-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BLGxxkg7OYZJEpADDetgTHr/kAoGWlNS68/oBQg/WEA07HOYZJsJp0W7NXP708OL 7eqY7FGBMlRRRn1xl4DyeA== 0000950131-01-504034.txt : 20020410 0000950131-01-504034.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950131-01-504034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHERN TRUST CORP CENTRAL INDEX KEY: 0000073124 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 362723087 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05965 FILM NUMBER: 1779168 BUSINESS ADDRESS: STREET 1: 50 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60675 BUSINESS PHONE: 3126306000 FORMER COMPANY: FORMER CONFORMED NAME: NORTRUST CORP DATE OF NAME CHANGE: 19780525 10-Q 1 d10q.txt FORM 10-Q ================================================================================ 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, 2001 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 No. 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 LaSalle Street Chicago, Illinois 60675 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 630-6000 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] 222,114,864 Shares - $1.66 2/3 Par Value (Shares of Common Stock Outstanding on September 30, 2001) ================================================================================ PART I - FINANCIAL INFORMATION Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION September 30 December 31 September 30 ------------ ----------- ------------ ($ In Millions) 2001 2000 2000 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Assets Cash and Due from Banks $ 1,685.6 $ 2,287.8 $ 1,361.8 Federal Funds Sold and Securities Purchased under Agreements to Resell 1,574.2 549.8 544.6 Time Deposits with Banks 4,542.5 5,193.8 2,743.2 Other Interest-Bearing Assets 23.8 121.3 12.5 Securities Available for Sale 5,362.1 6,477.8 9,241.2 Held to Maturity (Fair value - $659.7 at September 2001, $782.1 at December 2000, $788.9 at September 2000) 641.0 778.4 794.9 Trading Account 13.7 13.4 13.9 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Total Securities 6,016.8 7,269.6 10,050.0 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Loans and Leases Commercial and Other 11,423.0 11,321.8 11,086.6 Residential Mortgages 7,332.4 6,822.8 6,643.5 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Total Loans and Leases (Net of unearned income - $428.9 at September 2001, $365.3 at December 2000, $421.1 at September 2000) 18,755.4 18,144.6 17,730.1 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Reserve for Credit Losses (158.1) (162.9) (158.0) Buildings and Equipment 484.6 448.1 409.8 Customers' Acceptance Liability 21.2 9.3 20.2 Trust Security Settlement Receivables 709.9 615.2 656.7 Other Assets 1,468.5 1,545.7 1,422.8 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Total Assets $ 35,124.4 $ 36,022.3 $ 34,793.7 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Liabilities Deposits Demand and Other Noninterest-Bearing $ 4,379.9 $ 4,547.7 $ 4,266.4 Savings and Money Market 6,168.9 5,521.7 5,379.8 Savings Certificates 2,139.8 2,331.2 2,284.6 Other Time 756.3 427.3 440.0 Foreign Offices - Demand 908.8 827.5 792.6 - Time 8,434.8 9,172.5 7,991.2 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Total Deposits 22,788.5 22,827.9 21,154.6 Federal Funds Purchased 1,340.0 3,615.0 1,394.9 Securities Sold Under Agreements to Repurchase 1,017.1 1,577.1 1,043.2 Commercial Paper 139.0 142.4 126.7 Other Borrowings 4,257.5 2,629.5 6,175.7 Senior Notes 450.0 500.0 500.0 Long-Term Debt 767.0 638.1 638.3 Debt - Floating Rate Capital Securities 267.7 267.6 267.6 Liability on Acceptances 21.2 9.3 20.2 Other Liabilities 1,350.6 1,353.2 1,112.0 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Total Liabilities 32,398.6 33,560.1 32,433.2 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Stockholders' Equity Preferred Stock 120.0 120.0 120.0 Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares at September 2001, December 2000, and September 2000; Outstanding 222,114,864 at September 2001, 222,232,395 at December 2000 and 221,782,062 at September 2000 379.8 379.8 379.8 Capital Surplus - - - Retained Earnings 2,462.7 2,200.0 2,116.8 Accumulated Other Comprehensive Income (7.9) (13.2) (13.1) Common Stock Issuable - Stock Incentive Plans 150.0 110.2 113.9 Deferred Compensation (71.5) (57.9) (67.4) Treasury Stock - (at cost, 5,806,660 shares at September 2001, 5,689,129 shares at December 2000, and 6,139,462 shares at September 2000) (307.3) (276.7) (289.5) - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Total Stockholders' Equity 2,725.8 2,462.2 2,360.5 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------ Total Liabilities and Stockholders' Equity $ 35,124.4 $ 36,022.3 $ 34,793.7 - ---------------------------------------------------------------------------------------- ------------ ----------- ------------
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CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION Third Quarter Nine Months Ended September 30 Ended September 30 ------------------------------- ------------------------------ ($ In Millions Except Per Share Information) 2001 2000 2001 2000 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Noninterest Income Trust Fees $304.3 $304.7 $927.2 $896.3 Foreign Exchange Trading Profits 37.2 37.6 112.6 113.7 Treasury Management Fees 21.0 18.1 61.7 53.4 Security Commissions and Trading Income 8.1 8.0 26.2 25.9 Other Operating Income 19.2 23.5 65.9 57.9 Investment Security Gains - - - - - --------------------------------------------------------- ------------- ------------- ------------- ------------- Total Noninterest Income 389.8 391.9 1,193.6 1,147.2 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Net Interest Income Interest Income 396.1 531.3 1,339.2 1,467.0 Interest Expense 247.1 388.5 895.7 1,044.0 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Net Interest Income 149.0 142.8 443.5 423.0 Provision for Credit Losses 5.0 5.0 21.5 19.0 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Net Interest Income after Provision for Credit Losses 144.0 137.8 422.0 404.0 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Noninterest Expenses Compensation 174.1 179.8 520.0 514.6 Employee Benefits 30.1 27.5 95.4 84.0 Occupancy Expense 25.8 21.8 75.8 64.8 Equipment Expense 20.8 18.1 63.6 54.5 Other Operating Expenses 92.8 97.7 282.2 291.3 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Total Noninterest Expenses 343.6 344.9 1,037.0 1,009.2 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Income before Income Taxes 190.2 184.8 578.6 542.0 Provision for Income Taxes 63.6 61.5 193.5 182.4 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Net Income $126.6 $123.3 $385.1 $359.6 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Net Income Applicable to Common Stock $125.7 $121.8 $381.7 $355.4 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Net Income Per Common Share - Basic $ .57 $ .55 $ 1.72 $ 1.61 - Diluted .55 .53 1.66 1.54 - --------------------------------------------------------- ------------- ------------- ------------- ------------- Average Number of Common Shares Outstanding - Basic 221,453,555 220,749,384 221,573,897 220,985,573 - Diluted 228,778,525 230,936,938 229,357,126 230,513,163 - --------------------------------------------------------- ------------- ------------- ------------- -------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NORTHERN TRUST CORPORATION Third Quarter Nine Months Ended September 30 Ended September 30 ------------------------------------------ (In Millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $126.6 $123.3 $385.1 $359.6 Other Comprehensive Income (net of tax) Unrealized Gains (Losses) on Securities Available for Sale Unrealized Holding Gains Arising during the Period (net of tax provision of $.8 million and $.6 million for the third quarter ended September 30, 2001 and 2000, respectively. Net of tax provision of $2.0 million and $.6 million for the nine months ended September 30, 2001 and 2000, respectively). 1.2 - 3.0 .1 Less: Reclassification Adjustments for Gains Included in Net Income - - - - Unrealized Gains (Losses) on Cash Flow Hedge Designations Cumulative-Effect of Adopting SFAS No. 133 (net of tax benefit of $.1 million) - - (.2) - Unrealized Gains Arising During the Period (net of tax expense of $2.4 million for the quarter ended September 30, 2001. Net of tax expense of $1.5 million for the nine months ended September 30, 2001). 4.0 - 1.1 - Less: Reclassification Adjustments of Losses Included in Net Income (net of tax benefit of $.8 million for the nine months ended September 30, 2001). .1 - 1.4 - - ---------------------------------------------------------------------------------------------------------------------------------- Other Comprehensive Income 5.3 - 5.3 .1 - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive Income $131.9 $123.3 $390.4 $359.7 - ----------------------------------------------------------------------------------------------------------------------------------
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION Nine Months Ended September 30 ---------------------------------- (In Millions) 2001 2000 - ------------------------------------------------------------------------------------------- --------------- ---------------- Preferred Stock Balance at January 1 and September 30 $ 120.0 $ 120.0 - ------------------------------------------------------------------------------------------- --------------- ---------------- Common Stock Balance at January 1 and September 30 379.8 379.8 - ------------------------------------------------------------------------------------------- --------------- ---------------- Retained Earnings Balance at January 1 2,200.0 1,870.7 Net Income 385.1 359.6 Dividends Declared - Common Stock (103.4) (89.9) Dividends Declared - Preferred Stock (3.2) (4.6) Stock Issued - Incentive Plan and Awards (15.8) (19.0) - ------------------------------------------------------------------------------------------- --------------- ---------------- Balance at September 30 2,462.7 2,116.8 - ------------------------------------------------------------------------------------------- --------------- ---------------- Accumulated Other Comprehensive Income Balance at January 1 (13.2) (13.2) Other Comprehensive Income 5.3 0.1 - ------------------------------------------------------------------------------------------- --------------- ---------------- Balance at September 30 (7.9) (13.1) - ------------------------------------------------------------------------------------------- --------------- ---------------- Common Stock Issuable - Stock Incentive Plans Balance at January 1 110.2 55.0 Stock Issuable, net of Stock Issued 39.8 58.9 - ------------------------------------------------------------------------------------------- --------------- ---------------- Balance at September 30 150.0 113.9 - ------------------------------------------------------------------------------------------- --------------- ---------------- Deferred Compensation Balance at January 1 (57.9) (33.4) Compensation Deferred (36.5) (51.0) Compensation Amortized 22.9 17.0 - ------------------------------------------------------------------------------------------- --------------- ---------------- Balance at September 30 (71.5) (67.4) - ------------------------------------------------------------------------------------------- --------------- ---------------- Treasury Stock Balance at January 1 (276.7) (204.2) Stock Options and Awards 80.9 87.1 Stock Purchased (111.5) (172.4) - ------------------------------------------------------------------------------------------- --------------- ---------------- Balance at September 30 (307.3) (289.5) - ------------------------------------------------------------------------------------------- --------------- ---------------- Total Stockholders' Equity at September 30 $2,725.8 $2,360.5 - ------------------------------------------------------------------------------------------- --------------- ----------------
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CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION Nine Months Ended September 30 ----------- ----------- (In Millions) 2001 2000 - ------------------------------------------------------------------------------------------------------- ----------- ----------- Cash Flows from Operating Activities: Net Income $ 385.1 $ 359.6 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 21.5 19.0 Depreciation on Buildings and Equipment 58.6 51.1 (Increase) Decrease in Interest Receivable 43.6 (25.0) Decrease in Interest Payable (10.6) (.8) Amortization and Accretion of Securities and Unearned Income (115.3) (99.2) Amortization of Computer Software 56.1 46.9 Amortization of Goodwill and Other Intangibles 12.4 11.5 Net Increase in Trading Account Securities (.3) (2.9) Other Noncash, net 110.9 (169.1) - ------------------------------------------------------------------------------------------------------- ----------- ----------- Net Cash Provided by Operating Activities 562.0 191.1 - ------------------------------------------------------------------------------------------------------- ----------- ----------- Cash Flows from Investing Activities: Net (Increase) Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell (1,024.4) 539.2 Net (Increase) Decrease in Time Deposits with Banks 651.3 (451.0) Net Decrease in Other Interest-Bearing Assets 97.5 50.7 Purchases of Securities-Held to Maturity (113.0) (123.4) Proceeds from Maturity and Redemption of Securities-Held to Maturity 83.5 87.4 Purchases of Securities-Available for Sale (54,773.3) (35,337.4) Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 56,244.7 31,778.7 Net Increase in Loans and Leases (701.7) (2,468.3) Purchases of Buildings and Equipment (95.1) (80.5) Purchases and Development of Computer Software (108.4) (77.4) Net Increase in Trust Security Settlement Receivables (94.7) (333.6) Decrease in Cash Due to Acquisitions (1.5) (31.5) Other, net 22.3 37.5 - ------------------------------------------------------------------------------------------------------- ----------- ----------- Net Cash Provided by (Used in) Investing Activities 187.2 (6,409.6) - ------------------------------------------------------------------------------------------------------- ----------- ----------- Cash Flows from Financing Activities: Net Decrease in Deposits (39.4) (216.4) Net Increase (Decrease) in Federal Funds Purchased (2,275.0) 1,024.7 Net Increase (Decrease) in Securities Sold under Agreements to Repurchase (560.0) 45.4 Net Decrease in Commercial Paper (3.4) (18.4) Net Increase in Short-Term Other Borrowings 1,585.0 5,403.9 Proceeds from Term Federal Funds Purchased 3,494.4 7,943.3 Repayments of Term Federal Funds Purchased (3,451.4) (8,326.8) Proceeds from Senior Notes & Long-Term Debt 154.5 102.6 Repayments of Senior Notes & Long-Term Debt (75.6) (123.7) Treasury Stock Purchased (108.2) (170.4) Net Proceeds from Stock Options 14.4 21.1 Cash Dividends Paid on Common and Preferred Stock (107.0) (94.7) Other, net 20.3 11.8 - ------------------------------------------------------------------------------------------------------- ----------- ----------- Net Cash Provided by (Used in) Financing Activities (1,351.4) 5,602.4 - ------------------------------------------------------------------------------------------------------- ----------- ----------- Decrease in Cash and Due from Banks (602.2) (616.1) Cash and Due from Banks at Beginning of Year 2,287.8 1,977.9 - ------------------------------------------------------------------------------------------------------- ----------- ----------- Cash and Due from Banks at End of Year $ 1,685.6 $ 1,361.8 - ------------------------------------------------------------------------------------------------------- ----------- ----------- Schedule of Noncash Investing Activities: Transfer of Securities from Held to Maturity to Available for Sale $ 167.1 $ - Supplemental Disclosures of Cash Flow Information: Interest Paid $ 906.3 $ 1,044.8 Income Taxes Paid 28.2 87.3 - ------------------------------------------------------------------------------------------------------- ----------- -----------
5 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, 2001 and 2000 have not been audited by the Corporation's 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 2000 Annual Report to Shareholders. 2. Securities - The following table summarizes the book and fair values of securities.
