ 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 $ 14.1 $ 979.9 5.68% $ 12.8 $ 887.4 5.68%
Time Deposits with Banks 36.0 2,392.8 5.97 34.0 2,593.3 5.20
Other Interest-Bearing .2 15.3 5.26 1.0 72.4 5.71
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Money Market Assets 50.3 3,388.0 5.89 47.8 3,553.1 5.33
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Securities
U.S. Government 5.2 339.3 5.97 11.8 787.4 5.96
Obligations of States and Political Subdivisions 9.9 443.0 8.92 9.1 401.3 9.05
Federal Agency 106.3 7,328.9 5.76 69.8 4,797.0 5.77
Other 4.2 269.6 6.37 3.6 238.0 6.01
Trading Account .3 12.5 6.42 .2 8.4 7.19
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Securities 125.9 8,393.3 5.95 94.5 6,232.1 6.02
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Loans and Leases 226.4 13,428.4 6.69 204.9 12,001.2 6.77
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Earning Assets $402.6 $25,209.7 6.34% $347.2 $21,786.4 6.32%
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Average Source of Funds
Deposits
Savings and Money Market $ 36.3 $ 4,232.7 3.41% $ 31.6 $ 3,810.5 3.29%
Savings Certificates 30.9 2,149.2 5.70 29.5 2,030.1 5.77
Other Time 9.3 678.1 5.41 10.8 771.0 5.54
Foreign Offices Time 77.5 5,927.9 5.19 64.5 5,261.0 4.86
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Deposits 154.0 12,987.9 4.71 136.4 11,872.6 4.56
Federal Funds Purchased 35.3 2,524.0 5.55 19.5 1,391.9 5.56
Repurchase Agreements 26.5 1,907.4 5.50 21.5 1,559.8 5.45
Commercial Paper 2.1 148.9 5.60 2.0 143.3 5.59
Other Borrowings 39.4 2,854.5 5.48 25.4 1,866.0 5.41
Senior Notes 5.2 366.0 5.62 12.2 844.0 5.77
Long-Term Debt 8.0 462.5 6.95 8.2 443.6 7.46
Debt-Floating Rate Capital Securities 4.4 267.4 6.33 4.4 267.3 6.41
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Interest-Related Funds 274.9 21,518.6 5.07 229.6 18,388.5 4.96
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Interest Rate Spread - - 1.27% - - 1.36%
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Noninterest-Related Funds - 3,691.1 - - 3,397.9 -
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Source of Funds $274.9 $25,209.7 4.33% $229.6 $21,786.4 4.18%
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
Net Interest Income/Margin $127.7 - 2.01% $117.6 - 2.14%
- ---------------------------------------------------------- ------ --------- ---- ------ --------- ----
</TABLE>
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
<TABLE>
<CAPTION>
Third Quarter 1998/97 Nine 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 $49.1 $6.3 $55.4 $142.1 $10.0 $152.1
Interest-Related Funds 40.5 4.8 45.3 108.3 15.3 123.6
- ---------------------------------------------------------- ----- ---- ----- ------ ----- ------
Net Interest Income $ 8.6 $1.5 $10.1 $ 33.8 $(5.3) $ 28.5
- ---------------------------------------------------------- ----- ---- ----- ------ ----- ------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NORTHERN TRUST CORPORATION
Nine Months
-------------------------------------------------------------------------
1998 1997
------------------------------------ -----------------------------------
Interest Volume Rate Interest Volume Rate
------------ -------------- ------ ------------ ------------- ------
<S> <C> <C> <C> <C> <C>
$ 40.9 $ 968.0 5.65% $ 33.3 $ 794.4 5.60%
101.2 2,419.3 5.59 92.7 2,424.5 5.11
1.9 37.4 6.74 2.4 56.5 5.75
------------ -------------- ------ ------------ ------------- ------
144.0 3,424.7 5.62 128.4 3,275.4 5.24
------------ -------------- ------ ------------ ------------- ------
17.6 390.7 6.01 38.4 870.2 5.91
28.4 424.6 8.93 29.0 412.5 9.37
285.7 6,636.5 5.76 200.9 4,670.3 5.75
13.1 255.2 6.89 11.1 242.7 6.14
.6 11.2 6.70 .5 8.3 7.47
------------ -------------- ------ ----------- -------------- ------
345.4 7,718.2 5.98 279.9 6,204.0 6.03
------------ -------------- ------ ----------- -------------- ------
658.2 13,090.6 6.72 587.2 11,580.6 6.78
------------ -------------- ------ ----------- -------------- ------
$1,147.6 $24,233.5 6.33% $995.5 $21,060.0 6.32%
------------ -------------- ------ ----------- -------------- ------
$ 105.9 $ 4,230.7 3.35% $ 93.7 $ 3,887.4 3.22%
91.6 2,133.5 5.74 86.8 2,022.9 5.74
23.3 574.3 5.42 29.6 720.0 5.49
210.3 5,556.3 5.06 164.9 4,619.7 4.77
------------ -------------- ------ ----------- -------------- ------
431.1 12,494.8 4.61 375.0 11,250.0 4.46
101.8 2,466.1 5.52 58.1 1,431.5 5.43
60.5 1,472.5 5.49 60.8 1,521.1 5.34
6.2 147.4 5.61 5.8 142.1 5.51
106.6 2,657.9 5.36 92.6 2,320.0 5.34
27.0 637.5 5.64 19.4 453.5 5.72
23.7 440.1 7.19 24.2 433.1 7.49
12.8 267.4 6.29 10.2 209.6 6.38
------------ -------------- ------ ----------- -------------- ------
769.7 20,583.7 5.00 646.1 17,760.9 4.86
------------ -------------- ------ ----------- -------------- ------
- - 1.33% - - 1.46%
------------ -------------- ------ ----------- -------------- ------
- 3,649.8 - - 3,299.1 -
------------ -------------- ------ ----------- -------------- ------
$ 769.7 $24,233.5 4.25% $646.1 $21,060.0 4.10%
------------ -------------- ------ ----------- -------------- ------
$ 377.9 - 2.08% $349.4 - 2.22%
------------ -------------- ------ ----------- -------------- ------
</TABLE>
30
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The information called for by this item is incorporated herein by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Market Risk Management" on page 26 of this document.