- ------------------------------------------------------------------------------------------------------------------ September 30, 2001 December 31, 2000 September 30, 2000 ------------------------------------------------------------------------------------- Book Fair Book Fair Book Fair (In Millions) Value Value Value Value Value Value - ------------------------------------------------------------------------------------------------------------------ Held to Maturity U.S. Government $ - $ - $ 55.0 $ 55.0 $ 54.9 $ 54.9 Obligations of States and Political Subdivisions 504.1 527.4 435.7 445.1 455.4 454.1 Federal Agency 5.2 5.3 5.5 5.5 6.0 5.8 Other 131.7 127.0 282.2 276.5 278.6 274.1 - ------------------------------------------------------------------------------------------------------------------ Subtotal 641.0 659.7 778.4 782.1 794.9 788.9 - ------------------------------------------------------------------------------------------------------------------ Available for Sale U.S. Government 160.4 160.4 174.6 174.6 181.3 181.3 Obligations of States and Political Subdivisions 17.0 17.0 15.7 15.7 15.6 15.6 Federal Agency 4,899.3 4,899.3 6,172.1 6,172.1 8,926.1 8,926.1 Preferred Stock 99.3 99.3 101.2 101.2 100.9 100.9 Other 186.1 186.1 14.2 14.2 17.3 17.3 - ------------------------------------------------------------------------------------------------------------------ Subtotal 5,362.1 5,362.1 6,477.8 6,477.8 9,241.2 9,241.2 - ------------------------------------------------------------------------------------------------------------------ Trading Account 13.7 13.7 13.4 13.4 13.9 13.9 - ------------------------------------------------------------------------------------------------------------------ Total Securities $ 6,016.8 $ 6,035.5 $7,269.6 $7,273.3 $10,050.0 $10,044.0 - ------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------ Reconciliation of Book Values to Fair Values of Securities Held to Maturity September 30, 2001 - ------------------------------------------------------------------------------------------------------------------ Gross Unrealized Book -------------------------- Fair (In Millions) Value Gains Losses Value - ----------------------------------------------------------------------------------------------------------------- U.S. Government $ - $ - $ - $ - Obligations of States and Political Subdivisions 504.1 23.3 - 527.4 Federal Agency 5.2 .2 .1 5.3 Other 131.7 .1 4.8 127.0 - ----------------------------------------------------------------------------------------------------------------- Total $ 641.0 $ 23.6 $ 4.9 $ 659.7 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Reconciliation of Amortized Cost to Fair Values of Securities Available for Sale September 30, 2001 - ----------------------------------------------------------------------------------------------------------------- Gross Unrealized Amortized -------------------------- Fair (In Millions) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------- U.S. Government $ 159.2 $ 1.2 $ - $ 160.4 Obligations of States and Political Subdivisions 16.8 .2 - 17.0 Federal Agency 4,890.2 9.1 - 4,899.3 Preferred Stock 99.4 .1 .2 99.3 Other 186.1 - - 186.1 - ----------------------------------------------------------------------------------------------------------------- Total $ 5,351.7 $ 10.6 $ .2 $ 5,362.1 - -----------------------------------------------------------------------------------------------------------------
3. Pledged Assets - Securities and loans pledged to secure public and trust deposits, repurchase agreements and for other purposes as required or permitted by law were $9.6 billion on September 30, 2001, $10.5 billion on December 31, 2000 and $13.7 billion on September 30, 2000. Included in the September 30, 2001 pledged assets were securities available for sale of $665.4 million, which were pledged as collateral for repurchase agreement transactions. The secured parties to these transactions have the right to repledge or sell these securities. Northern Trust is permitted to repledge collateral accepted from reverse repurchase agreement transactions. The total fair value of accepted collateral as of September 30, 2001, December 31, 2000 and September 30, 2000 was $1.0 billion, $296.4 million and $297.9 million, respectively. The fair value of repledged collateral as of September 30, 2001, December 31, 2000 and September 30, 2000 was $257.1 million, $125.6 million and $99.4 million, respectively. Repledged collateral was used in other repurchase agreement transactions. 4. Contingent Liabilities - Standby letters of credit outstanding were $2.4 billion on September 30, 2001, $2.0 billion on December 31, 2000 and $2.1 billion on September 30, 2000. 7 5. Loans and Leases - Amounts outstanding in selected loan categories are shown below.
- -------------------------------------------------------------------------------------------------------- (In Millions) September 30, 2001 December 31, 2000 September 30, 2000 - -------------------------------------------------------------------------------------------------------- Domestic Residential Real Estate $ 7,332.4 $ 6,822.8 $ 6,643.5 Commercial 4,898.8 4,796.8 5,003.1 Broker 72.1 126.4 166.7 Commercial Real Estate 1,006.9 911.0 878.5 Personal 2,120.0 2,289.3 2,225.5 Other 1,088.1 1,207.1 1,008.1 Lease Financing 1,186.6 1,034.4 862.2 - ------------------------------------------------------------------------------------------------------- Total Domestic 17,704.9 17,187.8 16,787.6 International 1,050.5 956.8 942.5 - ------------------------------------------------------------------------------------------------------- Total Loans and Leases $18,755.4 $18,144.6 $17,730.1 - -------------------------------------------------------------------------------------------------------
At September 30, 2001, other domestic and international loans included $1.4 billion of overnight trust-related advances, primarily in connection with next day security settlements, compared with $1.4 billion at December 31, 2000 and $1.3 billion at September 30, 2000. At September 30, 2001, nonperforming loans and leases totaled $114.2 million. Included in this amount were loans with a recorded investment of $112.8 million, which were also classified as impaired. A loan is impaired when, based on current information, 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 $25.3 million had no portion of the reserve for credit losses allocated to them while impaired loans totaling $87.5 million had an allocated reserve of $20.1 million. For the third quarter of 2001, the total recorded investment in impaired loans averaged $107.2 million. There was $66 thousand of interest income recorded on impaired loans for the quarter ended September 30, 2001. At September 30, 2000, nonperforming loans and leases totaled $76.8 million and included $75.2 million of impaired loans. Of these impaired loans, $28.3 million had no portion of the reserve for credit losses allocated to them while $46.9 million had an allocated reserve of $18.4 million. Total recorded investment in impaired loans for the third quarter of 2000 averaged $58.7 million with no interest income recognized on such loans. 8 6. Reserve for Credit Losses - Changes in the reserve for credit losses were as follows: - -------------------------------------------------------------------------- Nine Months Ended September 30 - -------------------------------------------------------------------------- (In Millions) 2001 2000 - -------------------------------------------------------------------------- Balance at Beginning of Period $162.9 $150.9 Charge-Offs (27.3) (12.9) Recoveries 1.0 1.0 - -------------------------------------------------------------------------- Net Charge-Offs (26.3) (11.9) Provision for Credit Losses 21.5 19.0 - -------------------------------------------------------------------------- Balance at End of Period $158.1 $158.0 - -------------------------------------------------------------------------- The reserve for credit losses represents management's estimate of probable inherent losses that 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 evaluates the reserve necessary for specific nonperforming loans and also estimates losses inherent in other credit exposures. The result is a reserve with the following components: Specific Reserve. The amount of specific reserve is determined through a loan- by-loan analysis of nonperforming loans that considers expected future cash flows, the value of collateral and other factors that may impact the borrower's ability to pay. Allocated Inherent Reserve. The amount of the allocated portion of the inherent loss reserve is based on loss factors assigned to Northern Trust's credit exposures, which depend upon internal credit ratings. These loss factors primarily include management's judgment concerning the effect of the business cycle on the creditworthiness of Northern Trust's borrowers as well as historical charge-off experience. Unallocated Inherent Reserve. Management determines the unallocated portion of the inherent reserve based on factors that cannot be associated with a specific credit or loan category. 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 unallocated portion of the inherent reserve reflects management's attempt to ensure that the overall reserve appropriately reflects a margin for the imprecision necessarily inherent in estimates of expected credit losses. 9 7. Net Income Per Common Share Computations - The computation of net income per common share is presented in the following table.
- -------------------------------------------------------------------------------------------------------------- Third Quarter Nine Months Ended September 30 Ended September 30 - -------------------------------------------------------------------------------------------------------------- ($ In Millions Except Per Share Information) 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------- Basic Net Income Per Common Share Net Income $ 126.6 $ 123.3 $ 385.1 $ 359.6 Less: Dividends on Preferred Stock (.9) (1.5) (3.4) (4.2) - -------------------------------------------------------------------------------------------------------------- Net Income Applicable to Common Stock $ 125.7 $ 121.8 $ 381.7 $ 355.4 Average Number of Common Shares Outstanding 221,453,555 220,749,384 221,573,897 220,985,573 Basic Net Income Per Common Share $ .57 $ .55 $ 1.72 $ 1.61 - -------------------------------------------------------------------------------------------------------------- Diluted Net Income Per Common Share Net Income Applicable to Common Stock $ 125.7 $ 121.8 $ 381.7 $ 355.4 Average Number of Common Shares Outstanding 221,453,555 220,749,384 221,573,897 220,985,573 Plus Dilutive Potential Common Shares: Stock Options 5,042,620 7,638,346 5,559,619 7,098,795 Stock Incentive Plans 2,282,350 2,549,208 2,223,610 2,428,795 - -------------------------------------------------------------------------------------------------------------- Average Common and Potential Common Shares 228,778,525 230,936,938 229,357,126 230,513,163 Diluted Net Income Per Common Share $ .55 $ .53 $ 1.66 $ 1.54 - --------------------------------------------------------------------------------------------------------------
8. Accumulated Other Comprehensive Income
- ------------------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 2001 - ------------------------------------------------------------------------------------------------------------------------------- Unrealized Gains Minimum Gains (Losses) Accumulated (Losses) on Pension On Cash Flow Other Securities Available Liability Hedge Designations Comprehensive (In Millions) For Sale (net of tax) (net of tax) (net of tax) Income - ------------------------------------------------------------------------------------------------------------------------------- Beginning Balance $(.9) $(12.3) $ - $(13.2) Cumulative-effect of adopting SFAS 133 - - (.2) (.2) Current-Period Change 3.0 - 2.5 5.5 - ------------------------------------------------------------------------------------------------------------------------------- Ending Balance $2.1 $(12.3) $2.3 $ (7.9) - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 2000 - ------------------------------------------------------------------------------------------------------------------------------- Unrealized Gains Minimum Gains (Losses) Accumulated (Losses) on Pension On Cash Flow Other Securities Available Liability Hedge Designations Comprehensive (In Millions) For Sale (net of tax) (net of tax) (net of tax) Income - ------------------------------------------------------------------------------------------------------------------------------- Beginning Balance $(2.4) $(10.8) $ - $(13.2) Current-Period Change .1 - - .1 - ------------------------------------------------------------------------------------------------------------------------------- Ending Balance $(2.3) $(10.8) $ - $(13.1) - -------------------------------------------------------------------------------------------------------------------------------
10 9. Accounting Standards Pronouncements - In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations" and discontinues the use of the pooling-of-interests method of accounting for business combinations as permitted under APB No. 16. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001 and require that all business combinations be accounted for by a single method -- the purchase method. SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets" and addresses the accounting for goodwill and other intangible assets. The provisions of this Statement, as they relate to Northern Trust, are required to be applied beginning January 1, 2002 to all goodwill and other intangible assets reflected in the financial statements at that date. The Statement discontinues amortization of goodwill over its estimated useful life and requires a transitional impairment test of goodwill as of January 1, 2002. An annual impairment test of goodwill is also required in the year of adoption and in subsequent years. Impairment losses for goodwill that arise due to the initial application of this Statement, resulting from the transitional impairment test, are to be reported as a change in accounting principle and any subsequent impairment losses are required to be reported as operating expenses. Goodwill at September 30, 2001 totaled $92.2 million and is currently being amortized on a straight-line method primarily over fifteen years. Application of the nonamortization provisions of the Statement is expected to reduce noninterest expense by approximately $10.0 million annually, resulting in an increase in net income of $8.0 million in 2002 compared to 2001. Management has not yet completed the initial goodwill impairment test to determine whether any transitional impairment charge will be necessary. Other separately identifiable acquired intangible assets will continue to be amortized over their estimated useful life. At September 30, 2001, acquired intangible assets totaled $36.8 million and amortization for the first nine months of the year amounted to $4.9 million. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30. The Statement addresses the accounting for a segment of a business accounted for as a discontinued operation and the accounting for long-lived assets to be disposed of. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Northern will adopt the requirements of this Statement at the beginning of 2002. It is not anticipated that the adoption of SFAS No. 144 will have a material effect on Northern Trust's results of operations. 10. Business Segments The tables on page 17, reflecting the earnings contribution of Northern Trust's business segments for the third quarter and nine months ended September 30, 2001, are incorporated by reference. 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER EARNINGS HIGHLIGHTS Net income increased 3% to $126.6 million from the $123.3 million earned in the third quarter of last year. Net income per common share on a diluted basis increased 4% to $.55 for the third quarter, up from $.53 earned a year ago. This earnings performance produced an annualized return on average common equity (ROE) of 19.63% versus 22.12% reported last year, and an annualized return on average assets (ROA) of 1.43% versus 1.42% in 2000. While total revenues in the quarter were essentially flat from last year, management of expenses was particularly effective, resulting in positive operating leverage and a productivity ratio of 160%. Noninterest Income Noninterest income totaled $389.8 million for the quarter, accounting for 71% of total taxable equivalent revenue. Trust fees were essentially unchanged at $304.3 million in the quarter, compared to $304.7 million in the third quarter of last year and represented 55% of total taxable equivalent revenue. The flat trust fee performance resulted from sharply lower equity markets, offset by new business. New business sold remained strong in this difficult environment. As a result of this new business, trust assets under administration declined only 6% to $1.58 trillion since September 2000, despite the significant declines in equity markets, as evidenced by the 28% decline in the S&P equity index during this period. Trust assets under the management of Northern Trust declined 3% since last year and totaled $327.5 billion. 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 trust 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 trust fee income. In addition, certain accounts may be on a fixed annual fee. Therefore, market value or other changes in a portfolio's size do not typically have a directly proportionate impact on the level of the 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. 12 Noninterest Income (continued) Trust fees from Personal Financial Services (PFS) in the quarter totaled $153.5 million, compared to $158.7 million in the year-ago quarter. The decline in PFS trust fees resulted from sharply lower equity markets, partially offset by new business throughout Northern Trust's national PFS network. Northern Trust's network of Personal Financial Services offices totals 82 locations in twelve states, and it is currently estimated that there will be approximately 100 offices operating within as many as fifteen states by the end of 2005. Personal trust assets under administration totaled $149.8 billion at September 30, 2001, and reflect the transfer of $3.0 billion in assets to Corporate & Institutional Services (C&IS). This compares to $171.2 billion at September 30, 2000. Of the total assets under administration, $89.8 billion is managed by Northern Trust, compared to $100.1 billion one year ago. At September 30, 2001, approximately 50% of the personal trust assets under administration and 46% of assets under management were invested in domestic equity securities. Net new recurring PFS trust business sold in the first nine months totaled approximately $47 million in annualized fees. Trust fees from C&IS in the quarter increased 3% to $150.8 million, compared to $146.0 million in the year-ago quarter. Securities lending fees increased 8% to $29.3 million and were the principal contributor to the overall increase. The securities lending growth reflected higher volumes, as well as increased spreads earned on the investment of collateral. Custody fees increased to $51.2 million, up 4%, largely driven by new global custody business. Fees from asset management totaled $46.2 million, up slightly from the $46.0 million in the year-ago quarter, which included $3.4 million of performance-based fees compared to $.7 million in the current quarter. Northern Trust Retirement Consulting, L.L.C. recorded fees of $14.2 million, essentially unchanged from last year's third quarter. C&IS trust assets under administration totaled $1.43 trillion at September 30, 2001, compared to $1.52 trillion at September 30, 2000. Of the C&IS trust assets under administration, $237.7 billion is managed by Northern Trust, down slightly from September 30, 2000. At September 30, 2001, approximately 35% of assets under administration and 25% of assets under management were invested in domestic equity securities. Trust assets under administration included $424.9 billion of global custody assets, up 12% from a year ago. Net new recurring C&IS trust business sold in the first nine months totaled approximately $57 million in annualized fees. Foreign exchange trading profits were $37.2 million for the quarter, compared to $37.6 million in the third quarter of 2000. The current quarter reflects continued volatility in major currencies and transaction flows associated with global custody assets. Treasury management revenues, which include both fees and the computed value of compensating deposit balances, totaled $28.6 million, up 5% from last year's third quarter, due to new business and higher transaction volumes from existing clients. The fee portion of these revenues in the quarter was $21.0 million, up 16% from $18.1 million in the comparable quarter last year, partly as a result of more clients electing to pay for services in fees rather than in compensating deposit balances. 13 Noninterest Income (continued) Revenues from security commissions and trading income totaled $8.1 million, essentially unchanged from last year. Other operating income was $19.2 million for the third quarter compared with $23.5 million in the same period of last year. Included in the prior year results was $2.5 million in nonrecurring income from an asset exchange. The remainder of the change in other operating income primarily reflects lower levels of trust deposit-related revenues. Net Interest Income Net interest income for the quarter totaled $149.0 million, 4% higher than the $142.8 million reported in the third quarter of 2000. 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 $161.6 million, up 3% from $157.1 million reported in the third quarter of 2000. Total average earning assets of $31.4 billion were unchanged from last year's third quarter, but the net interest margin improved to 2.05% from 1.99%. The net interest margin benefited from loan growth of 6% to $17.9 billion and the favorable impact of lower short-term funding costs during the quarter. The Federal Reserve Open Market Committee reduced the federal funds rate target twice during the third quarter to 3.00%. This compares to a rate of 6.50% at the start of 2001. Other favorable factors included a 6% increase in noninterest-related funds and a 6% increase in retail savings deposits. Earning assets for the third quarter averaged $31.4 billion, unchanged from last year's third quarter. The $1.1 billion growth in average loans and the $2.0 billion increase in money market assets were offset by a 29% decline in the securities portfolio to average $7.7 billion. The loan growth was concentrated predominantly in the domestic portfolio, which increased $1.0 billion to average $17.1 billion, while international loans increased by $88 million to $783 million from a year ago. Residential mortgage loans, which represent 40% of the total average loan portfolio, increased $633 million or 10% to average $7.2 billion for the quarter. The lease portfolio grew $334 million or 44%, and averaged $1.1 billion for the quarter. Commercial and industrial loans averaged $4.9 billion, unchanged from a year ago. 14 Net Interest Income (continued) Funding for the growth in earning assets came from several sources. Total interest-related deposits averaged $17.8 billion, up 10% or $1.6 billion from the third quarter of 2000. This growth was concentrated primarily in savings and money market deposits, up $.6 billion, and foreign office time deposits, up $1.2 billion as a result of increased global custody activity. Other interest- related funds averaged $8.4 billion in the quarter compared to $10.3 billion in last year's third quarter. The decline in other interest-related funds was due primarily to lower levels of treasury tax deposit balances and term federal funds sold. The balances within these classifications vary based on funding requirements and strategies, interest rate levels, growth in lower cost deposit sources, and the availability of collateral to secure these borrowings. Noninterest-related funds increased 6% to average $5.1 billion due to growth in common stockholders' equity resulting from retained earnings, and to a higher level of demand deposits. Provision for Credit Losses The provision for credit losses was $5.0 million in the third quarter, unchanged from the same quarter last year and down from $11.5 million recorded in the second quarter of 2001. The second quarter included a provision related to sales of nonperforming loans. For a discussion of the provision and reserve for credit losses, refer to the Asset Quality section beginning on page 20. Noninterest Expenses Noninterest expenses totaled $343.6 million for the quarter, essentially unchanged from $344.9 million in the year-ago quarter. Expenses continue to be closely monitored through various initiatives implemented by management including controlling staff levels, limiting staff-related and other discretionary expenses, and modifying some cash incentive plans for 2001 to include a stock option grant component. This last initiative, announced earlier in the year, resulted in a $6.1 million expense savings in the current quarter when compared to programs in place prior to this initiative. Compensation and employee benefits, represented approximately 59% of total noninterest expenses and totaled $204.2 million, down 1% from a year ago. Staff growth and salary increases were more than offset by lower performance-based pay. Performance-based pay in the prior year quarter was impacted by strong new business, excellent investment management performance and record net income. Current year compensation levels reflect the impact of slower revenue growth, lower investment portfolio performance and the modifications made to incentive plans. Staff on a full-time equivalent basis at September 30, 2001 totaled 9,353 and reflects the reduction of staff resulting from the previously announced formation of a joint venture with Fiserv, Inc., to provide receivables management services. The expenses related to this service are now a component of other operating expenses. After adjusting for the impact of this venture, staff levels have increased 4% since September 30, 2000 and 2% since December 31, 2000. 15 Noninterest Expenses (continued) Net occupancy expense totaled $25.8 million, up 19% from $21.8 million in the third quarter of 2000, due primarily to the opening of new or remodeled PFS offices over the past twelve months and additional space leased to support business growth. The principal components of the increase in occupancy expense were higher net rental, operating and maintenance costs, real estate taxes and utilities, building depreciation and amortization expense of leasehold improvements. Equipment expense, comprised of depreciation, rental and maintenance costs, totaled $20.8 million, up 15% from the $18.1 million reported in the third quarter of 2000. The increase was primarily in depreciation of computer hardware and office furniture and equipment, higher maintenance costs for computers and equipment, and increased costs for data line leases. Other operating expenses in the quarter totaled $92.8 million compared to $97.7 million last year. The decline in other operating expenses reflects the net impact of several factors. These included expense reductions as a result of a decrease in performance-based fees paid to investment sub-advisors, lower levels of business development costs, and a reduction in charges associated with processing errors incurred in servicing and managing financial assets and performing banking activities. Other operating expenses also benefited from lower stock-related directors compensation due to the decline in the stock price of Northern Trust Corporation from the end of the second quarter. These lower expenses were partially offset by higher costs associated with continued investment in technology, expansion of the PFS office network, other expenditures to support business growth and payments made to Fiserv, Inc. for receivables management services. The following table shows the components of other operating expenses. - ------------------------------------------------------------------------------- Third Quarter Other Operating Expenses Ended September 30 - ------------------------------------------------------------------------------- (In Millions) 2001 2000 - ------------------------------------------------------------------------------- Business Development $ 8.7 $10.6 Purchased Professional Services 38.3 36.3 Telecommunications 4.6 4.6 Postage and Supplies 7.2 7.4 Software Amortization 18.7 15.4 Goodwill and Other Intangibles Amortization 4.2 4.1 Other Expenses 11.1 19.3 - ------------------------------------------------------------------------------- Total Other Operating Expenses $92.8 $97.7 - ------------------------------------------------------------------------------- 16 Provision for Income Taxes The provision for income taxes was $63.6 million for the third quarter compared with $61.5 million in the year-ago quarter. The higher tax provision in 2001 resulted primarily from the growth in taxable earnings for both federal and state income tax purposes. The effective tax rate for the third quarter was 33.4% compared to 33.3% for the third quarter of 2000. BUSINESS SEGMENTS The following table reflects the earnings contribution and average assets of Northern Trust's business segments for the third quarter ended September 30, 2001 and 2000.