31
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
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 June 30, 1998)
(ii) Form of The Northern Trust Company's Global Senior
Bank Note (Floating Rate) (supersedes Exhibit 4(ii)
filed with the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
(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 June 30, 1998).
(iv) Form of The Northern Trust Company's Global
Subordinated Bank Note (Floating Rate) (supersedes
Exhibit 4(iv) filed with the Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
Exhibit (10) Material Contracts:
(i) Third Amendment dated May 27, 1998 to Lease dated
July 8, 1987 between American National Bank & Trust
Company of Chicago as Trustee under Trust Agreement
dated July 12, 1984 and known as Trust No. 61523
(Landlord) and The Northern Trust Company (Tenant),
as amended.
32
<PAGE>
(ii) Amendment effective May 1, 1998 to the Supplemental
Pension Plan for Employees of The Northern Trust
Company, as amended and restated as of April 30,
1996.
Exhibit (27) Financial Data Schedule.
(b.) Reports on Form 8-K
In a report on Form 8-K, filed July 21, 1998, Northern Trust
incorporated in Item 5 its July 20, 1998 press release, reporting on
its earnings for the second quarter of 1998 and for its 1998 fiscal
year. The press release, with summary financial information, was
filed pursuant to Item 7.
In a report on Form 8-K, filed April 3, 1998, Northern Trust
incorporated in Item 5 its April 1, 1998 press release, reporting on
the registrant's intention to exit the futures brokerage business
effective June 30, 1998.
33
<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: November 16, 1998 By: /s/ Perry R. Pero
-----------------
Perry R. Pero
Senior Executive Vice President
and Chief Financial Officer
Date: November 16, 1998 By: /s/ Harry W. Short
------------------
Harry W. Short
Senior Vice President and
Controller
(Chief Accounting Officer)
33
<PAGE>
EXHIBIT INDEX
The following exhibits have been filed herewith.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
(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 June 30, 1998).
(ii) Form of The Northern Trust Company's Global Senior Bank Note
(Floating Rate) (supersedes Exhibit 4(ii) filed with the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
(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 June 30,
1998).
(iv) Form of The Northern Trust Company's Global Subordinated Bank
Note (Floating Rate) (supersedes Exhibit 4(iv) filed with the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
(10) Material Contracts:
(i) Third Amendment dated May 27, 1998 to Lease dated July 8, 1987
between American National Bank & Trust Company of Chicago as
Trustee under Trust Agreement dated July 12, 1984 and known as
Trust No. 61523 (Landlord) and The Northern Trust Company
(Tenant), as amended.
</TABLE>
35
<PAGE>
(ii) Amendment effective May 1, 1998 to the Supplemental Pension
Plan for Employees of The Northern Trust Company, as amended
and restated as of April 30, 1996.
(27) Financial Data Schedule.
36
<PAGE>
Exhibit (4)(i)
Rev. 9/98
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
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<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 Treasury Regulation Section 1.1275-1(b) (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 Treasury Regulation Section 1.1275-
1(b)(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 thereof (together with indemnity satisfactory to the Bank
and
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<PAGE>
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 Bank, and the continuance of any such decree
or order for relief
-7-
<PAGE>
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 of the Senior Notes. The Bank
is hereby initially appointed
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<PAGE>
"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.
All notices to the Bank under this Senior Note shall be in writing and
addressed to the Bank at 50 South LaSalle Street
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<PAGE>
(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
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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.
<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 (4)(ii)
Rev. 9/98
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
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<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
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<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;
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<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
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"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, the
Interest Reset Date will be the third Wednesday 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:
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
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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 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.
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<PAGE>
"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 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 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
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interbank offered rates of major banks). "Telerate Page 3750" means the
display designated as page 3750 on the Dow Jones Markets Limited (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 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
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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
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,
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<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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).
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
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<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 "LIBOR" (the
"LIBOR Interest Determination Date") will be the second London Business Day
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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 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.
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<PAGE>
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, or Prime 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 Treasury Regulation Section 1.1275-1(b) (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 Treasury Regulation Section 1.1275-
1(b) (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 thereof (together with indemnity satisfactory to the Bank
and
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<PAGE>
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 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
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<PAGE>
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.
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
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<PAGE>
"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.
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.
-20-
<PAGE>
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., Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., Lehman
Brothers Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney Inc., and any other person, firm or entity
which shall hereafter be designated as an "Agent" under that certain
Distribution Agreement, dated September 18, 1998, 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
-21-
<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.
-22-
<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.
-23-
<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.
-24-
<PAGE>
Exhibit (4)(iii)
Rev. 9/98
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 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 Treasury Regulation
Section 1.1275-1(b) (or successor regulation) under the United States Internal
Revenue Code of 1986, as amended, in which the date of acceleration
-5-
<PAGE>
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 Treasury Regulation Section 1.1275-1(b) (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.