Corporate and Institutional Personal Financial Treasury and Total Third Quarter Services Services Other Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- ($ In Millions) 2001 2000 2001 2000 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest Income Trust Fees $ 150.8 $ 146.0 $ 153.5 $ 158.7 $ - $ - $ 304.3 $ 304.7 Other 67.8 66.5 16.7 18.4 1.0 2.3 85.5 87.2 Net Interest Income after Provision for Credit Losses* 46.9 49.3 106.5 99.9 3.2 2.9 156.6 152.1 Noninterest Expenses 165.9 157.1 167.7 168.0 10.0 19.8 343.6 344.9 - ----------------------------------------------------------------------------------------------------------------------------------- Income before Income Taxes* 99.6 104.7 109.0 109.0 (5.8) (14.6) 202.8 199.1 Provision for Income Taxes* 38.7 40.7 42.1 42.3 (4.6) (7.2) 76.2 75.8 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income $ 60.9 $ 64.0 $ 66.9 $ 66.7 $ (1.2) $ (7.4) $ 126.6 $ 123.3 - ----------------------------------------------------------------------------------------------------------------------------------- Percentage Net Income Contribution 48% 52% 53% 54% (1)% (6)% 100% 100% - ----------------------------------------------------------------------------------------------------------------------------------- Average Assets $18,317.7 $16,347.9 $14,885.7 $13,658.4 $1,856.6 $4,468.9 $35,060.0 $34,475.2 - -----------------------------------------------------------------------------------------------------------------------------------
*Stated on a fully taxable equivalent basis (FTE). Total includes FTE adjustments of $12.6 million for 2001 and $14.3 million for 2000. Note: Certain reclassifications have been made to 2000 financial information to conform to the current year presentation. The following table reflects the earnings contribution and average assets of Northern Trust's business segments for the nine-month period ended September 30, 2001 and 2000.
Corporate and Institutional Personal Financial Treasury and Total Nine Months Services Services Other Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- ($ In Millions) 2001 2000 2001 2000 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest Income Trust Fees $ 462.9 $ 439.5 $ 464.3 $ 456.8 $ $ $ 927.2 $ 896.3 Other 211.9 195.7 50.8 51.6 3.7 3.6 266.4 250.9 Net Interest Income after Provision for Credit Losses* 138.6 136.7 312.0 296.7 12.2 9.6 462.8 443.0 Noninterest Expenses 500.7 466.7 509.8 481.3 26.5 61.2 1,037.0 1,009.2 - --------------------------------------------------------------------------------------------------------------------------------- Income before Income Taxes* 312.7 305.2 317.3 323.8 (10.6) (48.0) 619.4 581.0 Provision for Income Taxes* 121.4 118.4 122.8 125.8 (9.9) (22.8) 234.3 221.4 - --------------------------------------------------------------------------------------------------------------------------------- Net Income $ 191.3 $ 186.8 $ 194.5 $ 198.0 $ (.7) $ (25.2) $ 385.1 $ 359.6 - --------------------------------------------------------------------------------------------------------------------------------- Percentage Net Income Contribution 50% 52% 50% 55% -% (7)% 100% 100% - --------------------------------------------------------------------------------------------------------------------------------- Average Assets $17,949.5 $16,225.5 $14,778.0 $13,152.8 $2,942.8 $3,980.2 $35,670.3 $33,358.5 - ---------------------------------------------------------------------------------------------------------------------------------
*Stated on a fully taxable equivalent basis (FTE). Total includes FTE adjustments of $40.8 million for 2001 and $39.0 million for 2000. Note: Certain reclassifications have been made to 2000 financial information to conform to the current year presentation. 17 Corporate and Institutional Services C&IS net income for the quarter totaled $60.9 million, down 5% from the third quarter of 2000. Noninterest income increased 3% to $218.6 million in the third quarter of 2001 from $212.5 million in last year's third quarter. Trust fees increased 3% to $150.8 million in the current quarter compared to $146.0 million in the year-ago quarter, due primarily to an 8% increase in securities lending fees. Other income was $67.8 million, up 2% from $66.5 million in last year's third quarter. The increase reflects a 14% or $2.2 million increase in fees for treasury management services due to new business, higher transaction volumes from existing clients and clients electing to pay for services in fees rather than in compensating deposit balances. Foreign exchange trading profits were down slightly from last year's third quarter. Net interest income after the provision for credit losses, stated on a FTE basis, was $46.9 million, down 5% from $49.3 million in last year's third quarter. The impact of the $1.9 billion increase in average earning assets was more than offset by a decline in the net interest margin to 1.23% from 1.42% in the prior year quarter and a $1.6 million increase in the provision for possible credit losses. Noninterest expenses increased 6% to $165.9 million in the current quarter due primarily to staff growth, merit increases, higher occupancy costs and expense allocations for product and operations support. Salaries and employee benefits increased, resulting from staff growth and merit increases, but were partially offset by lower performance-based pay. Personal Financial Services PFS net income for the quarter was $66.9 million, essentially unchanged from $66.7 million reported a year ago. Noninterest income was $170.2 million in the current quarter compared to $177.1 million in last year's third quarter. The decrease was due primarily to lower trust fees, which totaled $153.5 million in the current quarter, resulting from sharply lower equity markets, partially offset by new business throughout Northern Trust's national PFS network. Other income totaled $16.7 million in the current quarter, compared with $18.4 million in the prior year, which included $2.5 million of nonrecurring income from an asset exchange. Net interest income after the provision for credit losses, stated on a FTE basis, increased 7% to $106.5 million in the current quarter. The increase was due primarily to a $1.1 billion or 9% increase in average loan volume, offset in part by a reduction in the net interest margin to 2.99% from 3.09% last year. 18 Personal Financial Services (continued) Noninterest expenses decreased slightly to $167.7 million in the current quarter from $168.0 million in last year's third quarter. Expense allocations for product and operations support increased 11% or $6.3 million in the quarter. Occupancy costs were $1.1 million or 14% higher as a result of opening new PFS offices and the expansion of existing locations. Salaries and employee benefits declined 1% as the effects of staff growth and merit increases were more than offset by lower performance-based pay. In addition, business development expenses and operating costs associated with processing errors incurred in servicing and managing financial assets were down from a year ago. Treasury and Other The Treasury Department is responsible for managing The Northern Trust Company's (Bank) wholesale funding, capital position and interest rate risk, as well as the investment portfolio. "Other" corporate income and noninterest expenses represent items that are not allocated to the business units and generally represent certain nonrecurring items and certain executive level compensation. Net interest income for the third quarter was up slightly from a year ago resulting primarily from the impact of falling interest rates in 2001. Noninterest expenses totaled $10.0 million for the quarter compared with $19.8 million in last year's third quarter. The decline in operating expenses relates to lower accruals for certain corporate-based incentive plans. In addition, expenses were reduced due to lower stock-related directors compensation resulting from the decline in the price of Northern Trust Corporation common stock from the end of the second quarter. NINE-MONTH EARNINGS HIGHLIGHTS Net income per common share on a diluted basis increased 8% to $1.66 for the nine-month period ended September 30, 2001, up from $1.54 last year. Net income increased 7% to $385.1 million from $359.6 million in the year-ago period. The ROE was 20.72% compared to 22.21% last year, while the ROA was unchanged at 1.44%. The productivity ratio improved to 162% from 159% last year. Total revenues, stated on a fully taxable equivalent basis, increased 4% from 2000 levels. Trust fees totaled $927.2 million, up 3% from $896.3 million last year. Foreign exchange trading profits totaled $112.6 million, down 1% from last year's strong performance. Treasury management revenues from both fees and the computed value of compensating deposit balances increased 8% to $86.2 million. The fee portion of these revenues accrued in the period totaled $61.7 million, up 16% from 2000 levels. Other operating income totaled $65.9 million in the period compared with $57.9 million in 2000. The increase from last year is comprised of the $9.2 million nonrecurring gain recorded in this year's second quarter, in addition to higher loan and trust deposit-related fees. The third quarter of 2000 included $2.5 million of nonrecurring income from an asset exchange. Net interest income, stated on a FTE basis, totaled $484.3 million, up 5% from $462.0 million reported last year. The $21.5 million provision for credit losses was $2.5 million higher than the $19.0 million required in the same period last year. Noninterest expenses were up 3% and totaled $1.04 billion compared to $1.01 billion a year ago. 19 BALANCE SHEET Total assets at September 30, 2001 were $35.1 billion and also averaged $35.1 billion for the third quarter, up 2% from last year's average of $34.5 billion. Due to continued credit demand, loans and leases grew to $18.8 billion at September 30, 2001 and averaged $17.9 billion for the quarter. This compares with $17.7 billion in total loans and leases at September 30, 2000 and $16.8 billion on average for the third quarter of last year. Securities totaled $6.0 billion at September 30, 2001 and averaged $7.7 billion for the third quarter, compared to $10.0 billion at September 30, 2000 and $10.8 billion on average in the third quarter of 2000. Money market assets totaled $6.1 billion at September 30, 2001 and averaged $5.7 billion in the third quarter, up 54% from the year-ago quarter. 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 $2.61 billion at September 30, 2001 and averaged $2.54 billion for the quarter, up 16% from the $2.19 billion average in last year's third quarter. Total stockholders' equity averaged $2.66 billion compared with $2.31 billion in the third quarter of 2000. During the quarter, the Corporation acquired a total of 798,342 shares at a cost of $47.1 million. An additional 5.4 million shares may be purchased after September 30, 2001 under the current stock buyback program. Northern Trust's risk-based capital ratios remained strong at 10.6% for tier 1 capital and 13.9% for total capital at September 30, 2001. These 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 7.9% at September 30, 2001, also exceeded the minimum regulatory requirement of 3%. The Bank's risk-based capital ratios at September 30, 2001 were 9.0% for tier 1 capital, 12.4% for total capital and 6.7% for the leverage ratio. Each of Northern Trust's other subsidiary banks had a ratio of 10.7% or higher for tier 1 capital, 11.3% for total risk-based capital, and 7.1% for the leverage ratio. ASSET QUALITY Nonperforming assets consist of nonaccrual loans and other real estate owned (OREO). Nonperforming assets at September 30, 2001 totaled $115.8 million, compared with $109.4 million at June 30, 2001, $78.5 million at December 31, 2000 and $78.8 million at September 30, 2000. Domestic nonaccrual loans consisting primarily of commercial loans, totaled $114.2 million, representing .65% of total domestic loans and leases at September 30, 2001. At June 30, 2001, December 31, 2000 and September 30, 2000, domestic nonaccrual loans and leases totaled $107.9 million, $76.3 million and $76.8 million, respectively. The change during the third quarter from June 30, 2001 reflects further deterioration, principally, in two middle market commercial loans, offset in part by the partial charge-off of a commercial loan currently involved in Chapter 11 reorganization proceedings and the repayment of another large loan through the successful completion of a workout program. 20 ASSET QUALITY (continued) The following table presents the outstanding amounts of nonaccrual 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.