<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 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 name as written
upon the face of the within Subordinated
Note in every particular, without
alteration or enlargement or any change
whatsoever.
<PAGE>
Exhibit 4.(iv)
Rev. 9/98
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.
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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
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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.
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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
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<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, the Interest Reset
Date will be the third Wednesday 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 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.
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<PAGE>
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 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
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<PAGE>
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
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<PAGE>
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 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 Markets Limited (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
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<PAGE>
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 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
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<PAGE>
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 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
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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 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.
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<PAGE>
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 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
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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).
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 accordance with the provisions
under the headings above entitled
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<PAGE>
"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 "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.
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
-16-
<PAGE>
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, or Prime 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 Treasury Regulation
Section 1.1275-1(b) (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
Treasury Regulation Section 1.1275-1(b) (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
-17-
<PAGE>
(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 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
-18-
<PAGE>
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 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
-19-
<PAGE>
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.
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.
-20-
<PAGE>
As used in this Subordinated Note, the term "Agents" shall mean Goldman,
Sachs & Co., Credit Suisse First Boston Corporation, J.P. Morgan Securities
Inc., Lehman Brothers Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Salomon Smith Barney Inc., and any other person, firm or
entity which shall hereafter be designated as an "Agent" under that certain
Distribution Agreement, dated September 18, 1998, 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
-21-
<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.
-22-
<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 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 name as written upon
the face of the within
Subordinated Note in every
particular, without alteration
or enlargement or any change
whatsoever.
-23-
<PAGE>
Exhibit 10(i)
THIRD AMENDMENT TO OFFICE LEASE
THIS THIRD AMENDMENT TO OFFICE LEASE (the "Third Amendment") is made as of
this 27th day of May, 1998, by and between METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation, as successor to American National Bank and Trust Company
of Chicago, as Trustee under Trust Agreement No. 61523 ("Landlord") and THE
NORTHERN TRUST COMPANY, a national banking corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Office Lease dated
July 8, 1987, as amended by that certain First Amendment to Office Lease dated
October 20, 1987 and that certain Second Amendment to Office Lease ("Second
Amendment") dated January 16, 1998 (collectively, the "Lease") for the lease of
certain office space, currently consisting of the 4th through 8th floors and
portions of the 9th, 10th and 13th floors in the building located at 10 S.
LaSalle Street, Chicago, Illinois (the "Building"), as more particularly
described in the Lease;
WHEREAS, Tenant desires to lease additional office space from Landlord upon
the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant agree as follows:
1. Definitions. All terms used herein without definition shall have the
meanings ascribed to such terms in the Lease.
2. Expansion of Premises. Tenant hereby leases from Landlord and Landlord
hereby leases to Tenant for the purposes set forth in the Lease the premises
consisting of that certain office space diagrammed on Exhibit A-1 attached
hereto, which space is located on the 10th floor of the Building consisting of
2,444 rentable square feet (the "Third Amendment Expansion Premises").
Effective as of the date hereof, the "Premises" as defined in the Lease shall
include the Third Amendment Expansion Premises. Except as modified herein,
Tenant's lease of the Third Amendment Expansion Premises shall be upon all terms
and conditions contained in the Lease.
3. Lease Term for the Third Amendment Expansion Premises. The term of the
lease of the Third Amendment Expansion Premises (the "Third Amendment Expansion
Premises Term") shall commence on September 1, 1998 (the "Third Amendment
Expansion Premises Commencement Date") and shall expire on March 31, 2001 (the
"Third Amendment Expansion Premises Expiration Date").
- 1 -
<PAGE>
4. Base Rent for the Third Amendment Expansion Premises. Commencing on
the Third Amendment Expansion Premises Commencement Date, Tenant shall pay Base
Rent for the Third Amendment Expansion Premises at the rates listed in the Base
Rent Schedule below, in the same manner and at the same time as required under
the terms of the Lease:
<TABLE>
<CAPTION>
Base Rent Schedule for the Third Amendment Expansion Premises
---------------------------------------------------------------
Monthly Annual
Lease Period Base Rent Base Rent
------------ --------- ---------
<S> <C> <C>
09/01/98-03/31/99 $2,138.50 N/A
04/01/99-03/31/00 $2,444.00 $29,328.00
04/01/00-03/31/01 $2,749.50 $32,994.00
</TABLE>
5. Rent Adjustment and Tenant's Proportionate Share. Tenant shall pay
Rent Adjustment and any other components of Rent for the Third Amendment
Expansion Premises in accordance with the terms of the Lease, except that
Tenant's Proportionate Share shall be calculated pursuant to the terms of the
Lease and, as of the Third Amendment Expansion Premises Commencement Date, will
be 129,097/715,785 or 18.0357%.
6. Possession and Condition of the Premises. Landlord shall deliver
possession of the Third Amendment Expansion Premises to Tenant on or before
September 1, 1998. Upon delivery of possession of the Third Amendment Expansion
Premises to Tenant, Tenant shall be subject to all of the terms, covenants and
conditions of the Lease as of the date of such possession. Landlord shall
deliver possession of the Third Amendment Expansion Premises to Tenant in its
"as-is" condition. Tenant shall be conclusively deemed to have accepted the
Third Amendment Expansion Premises "as is" in the condition existing on the date
Tenant first takes possession, and to have waived all claims relating to the
condition of the Third Amendment Expansion Premises. No promise of Landlord to
remodel, improve, decorate or make additions to the Third Amendment Expansion
Premises or any part thereof, and no representation respecting the condition of
the Third Amendment Expansion Premises or the Building has been made to Tenant
by Landlord. Tenant shall make improvements to the Third Amendment Expansion
Premises in accordance with the terms of the Workletter attached hereto as
Exhibit B. Tenant shall be entitled to an allowance for such improvements as
provided in the Workletter.