- --------------------------------------------------------------------------------------------------------------- September 30, June 30, December 31, September 30, (In Millions) 2001 2001 2000 2000 - --------------------------------------------------------------------------------------------------------------- Nonaccrual Loans Domestic Residential Real Estate $ 4.9 $ 8.0 $ 2.9 $ 3.7 Commercial 105.0 96.9 71.2 70.6 Commercial Real Estate 4.2 2.6 1.8 2.0 Personal .1 .4 .4 .5 - --------------------------------------------------------------------------------------------------------------- Total Domestic 114.2 107.9 76.3 76.8 International - - - - - --------------------------------------------------------------------------------------------------------------- Total Nonaccrual Loans 114.2 107.9 76.3 76.8 Other Real Estate Owned 1.6 1.5 2.2 2.0 - --------------------------------------------------------------------------------------------------------------- Total Nonperforming Assets $115.8 $109.4 $78.5 $78.8 - --------------------------------------------------------------------------------------------------------------- Total 90 Day Past Due Loans (still accruing) $ 47.7 $ 30.3 $30.5 $31.8 - ---------------------------------------------------------------------------------------------------------------
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). Note 6 to the Consolidated Financial Statements includes a table that analyzes the reserve for credit losses for the nine months ended September 30, 2001 and September 30, 2000 and identifies the charge-offs, recoveries and the provision for credit losses during the respective periods. The table on the following page shows (i) the specific reserve, (ii) the allocated portion of the inherent reserve and its components by loan category and (iii) the unallocated portion of the inherent reserve, in each case, at September 30, 2001, June 30, 2001, December 31, 2000 and September 30, 2000. 21 Provision and Reserve for Credit Losses (continued)
- ---------------------------------------------------------------------------------------------------------------------------------- ALLOCATION OF THE RESERVE FOR CREDIT LOSSES - ----------------------------------------------------------------------------------------------------------------------------------- September 30, 2001 June 30, 2001 December 31, 2000 September 30, 2000 ---------------------------------------------------------------------------------------------------- Percent of Percent of Percent of Percent of Reserve Loans to Reserve Loans to Reserve Loans to Reserve Loans to ($ in millions) Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans - ---------------------------------------------------------------------------------------------------------------------------------- Specific Reserve $ 20.1 -% $ 23.4 -% $ 24.3 -% $ 18.4 -% - ---------------------------------------------------------------------------------------------------------------------------------- Inherent Reserve Residential Real Estate 9.6 39 11.0 39 9.6 38 8.7 37 Commercial 82.1 27 75.9 28 79.1 27 80.5 29 Commercial Real Estate 13.5 5 13.8 5 13.2 5 13.4 5 Personal 3.9 11 4.0 12 4.3 13 4.1 13 Other - 6 - 5 - 6 - 6 Lease Financing 3.0 6 2.9 6 2.9 6 2.9 5 International 3.0 6 4.7 5 3.4 5 3.1 5 Unallocated 22.9 - 24.0 - 26.1 - 26.9 - - ---------------------------------------------------------------------------------------------------------------------------------- Total Inherent Reserve $138.0 100% $136.3 100% $138.6 100% $139.6 100% - ---------------------------------------------------------------------------------------------------------------------------------- Total Reserve $158.1 100% $159.7 100% $162.9 100% $158.0 100% - ----------------------------------------------------------------------------------------------------------------------------------
Specific Reserve. At September 30, 2001, the specific component of the reserve stood at $20.1 million, compared to $23.4 million at June 30, 2001. The $3.3 million reduction in the specific component of the reserve during the quarter reflects, primarily, the partial charge-off of one commercial loan currently in Chapter 11 reorganization proceedings, offset in part by deterioration in certain middle market commercial loans. The charge-off referred to above totaled $5.6 million, all of which had previously been reserved for. Allocated Inherent Reserve. The allocated inherent portion of the reserve increased by a net $2.8 million during the third quarter to $115.1 million at September 30, 2001. The change in this component of the reserve reflects primarily the impact of the transfer of certain commercial loans to weaker rating categories for which larger reserve provision factors are applied. In addition, during the quarter, management completed its periodic review of all loss factors utilized in estimating the inherent loss in the portfolio. As a result of this review, the loss factors for certain credit rating categories for commercial credits were reduced. The loss factor adjustments reflected management's assessment of the credit risk inherent for these categories and historical loss experience. Unallocated Inherent Reserve. The unallocated portion of the inherent reserve is based on management's review of overall factors affecting the determination of probable losses inherent primarily in the commercial loan portfolio, which are not necessarily captured by the application of historical loss ratios. This portion of the reserve analysis involves the exercise of judgment and reflects considerations such as management's view that the reserve should have a margin that recognizes the imprecision inherent in the process of estimating expected credit losses. The unallocated inherent portion of the reserve was $22.9 million, a decrease of $1.1 million from June 30, 2001. 22 Provision and Reserve for Credit Losses (continued) Other Factors. During the quarter ended September 30, 2001, there were no significant changes in concentration of credits that impacted asset quality at the time reserve determinations were made for the quarter. At that time, the total amount of loans in the two highest risk groupings, those rated "7" and "8" (based on Northern Trust's internal rating scale, which closely parallels that of the banking regulators), was $311 million of which $111.5 million was classified as impaired, up from $149 million at June 30, 2001 when $104.7 million was classified as impaired, and up from $160 million at September 30, 2000 when $53 million was impaired. The increase from June 30, 2001 primarily reflects the transfer of certain loans to lower credit ratings with approximately 44% of the increase related to one large commercial loan whose rating has been lowered due to exposure to potential asbestos-related claims. The increase from the prior year primarily reflects similar rating changes on certain loans. Total Reserve. Management's evaluation of the factors above resulted in a total reserve for credit losses of $158.1 million at September 30, 2001 compared to $159.7 million at June 30, 2001. The reserve as a percentage of total loans stood at .84% at September 30, 2001, versus .88% at June 30, 2001. Provision. The provision for credit losses was $5.0 million during the third quarter of 2001, compared to $11.5 million in the second quarter of 2001 and $5.0 million in the prior year quarter. The provision for the second quarter of 2001 was affected by the $6.5 million provision related to the sale of $44.5 million in nonperforming loans. MARKET RISK MANAGEMENT As described in the 2000 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, 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, 2000. 23 FORWARD-LOOKING INFORMATION This report contains statements that may be considered forward-looking, such as the discussion of Northern Trust's financial goals, dividend policy, expansion and business development plans, business prospects and positioning with respect to market and pricing trends, new business results and outlook, changes in securities market prices, credit quality, planned capital expenditures and technology spending, and the effect of various matters (including changes in accounting standards and interpretations) on Northern Trust's business and results. These statements speak of Northern Trust's plans, goals, beliefs or expectations, refer to estimates or use similar terms. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many uncertainties including: . The future health of the U.S. and international economies and other economic factors that affect wealth creation, investment and savings patterns, and Northern Trust's interest rate risk exposure and credit risk. . Any extraordinary events (such as the September 11, 2001 events). . Changes in U.S. and worldwide securities markets, with respect to the market values of financial assets, the stability of particular securities markets and the level of volatility in certain markets such as foreign exchange. . Changes in the level of cross-border investing by clients resulting from changing economic factors, political conditions or currency markets. . 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, enactment of the Gramm-Leach-Bliley Act of 1999, and other regulatory changes and other factors, as well as actions taken by particular competitors. . Northern Trust's success in continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted markets, through acquisition or otherwise, and generating a profit in those markets in a reasonable time. . Northern Trust's ability to continue to generate strong investment results for clients and continue to develop its array of investment products, internally or through acquisition, in a manner that meets clients' needs. . Northern Trust's success in further developing and executing on implementing initiatives that integrate the Internet into methods of product distribution, new business development and client service. 24 FORWARD-LOOKING INFORMATION (continued) . Northern Trust's ability to continue to fund and accomplish technological innovation, improve processes and controls, address technology risks, including material systems interruptions or errors, and attract and retain capable staff in order to deal with technology challenges and increasing volume and complexity in many of its businesses. . Northern Trust's success in integrating recent and future acquisitions and using the acquired businesses to execute its business strategy. . The ability of each of Northern Trust's principal businesses to maintain a product mix that achieves satisfactory margins. . Changes in tax laws or other legislation in the U.S. or other countries that could affect Northern Trust or clients of its 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 2000 Annual Report to Shareholders (pp. 38-48) and in the sections of "Item 1 - Business" of the 2000 Annual Report on Form 10-K captioned "Government Policies", "Competition" and "Regulation and Supervision" (pp. 7-12). All forward-looking statements included in this report are based upon information presently available, and Northern Trust assumes no obligation to update any forward-looking statement. 25 THIS PAGE INTENTIONALLY LEFT BLANK. 26 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 AVERAGE STATEMENT OF CONDITION NORTHERN TRUST CORPORATION WITH ANALYSIS OF NET INTEREST INCOME Third Quarter --------------------------------------------------------------------- (Interest and rate on a taxable equivalent basis) 2001 2000 -------------------------------- ---------------------------------- ($ in Millions) Interest Volume Rate Interest Volume Rate - ------------------------------------------------------ -------- ---------- -------- ---------- ---------- -------- Average Earning Assets Money Market Assets Federal Funds Sold and Resell Agreements $ 5.9 $ 673.1 3.49% $ 7.9 $ 476.9 6.63% Time Deposits with Banks 48.8 5,029.4 3.85 46.8 3,220.8 5.77 Other Interest-Bearing .3 23.8 4.87 .4 14.6 9.67 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Total Money Market Assets 55.0 5,726.3 3.81 55.1 3,712.3 5.90 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Securities U.S. Government 2.1 169.3 4.99 3.7 234.0 6.32 Obligations of States and Political Subdivisions 10.1 502.9 8.01 9.5 473.5 8.06 Federal Agency 67.5 6,653.5 4.02 167.5 9,680.7 6.89 Other 6.6 400.0 6.58 8.6 441.6 7.72 Trading Account .1 10.9 4.68 .3 12.0 7.81 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Total Securities 86.4 7,736.6 4.43 189.6 10,841.8 6.96 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Loans and Leases 267.3 17,887.6 5.93 300.9 16,825.3 7.12 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Total Earning Assets $ 408.7 31,350.5 5.17% $ 545.6 31,379.4 6.92% - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Reserve for Credit Losses - (158.9) - - (158.6) - Cash and Due from Banks - 1,586.2 - - 1,257.8 - Other Assets - 2,282.2 - - 1,996.6 - - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Total Assets - $ 35,060.0 - - $ 34,475.2 - - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Average Source of Funds Deposits Savings and Money Market $ 36.7 $ 5,693.2 2.56% $ 53.7 $ 5,099.4 4.19% Savings Certificates 26.6 2,146.8 4.91 34.4 2,266.7 6.03 Other Time 12.6 1,066.3 4.67 19.0 1,197.3 6.33 Foreign Offices Time 73.7 8,942.7 3.27 110.7 7,715.3 5.71 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Total Deposits 149.6 17,849.0 3.33 217.8 16,278.7 5.32 Federal Funds Purchased 22.5 2,548.7 3.51 42.0 2,534.1 6.59 Securities Sold Under Agreements to Repurchase 11.6 1,345.8 3.42 22.6 1,392.3 6.46 Commercial Paper 1.3 135.6 3.68 2.3 136.1 6.66 Other Borrowings 37.3 2,820.1 5.25 79.1 4,820.5 6.53 Senior Notes 8.5 492.4 6.87 8.6 500.0 6.86 Long-Term Debt 13.1 767.0 6.82 11.2 638.3 7.03 Debt - Floating Rate Capital Securities 3.2 267.7 4.71 4.9 267.6 7.23 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Total Interest-Related Funds 247.1 26,226.3 3.74 388.5 26,567.6 5.82 - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Interest Rate Spread - - 1.43% - - 1.10% Noninterest-Related Deposits - 4,954.3 - - 4,388.0 - Other Liabilities - 1,218.7 - - 1,209.0 - Stockholders' Equity - 2,660.7 - - 2,310.6 - - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Total Liabilities and Stockholders' Equity - $ 35,060.0 - - $ 34,475.2 - - ------------------------------------------------------ -------- ---------- -------- --------- ---------- -------- Net Interest Income/Margin $ 161.6 - 2.05% $ 157.1 - 1.99% - ------------------------------------------------------ -------- ---------- -------- --------- ---------- --------
ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE
Third Quarter 2001/00 ----------------------------------- Change Due To --------------------- (In Millions) Volume Rate Total - ------------------------------------------------ -------- ---------- ----------- Earning Assets $ (3.5) $ (133.4) $ (136.9) Interest-Related Funds (16.9) (124.5) (141.4) - ------------------------------------------------ -------- ---------- ----------- Net Interest Income $ 13.4 $ (8.9) $ 4.5 - ------------------------------------------------ -------- ---------- -----------
27 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 AVERAGE STATEMENT OF CONDITION NORTHERN TRUST CORPORATION WITH ANALYSIS OF NET INTEREST INCOME Nine Months ------------------------------------------------------------------------ (Interest and rate on a taxable equivalent basis) 2001 2000 --------------------------------- ------------------------------------ ($ in Millions) Interest Volume Rate Interest Volume Rate - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Average Earning Assets Money Market Assets Federal Funds Sold and Resell Agreements $ 21.8 $ 629.7 4.63% $ 32.6 $ 701.4 6.21% Time Deposits with Banks 142.2 4,273.1 4.45 138.8 3,471.5 5.34 Other Interest-Bearing .9 24.1 5.23 1.9 33.4 7.42 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Total Money Market Assets 164.9 4,926.9 4.48 173.3 4,206.3 5.50 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Securities U.S. Government 8.6 195.0 5.91 10.7 239.7 5.96 Obligations of States and Political Subdivisions 29.0 481.6 8.02 29.4 480.7 8.17 Federal Agency 306.9 8,219.7 4.99 419.5 8,534.3 6.57 Other 20.9 399.7 7.01 23.8 415.7 7.64 Trading Account .6 14.1 5.76 .7 12.0 7.66 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Total Securities 366.0 9,310.1 5.26 484.1 9,682.4 6.68 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Loans and Leases 849.1 17,854.9 6.36 848.6 16,261.3 6.97 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Total Earning Assets $ 1,380.0 32,091.9 5.75% $ 1,506.0 30,150.0 6.67% - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Reserve for Credit Losses - (162.1) - - (155.7) - Cash and Due from Banks - 1,503.5 - - 1,402.6 - Other Assets - 2,237.0 - - 1,961.6 - - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Total Assets - $ 35,670.3 - - $ 33,358.5 - - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Average Source of Funds Deposits Savings and Money Market Deposits $ 136.4 $ 5,670.0 3.22% $ 149.4 $ 5,170.9 3.86% Savings Certificates 91.7 2,241.8 5.47 97.3 2,245.6 5.79 Other Time 50.0 1,292.0 5.17 47.5 1,042.6 6.09 Foreign Offices Time 260.7 8,631.7 4.04 312.4 7,841.6 5.32 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Total Deposits 538.8 17,835.5 4.04 606.6 16,300.7 4.97 Federal Funds Purchased 95.8 2,871.8 4.46 107.4 2,302.5 6.23 Securities Sold Under Agreements to Repurchase 51.6 1,558.4 4.43 62.5 1,370.9 6.09 Commercial Paper 4.7 135.5 4.61 6.5 137.1 6.33 Other Borrowings 129.5 3,102.3 5.58 187.2 3,988.6 6.27 Senior Notes 25.6 497.4 6.87 25.8 504.0 6.81 Long-Term Debt 38.4 743.9 6.88 33.8 640.5 7.03 Floating Rate Capital Securities 11.3 267.7 5.60 14.2 267.6 7.02 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Total Interest-Related Funds 895.7 27,012.5 4.43 1,044.0 25,511.9 5.47 - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Interest Rate Spread - - 1.32% - - 1.20% Noninterest-Related Deposits - 4,885.1 - - 4,473.7 - Other Liabilities - 1,189.9 - - 1,115.8 - Stockholders' Equity - 2,582.8 - - 2,257.1 - - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Total Liabilities and Stockholders' Equity - $ 35,670.3 - - $ 33,358.5 - - ------------------------------------------------------- ----------- ---------- --------- ----------- ----------- -------- Net Interest Income/Margin $ 484.3 - 2.02% $ 462.0 - 2.05% - ------------------------------------------------------- =========== ========== ========= =========== =========== ======== ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE Nine Months 2001/00 ------------------------------------------- Change Due To ------------------------- (In Millions) Volume Rate Total - ------------------------------------------------------- ------------ ----------- -------------- Earning Assets $ 84.1 $ (210.1) $ (126.0) Interest-Related Funds 38.5 (186.8) (148.3) - ------------------------------------------------------- ------------ ----------- -------------- Net Interest Income $ 45.6 $ (23.3) $ 22.3 - ------------------------------------------------------- ------------ ----------- --------------
28 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 23 of this document. 29 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- (4) Instruments Defining Rights of Security Holders: (i) Form of The Northern Trust Company's Global Senior Bank Note (Floating Rate) (supercedes Exhibit 4(i) filed with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000) (ii) Form of The Northern Trust Company's Global Senior Bank Note (Fixed Rate) (supercedes Exhibit 4(i) filed with the Annual Report on Form 10-K for the year ended December 31, 1999) (iii) Form of The Northern Trust Company's Global Subordinated Bank Note (Floating Rate) (supercedes Exhibit 4(ii) filed with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000) (iv) Form of The Northern Trust Company's Global Subordinated Bank Note (Fixed Rate) (supercedes Exhibit 4(iii) filed with the Annual Report on Form 10-K for the year ended December 31, 1999) (10) Material Contracts (i) Amendment dated September 25, 2001 to the Northern Trust Employee Stock Ownership Plan (ii) Amendment dated September 25, 2001 to the Restated Northern Trust Supplemental Pension Plan (iii) Amendment dated September 25, 2001 to the Amended 1992 Incentive Stock Plan (iv) Form of Amendment to Form of Employment Security Agreement (amends Exhibit 10(xx) filed with the Annual Report on Form 10-K for the year ended December 31, 2000) (v) Form of Amendment to Form of Employment Security Agreement (amends Exhibit 10(xxi) filed with the Annual Report on Form 10-K for the year ended December 31, 2000) (vi) Form of Amendment to Form of Employment Security Agreement (amends Exhibit 10(xxii) filed with the Annual Report on Form 10-K for the year ended December 31, 2000) 30 PART II - OTHER INFORMATION (continued) (b) Reports on Form 8-K ------------------- In a report on Form 8-K filed July 16, 2001, Northern Trust Corporation incorporated in Item 5 its July 16, 2001 press release, reporting on its earnings for the second quarter of 2001. The press release, with summary financial information, was filed pursuant to Item 7. 31 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 8, 2001 By: Perry R. Pero ------------- Perry R. Pero Vice Chairman and Chief Financial Officer Date: November 8, 2001 By: Harry W. Short -------------- Harry W. Short Executive Vice President and Controller (Chief Accounting Officer) 32 EXHIBIT INDEX The following exhibits have been filed with the Securities and Exchange Commission with Northern Trust Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. Stockholders may obtain copies of such exhibits by writing Rose A. Ellis, Secretary, Northern Trust Corporation, 50 South LaSalle Street, Chicago, Illinois 60675. Exhibit Number Description - ------ ----------- (4) Instruments Defining Rights of Security Holders: (i) Form of The Northern Trust Company's Global Senior Bank Note (Floating Rate) (supercedes Exhibit 4(i) filed with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). (ii) Form of The Northern Trust Company's Global Senior Bank Note (Fixed Rate) (supercedes Exhibit 4(i) filed with the Annual Report on Form 10-K for the year ended December 31, 1999). (iii) Form of The Northern Trust Company's Global Subordinated Bank Note (Floating Rate) (supercedes Exhibit 4(ii) filed with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). (iv) Form of The Northern Trust Company's Global Subordinated Bank Note (Fixed Rate) (supercedes Exhibit 4(iii) filed with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). (10) Material Contracts (i) Amendment dated September 25, 2001 to the Northern Trust Employee Stock Ownership Plan (ii) Amendment dated September 25, 2001 to the Restated Northern Trust Supplemental Pension Plan (iii) Amendment dated September 25, 2001 to the Amended 1992 Incentive Stock Plan (iv) Form of Amendment to Form of Employment Security Agreement (amends Exhibit 10(xx) filed with the Annual Report on Form 10-K for the year ended December 31, 2000) (v) Form of Amendment to Form of Employment Security Agreement (amends Exhibit 10(xxi) filed with the Annual Report on Form 10-K for the year ended December 31, 2000) (vi) Form of Amendment to Form of Employment Security Agreement (amends Exhibit 10(xxii) filed with the Annual Report on Form 10-K for the year ended December 31, 2000) 33 EX-4.1 3 dex41.txt GLOBAL SENIOR NOTE FLOATING RATE Exhibit (4)(1) 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 BASE RATE: ________% MATURITY DATE: ________ INTEREST RATE BASIS: ________ INDEX MATURITY: _________ 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 made available for payment (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 -2- 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 Base Rate specified above, as adjusted by the addition or subtraction of the Spread, if any, specified above and/or by the multiplication by the Spread Multiplier, if any specified above, until the first Interest Reset Date 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 made available for payment, 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. 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 50 South LaSalle -3- 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. THIS SENIOR NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, IS NOT A DEPOSIT OF, OR GUARANTEED BY, THE BANK, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. 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 or the third Wednesday of March, June, September and December of each year; 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 -4- 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 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 (unless it is also the Maturity Date) for this Senior Note falls on a day that is not a Business Day, such Interest Payment Date will be postponed to 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 (unless it is also the Maturity Date) will be the immediately preceding Business Day. If any Maturity Date or date of earlier redemption or repayment of this Senior Note falls on a day that is not a Business Day, the related payment of 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 Maturity Date or date of earlier redemption or repayment. "Business Day" means any day other than a Saturday, Sunday or 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 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 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. -6- 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 "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 the base rate in effect from the Original Issue Date to the first Interest Reset Date will be the Initial Base Rate specified on the face hereof. 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. All calculations relating to this Senior Note will be made by the "Calculation Agent." The Bank will serve as Calculation Agent for this Senior Note as of its Original Issue Date, unless otherwise specified on the face hereof. The Bank may appoint a different institution to serve as Calculation Agent from time to time after the Original Issue Date of this Senior Note without the consent of the holder and without notice. The Calculation Agent will determine the interest rate that takes effect on an Interest Reset Date by reference to the Interest Determination Date. Unless otherwise specified on the face hereof, (i) if the Interest Rate Basis is not -7- LIBOR or the Treasury Rate, the Interest Determination Date will be the second Business Day before the Interest Reset Date; (ii) if the Interest Rate Basis is LIBOR, the Interest Determination Date will be the second London Business Day (as defined below) preceding the Interest Reset Date; and (iii) if the Interest Rate Basis is the Treasury Rate, the Interest Determination Date will be the day of the week in which the Interest Reset Date falls on which treasury bills - i.e., direct obligations of the U.S. government - would normally be auctioned. Treasury bills are usually sold at auction on the Monday of each week, unless that day is a legal holiday, in which case the auction is usually held on the following Tuesday but may be held on the preceding Friday. If as the result of a legal holiday an auction is held on the preceding Friday, that Friday will be the Treasury Interest Determination Date relating to the Interest Reset Date occurring in the next succeeding week. If the auction is held on a day that would otherwise be an Interest Reset Date, then the Interest Reset Date will instead be the first Business Day following the auction date. Unless the Interest Rate is LIBOR, the Calculation Agent will calculate the interest rate that takes effect on a particular Interest Reset Date no later than the corresponding Interest Calculation Date. The Interest Calculation Date will be the earlier of (i) the tenth calendar day after the Interest Determination Date or, if that tenth calendar day is not a Business Day, the next succeeding Business Day, and (ii) the Business Day immediately preceding the Interest Payment Date or the Maturity Date on which the next payment of interest will be due. The Calculation Agent need not wait until the relevant Interest Calculation Date to determine the interest rate if the rate information it needs to make the determination is available from the relevant sources sooner. For each Interest Reset Period, the Calculation Agent will calculate the amount of accrued interest by multiplying the face amount of this Senior Note by an accrued interest factor for the Interest Reset Period. This factor will equal the sum of the interest factors calculated for each day during the Interest Reset Period. The interest factor for each day will be expressed as a decimal and will be calculated by dividing the interest rate (also expressed as a decimal) applicable to that day (i) by 360, if the Interest Rate Basis is the Commercial Paper Rate, the Prime Rate, LIBOR, the CD Rate or the Federal Funds Rate, or (ii) by the actual number -8- of days in the year, if the Interest Rate Basis is the Treasury Rate or the CMT Rate. Upon the request of the holder of this Senior Note, the Calculation Agent will provide such holder with the interest rate then in effect for this Senior Note and, if determined, the interest rate that will become effective on the next Interest Reset Date. The Calculation Agent's determination of any interest rate, and its calculation of the amount of interest for any Interest Reset Period, will be final and binding in the absence of manifest error. All percentages resulting from any calculation relating to this Senior Note will be rounded upward or downward, as appropriate, to the next higher or lower one hundred-thousandth of a percentage point. For example, 9.876541% (or .09876541) would be rounded down to 9.87654% (or .0987654) and 9.876545% (or .09876545) would be rounded up to 9.87655% (or .0987655). All amounts used in or resulting from any calculation relating to this Senior Note will be rounded upward or downward, as appropriate, to the nearest cent, with one-half cent or more being rounded upward. In determining the Base Rate that applies this Senior Note during a particular Interest Reset Period, the Calculation Agent may obtain rate quotes from various banks or dealers active in the relevant market, as described in the following subsections. Those reference banks and dealers may include the Calculation Agent itself, including the Bank, and its affiliates. Except as otherwise provided herein, the rate of interest on this Senior Note for each Interest Reset Date will 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. 