7. Renewal Option for Third Amendment Expansion Premises.
(a) Exercise of Option. Tenant shall have the option (the "Renewal
Option") to extend the Third Amendment Expansion Premises Term for the Third
Amendment Expansion Premises for one (1) additional three (3) year period (the
"Renewal Period") provided Tenant simultaneously extends the Expansion Premises
Term for the Expansion Premises as provided in the Second Amendment. If Tenant
desires to exercise the Renewal Option, Tenant shall deliver written notice
("Renewal Notice") to Landlord on or before July 1, 2000. The Renewal Option
shall be on the same terms and conditions as contained in the Lease, except
during the Renewal Period, Base Rent shall be the amounts listed in the Third
Amendment Expansion Premises Renewal Base Rent Schedule listed below, there
shall be no further renewal rights and there shall be no tenant or construction
allowance or any other concessions of any kind. If Tenant
- 2 -
<PAGE>
successfully exercises the Renewal Option, then the term "Third Amendment
Expansion Premises Term" as used in this Third Amendment shall be deemed to
include the Renewal Period.
(b) Rent. Base Rent for the Third Amendment Expansion Premises during the
Renewal Period shall be the following amounts:
Third Amendment Expansion Premises Renewal Base Rent Schedule
<TABLE>
<CAPTION>
Monthly Annual
Lease Period Base Rent Base Rent
------------ --------- ---------
<S> <C> <C>
04/01/01-03/31/02 $3,055.00 $36,660.00
04/01/02-03/31/03 $3,360.50 $40,326.00
04/01/03-03/31/04 $3,666.00 $43,992.00
</TABLE>
Tenant shall pay Rent Adjustment and other components of Rent for the Third
Amendment Expansion Premises during the Renewal Period in accordance with the
terms of this Third Amendment and the Lease.
(c) Conditions to Renewal Option. It shall be a condition to Tenant's
exercise of the Renewal Option that (i) both at the time of delivery of Tenant's
Renewal Notice and at the commencement of the Renewal Term, Tenant is not in
Default under the Lease and (ii) Tenant simultaneously extends the Expansion
Premises Term for the Expansion Premises as provided in the Second Amendment.
Any termination of the Lease or termination of Tenant's right of possession
shall terminate all of Tenant's rights to the Renewal Option. Tenant shall have
no right to assign, transfer or otherwise dispose of any of its rights or
interests under this Paragraph, such rights being granted solely to The Northern
Trust Company; provided, however, any successor by merger, consolidation or
acquisition of all or substantially all of the assets or capital stock of The
Northern Trust Company shall be entitled to the rights granted to The Northern
Trust Company hereunder.
(d) Condition of the Premises Upon Renewal. The Third Amendment Expansion
Premises shall be leased to Tenant during the Renewal Period in its then "as-is"
condition and Landlord shall have no obligation to remodel, improve, decorate,
or make additions to the Third Amendment Expansion Premises.
Notwithstanding any of the foregoing provisions of this Paragraph, any attempt
by Tenant to exercise a Renewal Option by any method, or at any time, or in any
circumstance, except as specifically set forth above shall, at the sole option
and discretion of Landlord, be null and void and of no force or effect.
8. Entire Agreement. This Third Amendment and the Lease contain all the
terms, covenants, conditions and agreements between Landlord and Tenant
regarding the Third Amendment Expansion Premises. No prior or other agreement
or understanding pertaining to such matters shall be valid or of any force and
effect.
9. Conflict. In the event of a conflict between the terms of the Lease
and the terms of this Third Amendment, the terms of this Third Amendment shall
control.
10. Brokers. Tenant represents to Landlord that, except for CB
Commercial/Koll Management Services and Tanguay-Burke-Stratton, L.L.C., Tenant
has not dealt with any real estate broker, sales person, or finder in connection
with this Third Amendment, and no such person initiated or participated in the
negotiation of this Lease, or showed the Third Amendment Expansion Premises to
Tenant. Tenant hereby agrees to indemnify, protect, defend and hold harmless
Landlord, its directors, officers, employees, affiliates and agents, from and
against any
- 3 -
<PAGE>
and all liabilities and claims for commissions and fees arising out of a breach
of the foregoing representation.
Landlord represents to tenant that, except for CB Commercial/Koll Management
Services and Tanguay-Burke-Stratton, L.L.C., Landlord has not dealt with any
real estate broker, sales person, or finder in connection with this Third
Amendment, and no such person initiated or participated in the negotiation of
this Lease. Landlord hereby agrees to indemnify, protect, defend and hold
Tenant, its directors, officers, employees, affiliates and agents, harmless from
and against any and all liabilities and claims for commissions and fees arising
out of a breach of the foregoing representation. Landlord shall be solely
responsible for the payment of all commissions to the brokers specified in this
Paragraph.
11. Reaffirmation of Lease. Except as otherwise herein provided, the
terms and conditions of the Lease are hereby reaffirmed and incorporated herein
by reference and shall, except as hereby modified, in all respects remain in
full force and effect. Any and all references in the Lease and this Third
Amendment to the "Lease" shall mean the Lease, as amended by this Third
Amendment.
IN WITNESS WHEREOF, this Third Amendment is executed by the undersigned as
of the day and year first above written.
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE THE NORTHERN TRUST COMPANY,
COMPANY, a national banking corporation
a New York corporation
By:_____________________________ By:_____________________________
Its:_____________________________ Its:_____________________________
ATTEST:
By:_____________________________
Its:____________________________
- 4 -
<PAGE>
Exhibit A
Picture showing tenth floor space allocation of
10 S. LaSalle Street, Chicago, Illinois (The Building).
<PAGE>
EXHIBIT B
Workletter
----------
METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation ("Landlord")
and THE NORTHERN TRUST COMPANY, a national banking association. ("Tenant") are
executing simultaneously herewith a Third Amendment to Lease (the "Third
Amendment"), whereby Landlord is leasing certain space (the "Third Amendment
Expansion Premises") to Tenant as more particularly described in the Third
Amendment. In connection with the execution of the Third Amendment, Landlord
and Tenant have further agreed as follows (all terms herein without definition
shall have the meaning ascribed to such terms in the Third Amendment):
1. Space Plan. Tenant, at Tenant's sole cost and expense, subject to
reimbursement by Landlord from the Third Amendment Expansion Premises Allowance,
has directed and authorized its internal or in-house architect or an outside
architect reasonably acceptable to Landlord (the "Architect") to prepare a space
plan of the Third Amendment Expansion Premises ("Space Plan") depicting the
physical layout of the Third Amendment Expansion Premises. Upon completion,
Tenant shall deliver the Space Plan to Landlord for Landlord's approval, such
approval not to be unreasonably withheld or delayed.
2. Working Drawings. Tenant shall also cause the Architect to prepare, at
Tenant's sole cost and expense, the final architectural, mechanical (including
heating, ventilating and air-conditioning) electrical, plumbing and structural
plans and specifications ("Working Drawings") necessary to complete the work
("Work") required to construct the improvements to the Third Amendment Expansion
Premises depicted in the Space Plan previously approved by Landlord.
Tenant shall cause Architect to submit the finished Working Drawings to
Landlord and Landlord shall review the Working Drawings and grant its consent or
denial thereof within five (5) business days after receipt of all of the Working
Drawings, which approval shall not be unreasonably withheld or delayed (provided
in all events Landlord may withhold its consent to the Working Drawings to the
extent the same affects the structural integrity of the Building or adversely or
materially affects any Building system). To the extent Landlord does not
provide its consent to the Working Drawings as aforesaid, Landlord shall state,
with specificity, Landlord's reasons for such disapproval. Tenant shall then be
required to make such corrections as Landlord may designate and resubmit the
Working Drawings to Landlord for its consent.
Subsequent to Landlord's approval of the Working Drawings, any changes to
the Working Drawings requested by Tenant shall be subject to the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed, provided Landlord may withhold its consent to any of said changes for
the same reasons previously stated for not approving the Working Drawings and
under the same conditions as stated in the preceding Paragraph.
Tenant shall pay to Landlord any reasonable out-of-pocket costs or expenses
Landlord incurs in the process of reviewing the Working Drawings or any changes
thereto.
Exhibit B - Page 1
<PAGE>
3. Work. Tenant shall cause the Work to be completed. Tenant hereby
agrees that the Work shall be completed by a general contractor selected by
Tenant and approved by Landlord, which approval shall not be unreasonably
withheld or delayed (the "General Contractor"). Tenant shall cause General
Contractor to hire only union subcontractors (collectively, "Subcontractors").
Further, Tenant agrees Tenant's failure to cause General Contractor to hire only
union Subcontractors shall constitute a default under the Lease. Tenant agrees
General Contractor shall have no right to commence any Work to the Third
Amendment Expansion Premises unless and until Tenant has tendered to Landlord a
building permit for the Work issued by the City of Chicago. Tenant agrees to
display the building permit at the Third Amendment Expansion Premises at all
times during the prosecution of the Work. Tenant hereby guarantees to Landlord
that the Work shall be completed in a lien free manner and in strict accordance
with the Working Drawings and all applicable laws (it being acknowledged by
Landlord and Tenant the provisions of the Lease shall control with respect to
mechanics' liens filed against the Real Estate or the Building as a result of
the Work). Tenant shall only conduct the Work between the hours of 7:00 a.m. to
6:00 p.m. unless otherwise consented to by Landlord (which consent shall not be
unreasonably withheld or delayed) and shall cause as minimal disruption as
reasonably possible to other tenants of the Building.
4. Freight Elevator. For purposes of the Work, Tenant shall have the non-
exclusive right to use the Building's freight elevator subject to availability
and scheduling as may be reasonably established by Landlord. Such freight
elevator use by Tenant during normal business hours shall be free of charge
during such construction period; provided, however, to the extent Tenant
utilizes such freight elevators after normal business hours, Tenant shall pay to
Landlord any reasonable costs and expenses incurred by Landlord as a result of
such after hours activities; provided, further, if any other tenant of the
Building is also using said freight elevator with Tenant after normal business
hours, then any charge to Tenant shall be apportioned between all parties
utilizing said freight elevators.
5. Cost of Work. Tenant shall be responsible for and shall pay all costs
associated with the Space Plan, the Working Drawings and the Work. Tenant shall
pay all amounts timely so as to prevent the filing of any liens against the
Third Amendment Expansion Premises, the Building or the Real Estate.