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 greater than the maximum rate permitted by Illinois law, as the same may be modified by United States law of general application. -9- Commercial Paper Rate. If the Interest Rate Basis of this Senior Note is --------------------- the Commercial Paper Rate, this Senior Note will bear interest at a Base Rate equal to the Commercial Paper Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Commercial Paper Rate will be the Money Market Yield (as defined below) of the rate, for the relevant Interest Determination Date, for commercial paper having the Index Maturity (as defined below) specified on the face of this Senior Note, as published in H.15(519) (as defined below) under the heading "Commercial Paper -- Nonfinancial." If the Commercial Paper Rate cannot be determined as described above, the following procedures will apply: (i) If the rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the Commercial Paper Rate will be the rate, for the relevant Interest Determination Date, for commercial paper having the Index Maturity specified on the face of this Senior Note, as published in H.15 Daily Update (as defined below) or another recognized electronic source used for displaying that rate, under the heading "Commercial Paper -- Nonfinancial." (ii) If the rate described above does not appear in H.15(519), H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Commercial Paper Rate 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 the relevant Interest Determination Date, by three leading U.S. dollar commercial paper dealers in New York City selected by the Calculation Agent for U.S. dollar commercial paper that has the relevant Index Maturity and is placed for an industrial issuer whose bond rating is "AA", or the equivalent, from a nationally recognized rating agency. (iii) If fewer than three dealers selected by the Calculation Agent are quoting as described above, the -10- Commercial Paper Rate for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. LIBOR. If the Interest Rate Basis of this Senior Note is LIBOR, this Senior ----- Note will bear interest at a Base Rate equal to LIBOR, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. LIBOR will be the London interbank offered rate for deposits of U.S. dollars. LIBOR will be either (a) the offered rate appearing on the Telerate LIBOR Page (as defined below) or (b) the arithmetic mean of the offered rates appearing on the Reuters screen LIBOR Page (as defined below), unless that page by its terms cites only one rate, in which case that rate; in either case, as of 11:00 A.M., London time, on the relevant LIBOR Interest Determination Date, for deposits of U.S. dollars having the relevant Index Maturity beginning on the relevant Interest Reset Date. If no reference page is specified on the face of this Senior Note, the Telerate LIBOR Page will apply. If LIBOR cannot be determined in this manner, the following procedures will apply: (i) If the Telerate LIBOR Page applies and the rate described above does not appear on that page, or if the Reuters Screen LIBOR Page applies and fewer than two of the rates described above appear on that page or no rate appears on any page on which only one rate normally appears, then LIBOR will be determined on the basis of the rates, at approximately 11:00 A.M., London time, on the relevant LIBOR Interest Determination Date, at which deposits of U.S. dollars having the relevant Index Maturity, beginning on the relevant Interest Reset Date and in a Representative Amount (as defined below) are offered to prime banks in the London interbank market by four major banks in that market selected by the Calculation Agent. The Calculation Agent will request the principal London office of each of these banks to provide a quotation of its rate. If at least two quotations are provided, LIBOR for the relevant LIBOR Interest Determination Date will be the arithmetic mean of the quotations. (ii) If fewer than two quotations are provided as described above, LIBOR for the relevant LIBOR Interest Determination Date will be the arithmetic mean of the rates for loans of U.S. dollars having the relevant Index -11- Maturity, beginning on the relevant Interest Reset Date and in a Representative Amount to leading European banks quoted, at approximately 11:00 A.M., New York City time, on that LIBOR Interest Determination Date, by three major banks in New York City selected by the Calculation Agent. (iii) If fewer than three banks selected by the Calculation Agent are quoting as described above, LIBOR for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Treasury Rate. If the Interest Rate Basis of this Senior Note is the ------------- Treasury Rate, this Senior Note will bear interest at a Base Rate equal to the Treasury Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Treasury Rate will be the rate for the auction, on the relevant Treasury Interest Determination Date, of treasury bills having the Index Maturity specified in the on the face of this Senior Note, as that rate appears on Telerate Page (as defined below) 56 or 57 under the heading "Investment Rate." If the Treasury Rate cannot be determined in this manner, the following procedures will apply: (i) If the rate described above does not appear on either page at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), the Treasury Rate will be the Bond Equivalent Yield (as defined below) of the rate, for the relevant Interest Determination Date, for the type of treasury bill described above, as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "U.S. Government Securities/Treasury Bills (Secondary Market)." (ii) If the rate described in the prior paragraph does not appear in H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Treasury Rate will be the Bond Equivalent Yield of the auction rate, for the relevant Treasury Interest Determination -12- Date and for treasury bills of the kind described above, as announced by the U.S. Department of the Treasury. (iii) If the auction rate described in the prior paragraph is not so announced by 3:00 P.M., New York City time, on the relevant Interest Calculation Date, or if no such auction is held for the relevant week, then the Treasury Rate will be the Bond Equivalent Yield of the rate, for the relevant Treasury Interest Determination Date and for treasury bills having a remaining maturity closest to the specified Index Maturity, as published in H.15(519) under the heading "U.S. Government Securities/Treasury Bills (Secondary Market)." (iv) If the rate described in the prior paragraph does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the Treasury Rate will be the rate, for the relevant Treasury Interest Determination Date and for treasury bills having a remaining maturity closest to the specified Index Maturity, as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "U.S. Government Securities/Treasury Bills (Secondary Market)." (v) If the rate described in the prior paragraph does not appear in H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Treasury Rate will be the Bond Equivalent Yield of the arithmetic mean of the secondary market bid rates as of approximately 3:30 P.M., New York City time, on the relevant Treasury Interest Determination Date, of three primary U.S. government securities dealers in New York City selected by the Calculation Agent for the issue of treasury bills with a remaining maturity closest to the specified Index Maturity. (vi) If fewer than three dealers selected by the Calculation Agent are quoting as described in the prior paragraph, the Treasury Rate in effect for the new -13- Interest Reset Period will be the rate in effect for the prior Interest Reset Period. CMT Rate. If the Interest Rate Basis of this Senior Note is the CMT Rate, -------- this Senior Note will bear interest at a Base Rate equal to the CMT Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The CMT Rate will be the rate displayed on the Designated CMT Telerate Page (as defined below) under the heading ". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . . Mondays Approximately 3:45 P.M.," under the column for the Designated CMT Index Maturity (as defined below), as follows: (a) if the Designated CMT Telerate Page is Telerate Page 7051, the rate for the relevant Interest Determination Date, or (b) if the Designated CMT Telerate Page is Telerate Page 7052, the weekly or monthly average, as specified on the face of this Senior Note, for the week that ends immediately before the week in which the relevant Interest Determination Date falls, or for the month that ends immediately before the month in which the relevant Interest Determination Date falls, as applicable. If the CMT Rate cannot be determined in this manner, the following procedures will apply: (i) If the applicable rate described above is not displayed on the relevant Designated CMT Telerate Page at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the CMT Rate will be the applicable treasury constant maturity rate described above -- that is, for the Designated CMT Index Maturity and for either the relevant Interest Determination Date or the weekly or monthly average, as applicable -- as published in H.15(519). (ii) If the applicable rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the CMT Rate will be the treasury constant maturity rate, or other U.S. treasury rate, for the Designated CMT Index Maturity and with reference to the relevant Interest Determination Date, that (a) is published by the Board of Governors of the Federal Reserve System, or the U.S. -14- Department of the Treasury, and (b) is determined by the Calculation Agent to be comparable to the applicable rate formerly displayed on the Designated CMT Telerate Page and published in H.15(519). (iii) If the rate described in the prior paragraph does not appear at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the CMT Rate will be the yield to maturity of the arithmetic mean of the offered rates, as of approximately 3:30 P.M., New York City time, on the relevant Interest Determination Date, of three primary U.S. government securities dealers in New York City selected by the Calculation Agent for the most recently issued treasury notes having an original maturity of approximately the Designated CMT Index Maturity and a remaining term to maturity of not less than the Designated CMT Index Maturity minus one year, and in a Representative Amount. In selecting these offered rates, the Calculation Agent will request quotations from five of these primary dealers and will disregard the highest quotation -- or, if there is equality, one of the highest -- and the lowest quotation -- or, if there is equality, one of the lowest. Treasury notes are direct, non-callable, fixed rate obligations of the U.S. government. (iv) If the Calculation Agent is unable to obtain three quotations of the kind described in the prior paragraph, the CMT rate will be the yield to maturity of the arithmetic mean of the offered rates, as of approximately 3:30 P.M., New York City time, on the relevant Interest Determination Date, of three primary U.S. government securities dealers in New York City selected by the Calculation Agent for treasury notes with an original maturity longer than the Designated CMT Index Maturity, with a remaining term to maturity closest to the Designated CMT Index Maturity and in a Representative Amount. In selecting these offered rates, the Calculation Agent will request quotations from five of these primary dealers and will disregard the highest quotation -- or, if there is equality, one of the highest -- and the lowest quotation -- or, if there is equality, one of the lowest. If two treasury notes with an original maturity longer than the Designated CMT Index -15- Maturity have remaining terms to maturity that are equally close to the Designated CMT Index Maturity, the Calculation Agent will obtain quotations for the treasury note with the shorter remaining term to maturity. (v) If fewer than five but more than two of these primary dealers are quoting as described in the prior paragraph, then the CMT Rate for the relevant Interest Determination Date will be based on the arithmetic mean of the offered rates so obtained, and neither the highest nor the lowest of those quotations will be disregarded. (vi) If two or fewer primary dealers selected by the Calculation Agent are quoting as described above, the CMT Rate in effect for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. CD Rate. If the Interest Rate Basis of this Senior Note is the CD Rate, ------- this Senior Note will bear interest at a Base Rate equal to the CD Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The CD Rate will be the rate, on the relevant Interest Determination Date, for negotiable U.S. dollar certificates of deposit having the Index Maturity specified on the face