Landlord will provide to Tenant an allowance in an amount not to exceed
Twenty-four Thousand and 00/100 Dollars ($24,000) for the Space Plan, the
Working Drawings and the Work associated with the Third Amendment Expansion
Premises (the "Third Amendment Expansion Premises Allowance"). If the aggregate
cost of the Space Plan, the Working Drawings and the Work exceed the Third
Amendment Expansion Premises Allowance ("Shortfall"), Tenant shall be solely
responsible and shall pay the Shortfall. The Third Amendment Expansion Premises
Allowance shall be paid to Tenant on or before October 15, 1998.
6. Lien Waivers. Tenant shall diligently obtain and promptly deliver to
Landlord all waivers of lien and affidavits of the General Contractor, all
subcontractor, laborers, suppliers and materialmen and others conducting
"lienable" work on or to the Third Amendment Expansion Premises. In any event,
Tenant shall submit all such waivers of lien and affidavits to Landlord no later
than the earlier of (a) thirty (30) days after substantial completion of the
Work or (b) June 1, 1999.
7. Utility Costs. Tenant shall be responsible and shall pay for the cost
of utility services provided to the Third Amendment Expansion Premises during
construction of the Work. It is acknowledged by Tenant that Tenant shall be
responsible for causing all utilities to be operating within
Exhibit B - Page 2
<PAGE>
the Third Amendment Expansion Premises as of the Third Amendment Expansion
Premises Commencement Date and, to the extent such utilities are not operating
within the Third Amendment Expansion Premises as of the Third Amendment
Expansion Premises Commencement Date, through no fault of Landlord, Landlord's
obligations to supply certain utilities described in the Lease shall be of no
force and effect until such time as Tenant causes said utilities to be
operational within the Third Amendment Expansion Premises.
8. Insurance.
(i) During the course of construction of the Work, Tenant shall obtain,
pay for and maintain or cause General Contractor to obtain, pay for
and maintain insurance for the coverages and amounts of coverage not
less than those set forth below in the Schedule of Insurance Coverages
(as hereinafter defined) and shall provide or shall cause General
Contractor to provide to Landlord certificates issued by insurance
companies reasonably satisfactory to Landlord to evidence such
coverages before any Work commences at the Third Amendment Expansion
Premises. Such certificates shall provide that there shall be no
termination, non-renewal, modification or expiration of such coverage
without thirty (30) days prior written notice to Landlord. Such
certificates shall name Metropolitan Life Insurance Company, owner,
and CB Commercial Real Estate Group, Inc. and its affiliates and
subsidiaries, manager, as additional insureds. In the event of any
failure by Tenant to cause General Contractor to comply with the
provisions of this Paragraph 8, Landlord may, at its option, upon
notice to Tenant, suspend the Work until such time as there is full
compliance with this Paragraph 8. Tenant shall provide to Landlord a
certified copy of any and all applicable insurance policies upon
request of Landlord.
(ii) Schedule of Insurance Coverages. The following shall constitute the
"Schedule of Insurance Coverages":
(a) Workers' Compensation Insurance. Coverage complying with the law
of the State of Illinois and Employer's Liability insurance with
a limit of $1,000,000.00 each accident, including occupational
disease coverage with a limit of $1,000,000.00 per person subject
to aggregate limit of $1,000,000.00 per annum.
(b) Comprehensive Automobile Liability Insurance. $1,000,000.00
combined single limit of liability for bodily injuries, death and
property damage resulting from any one occurrence, including all
owned, hired and non-owned vehicles.
Exhibit B - Page 3
<PAGE>
(c) Commercial General Liability Insurance. $1,000,000.00 combined
single limit of liability for bodily injuries, death and property
damage resulting from any one occurrence, including the following
coverages:
(1) Premises and Operations;
(2) Completed Operations for one (1) year after completion of
the Work:
(3) Broad Form Comprehensive General Liability Endorsement,
Bodily Injury (with employment and contractual exclusions
deleted) and Broad Form Property Damage Coverage;
(4) Independent Contractors; and
(5) Delete Exclusions relative to Collapse, Explosion and
Underground Property Damage Hazards;
(d) Builder's Risk Insurance. Tenant shall procure, pay for, and
maintain all-risk builder's risk insurance (or comparable form)
for the full insurable value of all labor and materials
incorporated into the construction of the Work, while at the
construction site and/or staging area awaiting erection and
during erection, until completion and acceptance. Insurance is
to cover real and personal property after it is received at the
construction site and/or staging area (but not while otherwise
stored off-site or in transit). The policy so purchased shall
insure Landlord, General Contractor and the Subcontractors as
their interests may appear and shall be so written as to provide
for reimbursement, in the event of claim for loss or damage, for
the entire cost of repairing or replacing, reconditioning, or re-
erecting the property lost or damaged with materials of similar
kind and quality, including, but not by way of limitation, the
cost of materials, labor, supervision, engineering and
transportation.
Notwithstanding the foregoing, Tenant may elect to effect
the all-risk builder's risk insurance described above
through a plan of self insurance provided that Tenant
complies with the provisions of Paragraph 17.A of the__
Lease relating to self insurance as applied to the insurance
coverage requirements contained in this subparagraph
(including, without limitation, obtaining Landlord's
consent).(e) Miscellaneous.(1) Any insured loss or claim of
loss pursuant to this Paragraph 8 shall be adjusted by
Landlord, and any settlement payments shall be made payable
to Landlord as trustee for the insureds, as their interests
may appear, subject to the requirements of any applicable
mortgagee clause. Upon the occurrence of an insured loss or
claim of loss, monies received will be held by Landlord who
shall make distribution in accordance with an agreement to
be reached in such event between Landlord and Tenant. If the
parties are unable to agree between themselves on the
settlement of the loss, such dispute shall be submitted to a
court of competent jurisdiction to determine ownership
Exhibit B - Page 4
<PAGE>
of the disputed amounts but the Work shall nevertheless
progress during any such period of dispute without prejudice
to the rights of any party to the dispute.(2) Landlord
shall not insure or be responsible for any loss or damage to
property owned, rented or leased by General Contractor,
Subcontractors, or their employees, servants or agents,
other than property which will become a part of the
permanent construction.
(3) With respect to General Contractor's operations, Tenant
shall cause General Contractor to purchase, maintain and pay
for all-risk contractor's equipment floater on all
machinery, tools, equipment and other similar property in an
amount at least equal to their fair market value and any
deductible shall be for the account of General Contractor.
This insurance coverage shall be the sole and complete means
of recovery for any loss covered by such insurance.
(f) Subcontractor's Insurance. Tenant shall cause General Contractor to
require each of its Subcontractors to comply with a Worker's
Compensation, Employer's Liability, Comprehensive General Liability
and the Automobile Liability insurance provisions set forth in the
Schedule of Insurance Coverages. Tenant shall cause General
Contractor to cause each of the Subcontractors to deliver to Landlord
certificates of insurance evidencing the foregoing coverages prior to
commencement of respective Work and, in the event Tenant fails to
cause General Contractor to cause each Subcontractor to deliver to
Landlord the required certificates of insurance from such
Subcontractors and a claim is made or suffered, Tenant shall
indemnify, defend and hold harmless Landlord, its shareholders,
officers, directors, affiliates, employees or agents from any and all
claims for which the required insurance would have provided coverage.
This indemnity obligation is in addition to any other indemnity
obligation provided herein.
(g) Certificates of Insurance. All certificates of insurance required to
be delivered to Landlord as set forth herein from General Contractor
or any Subcontractor shall name Landlord as an additional insured as
its interest may appear.
9. Indemnification. To the fullest extent permitted by law, Tenant shall
indemnify, defend and hold harmless Landlord, its directors, officers,
employees, affiliates and agents (the "Indemnified Parties") from and against
any and all loss, cost, expense, damage, injury, liability, claim, demand,
penalty or cause of action (including reasonable attorneys' fees and court
costs), directly or indirectly arising out of, resulting from or related to (in
whole or in part), (1) the Work, (2) this Workletter, (3) any mechanics' liens
which may be placed against the Building or Real Estate as a result of the Work,
and (4) any act or omission of Tenant, General Contractor, any Subcontractor or
any individual, partnership, joint venture or corporation (a) directly or
indirectly employed by General Contractor or a Subcontractor, or (b) for whose
acts or omissions General Contractor or any Subcontractor may be liable. Subject
to the waiver of subrogation provisions in the Lease, the obligations of Tenant
under this indemnification shall apply to all matters except those arising
solely from the negligence or the willful acts or omissions of Landlord. Tenant
shall promptly advise Landlord in writing of any action, administrative or legal
proceeding or investigation as to which this indemnification may apply, and
Tenant, at Tenant's expense, shall assume on behalf of Landlord and conduct with
due diligence and in good faith the defense thereof with counsel
Exhibit B - Page 5
<PAGE>
reasonably satisfactory to Landlord; provided, that Landlord shall have the
right to be represented therein by advisory counsel of its own selection and at
its own expense. The obligations of this Paragraph 9 shall survive final
completion of the Work and shall be in addition to the insurance requirements
set forth in the Lease and shall not be in discharge of or in substitution for
the same.
10. Landlord's Supervision. Tenant hereby acknowledges that Landlord, at
Landlord's cost, shall have the right to cause a "Supervising Architect" to
periodically inspect the Work to determine its compliance with the Working
Drawings. Tenant agrees to provide access to the Work to the Supervising
Architect and cooperate with the Supervising Architect at such times as Landlord
may request, in its reasonable discretion.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Workletter as of
the day and year of the execution of the Third Amendment.
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE COMPANY, THE NORTHERN TRUST COMPANY,
a New York corporation a national banking corporation
By:_____________________________ By:___________________________
Its:____________________________ Its:__________________________
ATTEST:
By:____________________________
Its:___________________________
Exhibit B - Page 6
<PAGE>
Exhibit 10(ii)
AMENDMENT NUMBER ONE TO
RESTATED SUPPLEMENTAL PENSION PLAN FOR EMPLOYEES OF THE
NORTHERN TRUST COMPANY
WHEREAS, The Northern Trust Company (the "Company") maintains the Restated
Supplemental Pension Plan for Employees of The Northern Trust Company, effective
as of May 1, 1996 (the "Plan"); and
WHEREAS, by virtue and in exercise of the amending power reserved to the
Company under Section 6.1 of the Plan, the Board of Directors authorized
amendments to the Plan by resolution dated February 17, 1998;
NOW THEREFORE, pursuant to the authority delegated by the Board of
Directors to the undersigned officer by such resolution, the Plan is hereby
amended in the following particulars, effective May 1, 1998:
1. New sections 1.7 and 1.8 are added to read as follows, and the current
sections 1.7 through 1.17 are renumbered accordingly:
"1.7 `Modified Pension Benefit' means the Qualified Plan Pension
Benefit, with the following modifications:
(a) Code Section 401(a)(17) and Section 415 restrictions shall be
disregarded;
(b) Any amounts of performance-based incentive compensation under the
Northern Trust Corporation Annual Performance Plan and the Northern Trust
Corporation Management Performance Plan, the receipt of which is deferred
under the Northern Trust Corporation Deferred Compensation Plan, will be
taken into account as Compensation as if such amounts were not so deferred;
and
(c) Any amounts of base salary and bonus, the receipt of which is deferred
because of Internal Code Section 162(m) limitations under the Northern
Trust Corporation Annual Performance Plan, shall be included as
Compensation as if such amounts were not so deferred.
1.8 `Modified Survivor Benefit' means the Qualified Plan Survivor Benefit,
with the following modifications:
(a) Code Section 401(a)(17) and Section 415 restrictions shall be
disregarded;
(b) Any amounts of performance-based incentive compensation under the
Northern Trust Corporation Annual Performance Plan and the Northern
<PAGE>
Trust Corporation Management Performance Plan, the receipt of which is
deferred under the Northern Trust Corporation Deferred Compensation Plan,
will be taken into account as Compensation as if such amounts were not so
deferred; and
(c) Any amounts of base salary and bonus, the receipt of which is deferred
because of Internal Code Section 162(m) limitations under the Northern
Trust Corporation Annual Performance Plan, shall be included as
Compensation as if such amounts were not so deferred."
2. The current sections 1.12 and 1.13 (which have been renumbered as 1.14 and
1.15) are amended to read as follows:
"1.14 `Qualified Plan Pension Benefit' means the aggregate pension benefit
payable to a Participant pursuant to the Qualified Plan by reason of his
termination of employment with the Company and all affiliates.
1.15 `Qualified Plan Survivor Benefit' means the aggregate survivor
benefit payable to a Beneficiary of a Participant pursuant to Section 6.1
of the Qualified Plan in the event of death of the Participant at any time
prior to the Participant's Payment Entitlement Date under the Qualified
Plan."
3. Section 3.1 is amended in its entirety to read as follows:
"3.1 Amount. The Supplemental Pension Benefit payable to an eligible
Participant shall be calculated as follows:
(a) In the event the Participant elects an immediate lump sum distribution
under the Qualified Plan, such amount shall be the difference between (a)
the lump sum value of the Participant's Modified Pension Benefit and (b)
the lump sum value of the Participant's Qualified Plan Pension Benefit.
(b) In the event the Participant elects an immediate annuity under the
Qualified Plan, such amount shall be the lump sum value of the difference
between (i) the monthly amount of the Participant's Modified Pension
Benefit and (ii) the monthly amount of the Participant's Qualified Pension
Benefit."
4. Section 3.5 is amended by deleting the second paragraph thereof.
5. Section 4.1 is amended in its entirety to read as follows:
"4.1 Amount. If a Participant dies prior to termination of employment
under circumstances in which a Qualified Plan Survivor Benefit is payable
to his Beneficiary, then a Supplemental Survivor Benefit is payable to his
Beneficiary as
<PAGE>
hereinafter provided. The amount of the Supplemental Survivor Benefit
payable to a Participant's Beneficiary shall be the lump sum value of the
difference between (i) the monthly amount of the Beneficiary's Modified
Survivor Benefit and (ii) the monthly amount of the Beneficiary's Qualified
Plan Survivor Benefit."
6. A new section 4.3 is added to read as follows:
"4.3 Grandfather Provision. Notwithstanding anything to the contrary
contained herein, any Beneficiary who commenced receiving payment of a
Supplemental Survivor Benefit hereunder in the form of an annuity prior to
January 1, 1995, pursuant to the terms of the Plan on the date payment of
such Benefit commenced, shall continue to receive such payments from and
after January l, l995 in the form of such annuity."
IN WITNESS WHEREOF, the Company has caused this amendment to be executed on its
behalf by the undersigned officer this 30th day of October, 1998.
_____________________________
Martin J. Joyce, Jr.
Senior Vice President
<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>
<RESTATED>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,105,162
<INT-BEARING-DEPOSITS> 2,448,386
<FED-FUNDS-SOLD> 2,878,088
<TRADING-ASSETS> 13,389
<INVESTMENTS-HELD-FOR-SALE> 5,993,998
<INVESTMENTS-CARRYING> 465,261
<INVESTMENTS-MARKET> 479,686
<LOANS> 13,600,838
<ALLOWANCE> 146,644
<TOTAL-ASSETS> 28,078,839
<DEPOSITS> 17,041,619
<SHORT-TERM> 7,641,411
<LIABILITIES-OTHER> 783,092
<LONG-TERM> 733,970
<COMMON> 189,935
0
120,000
<OTHER-SE> 1,568,812
<TOTAL-LIABILITIES-AND-EQUITY> 28,078,839
<INTEREST-LOAN> 656,663
<INTEREST-INVEST> 319,297
<INTEREST-OTHER> 144,504
<INTEREST-TOTAL> 1,120,464
<INTEREST-DEPOSIT> 431,138
<INTEREST-EXPENSE> 769,731
<INTEREST-INCOME-NET> 350,733
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 1,285
<EXPENSE-OTHER> 727,664
<INCOME-PRETAX> 402,091
<INCOME-PRE-EXTRAORDINARY> 262,345
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,345
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.25
<YIELD-ACTUAL> 2.08
<LOANS-NON> 27,242
<LOANS-PAST> 35,407
<LOANS-TROUBLED> 2,417
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 147,638
<CHARGE-OFFS> 10,780
<RECOVERIES> 1,627
<ALLOWANCE-CLOSE> 146,644
<ALLOWANCE-DOMESTIC> 111,491
<ALLOWANCE-FOREIGN> 4,563
<ALLOWANCE-UNALLOCATED> 30,590
</TABLE>