of this Senior Note, as published in H.15(519) under the heading "CDs (Secondary Market)." If the CD Rate cannot be determined in this manner, the following procedures will apply: (i) If the rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the CD Rate will be the rate, for the relevant Interest Determination Date, described above as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "CDs (Secondary Market)." (ii) If the rate described above does not appear in H.15(519), H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the CD Rate will be the arithmetic mean of the rates offered as of 10:00 -16- A.M., New York City time, on the relevant Interest Determination Date, by three leading nonbank dealers in negotiable U.S. dollar certificates of deposit in New York City, as selected by the Calculation Agent for negotiable U.S. dollar certificates of deposit of major U.S. money center banks with a remaining maturity closest to the specified Index Maturity, and in a Representative Amount. (iii) If fewer than three dealers selected by the Calculation Agent are quoting as described above, the CD Rate in effect for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Federal Funds Rate. If the Interest Rate Basis of this Senior Note is the ------------------ Federal Funds Rate, this Senior Note will bear interest at a Base Rate equal to the Federal Funds Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Federal Funds Rate will be the rate for U.S. dollar federal funds on the relevant Interest Determination Date, as published in H.15(519) under the heading "Federal Funds (Effective)," as that rate is displayed on Telerate Page 120. If the Federal Funds Rate cannot be determined in this manner, the following procedures will apply: (i) If the rate described above is not displayed on Telerate Page 120 at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the Federal Funds Rate, for the relevant Interest Determination Date, will be the rate described above as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "Federal Funds (Effective)." (ii) If the rate described above is not displayed on Telerate Page 120 and does not appear in H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Federal Funds Rate will be the arithmetic mean of the rates for the last transaction in overnight, -17- U.S. dollar federal funds arranged, before 9:00 A.M., New York City time, on the relevant Interest Determination Date, by three leading brokers of U.S. dollar federal funds transactions in New York City selected by the Calculation Agent. (iii) If fewer than three brokers selected by the Calculation Agent are quoting as described above, the Federal Funds Rate in effect for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Prime Rate. If the Interest Rate Basis of this Senior Note is the Prime ---------- Rate, this Senior Note will bear interest at a Base Rate equal to the Prime Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Prime Rate will be the rate, for the relevant Interest Determination Date, published in H.15(519) under the heading "Bank Prime Loan." If the Prime Rate cannot be determined as described above, the following procedures will apply. (i) If the rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the Prime Rate will be the rate, for the relevant Interest Determination Date, as published in H.15 Daily Update or another recognized electronic source used for the purpose of displaying that rate, under the heading "Bank Prime Loan." (ii) If the rate described above does not appear in H.15(519), H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the Prime Rate will be the arithmetic mean of the rates of interest publicly announced by each bank appearing on the Reuters Screen US PRIME 1 Page (as defined below) as that bank's prime rate or base lending rate, as of 11:00 A.M., New York City time, on the relevant Interest Determination Date. -18- (iii) If fewer than four of these rates appear on the Reuters Screen US PRIME 1 Page, the Prime Rate will be the arithmetic mean of the prime rates or base lending rates, as of the close of business on the relevant Interest Determination Date, of three major banks in New York City selected by the Calculation Agent. For this purpose, the Calculation Agent will use rates quoted on the basis of the actual number of days in the year divided by a 360-day year. (iv) If fewer than three banks selected by the Calculation Agent are quoting as described above, the Prime Rate for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Definitions of Terms Used in Interest Rate Bases. The terms listed below ------------------------------------------------ are defined as follows: "Bond Equivalent Yield" means a yield expressed as a percentage and calculated in accordance with the following formula: D x N x 100 --------------- 360 - (D x M) where (i) "D" means the annual rate for treasury bills quoted on a bank discount basis and expressed as a decimal, (ii) "N" means the number of days in the year, 365 or 366, as the case may be, and (iii) "M" means the actual number of days in the applicable Interest Reset Period. "Business Day" means, for purposes of calculating interest on this Senior Note, a day that is a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in New York City generally are authorized or obligated by law, regulation or executive order to close and, if the Interest Rate Basis specified on the face hereof is LIBOR, is also a London Business Day. "Designated CMT Index Maturity" means the Index Maturity for a Note having as its Interest Rate Basis the CMT Rate and will be the original period to maturity of a U.S. treasury security -- either 1, 2, 3, 5, 7, 10, 20 or 30 years - -- specified in the applicable pricing supplement. If no such original maturity period is so specified, the Designated CMT Index Maturity will be 2 years. -19- "Designated CMT Telerate Page" means the Telerate Page specified on the face of this Senior Note (if the Interest Rate Basis is the CMT Rate) that displays treasury constant maturities as reported in H.15(519). If no Telerate Page is so specified, then the applicable page will be Telerate Page 7052. If Telerate Page 7052 applies but this Senior Note does not specify whether the weekly or monthly average applies, the weekly average will apply. "H.15(519)" means the weekly statistical release entitled "Statistical Release H.15 (519)," or any successor publication, published by the Board of Governors of the Federal Reserve System. "H.15 Daily Update" means the daily update of H.15(519) available through the world wide web site of the Board of Governors of the Federal Reserve System, at http://www.federalreserve.gov/releases/h15/update or any successor site or publication. "Index Maturity" means the period to maturity of the instrument or obligation on which the interest rate formula is based, as specified on the face of this Senior Note. "London Business Day" means any day on which dealings in U.S. dollars are transacted in the London interbank market. "Money Market Yield" means a yield expressed as a percentage and calculated in accordance with the following formula: D x 360 x 100 --------------- 360 - (D x M) where (a) "D" means the annual rate for commercial paper quoted on a bank discount basis and expressed as a decimal, and (b) "M" means the actual number of days in the relevant Interest Reset Period. "Representative Amount" means an amount that, in the Calculation Agent's judgment, is representative of a single transaction in the relevant market at the relevant time. "Reuters Screen LIBOR Page" means the display on the Reuters Monitor Money Rates Service, or any successor service, on the page designated as "LIBO" or any replacement page or -20- pages on which London interbank rates of major banks for U.S. dollars are displayed. "Reuters Screen US PRIME 1 Page" means the display on the "US PRIME 1" page on the Reuters Monitor Money Rates Service, or any successor service, or any replacement page or pages on that service, for the purpose of displaying prime rates or base lending rates of major U.S. banks. "Telerate LIBOR Page" means Telerate Page 3750 or any replacement page or pages on which London interbank rates of major banks for U.S. dollars are displayed. "Telerate Page" means the display on Bridge Telerate, Inc., or any successor service, on the page or pages specified in a Senior Note, or any replacement page or pages on that service. References to particular headings on pages designated by the following terms include any successor or replacement heading or headings as determined by the Calculation Agent: CMT Telerate Page, H.15(519), H.15 Daily Update, Reuters Screen LIBOR Page, Reuters Screen US PRIME 1 Page, Telerate LIBOR Page or Telerate Page. 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 -21- payment of the principal of, and interest or premium, if any, on, this Senior Note shall terminate. In case any Senior Note shall at any time become mutilated, destroyed, lost or stolen and such Senior Note or evidence satisfactory to the Bank of the loss, theft or destruction thereof (together with indemnity satisfactory to the Bank and such other documents or proof as may be required in the premises) shall be delivered to the Bank, a new Senior Note of like tenor will be issued by the Bank in exchange for the Senior Note so mutilated, or in lieu of the Senior Note so destroyed or lost or stolen. All expenses and reasonable charges associated with procuring the indemnity referred to above and with the preparation, authentication and delivery of a new Senior Note shall be borne by the holder of the Senior Note so mutilated, destroyed, lost or stolen. If any Senior Note which has matured or is about to mature shall become mutilated, destroyed, lost or stolen, the Bank may, instead of issuing a substitute Senior Note, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Senior Note) upon compliance by the holder thereof with the provisions of this paragraph. No recourse shall be had for the payment of the principal of, premium, if any, or interest on, this Senior Note, for any claim based hereon, or otherwise in respect hereof, against any shareholder, employee, officer or director, as such, past, present or future, of the Bank or of any successor corporation, either directly or through the Bank or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. The occurrence of any of the following events shall constitute an "Event of Default" with respect to this Senior Note: (i) default in the payment of any interest with respect to this Senior Note when due, which continues for 30 days; (ii) default in the payment of any principal of, or premium, if any, on, this Senior Note when due; (iii) the entry by a court having jurisdiction in the premises of (a) a decree or order for relief 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, -22- receiver, liquidator, assignee, trustee, sequestrator or any other similar official of the Bank, or of substantially all of the property of the Bank, or ordering the winding up or liquidation of the affairs of the Bank, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (iv) the commencement by the Bank of a voluntary case or proceeding under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated as bankrupt or insolvent, or the consent by the Bank to the entry of a decree or order for relief in an involuntary case or proceeding under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding, or the filing by the Bank of a petition or answer or consent seeking reorganization or relief under any applicable United States federal or state law, or the consent by the Bank to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Bank or of substantially all of the property of the Bank, or the making by the Bank of an assignment for the benefit of creditors, or the taking of corporate action by the Bank in furtherance of any such action. If an Event of Default shall occur and be continuing, the holder of this Senior Note may declare the principal amount of, and accrued interest and premium, if any, on, this Senior Note due and payable immediately by written notice to the Bank. Upon such declaration and notice, such principal amount, accrued interest and premium, if any, shall become due and payable seven calendar days after such notice. Any Event of Default with respect to this Senior Note may be waived by the holder hereof. No provision of this Senior Note shall alter or impair the obligation of the Bank, which is absolute and unconditional, to pay the principal, and premium, if any, and interest on, this Senior Note in U.S. dollars at the times, places and rate herein prescribed. 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") -23- in which, subject to such reasonable regulations as it may prescribe, the Bank shall provide for the registration of the Senior Notes and of transfers of the Senior Notes. The Bank is hereby initially appointed "Senior Note Registrar" for the purposes of registering the Senior Notes and transfers of the Senior Notes as herein provided. The transfer of this Senior Note is registrable in the Senior Note Register, upon surrender of this Senior Note for registration of transfer at the office or agency of the Bank in the Place of Payment, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Bank and the Paying Agent duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Senior Notes of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Notwithstanding the foregoing, the Bank shall not be required to register the transfer of any Senior Note that has been called for redemption during a period beginning at the opening of business fifteen calendar days before the date of mailing of a notice of such redemption and ending at the close of business on the date of such mailing. No service charge shall be made for any such registration of transfer or exchange, but the Bank may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Senior Notes are issuable only in registered form without coupons in minimum denominations of $250,000 and any integral multiple of $1,000 in excess thereof. Each owner of a beneficial interest in this Senior Note is required to hold a beneficial interest in $250,000 principal amount or any integral multiple of $1,000 in excess thereof of this Senior Note at all times. 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. -24- 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. IN WITNESS WHEREOF, the Bank has caused this instrument to be duly executed. THE NORTHERN TRUST COMPANY By:__________________________ Authorized Signatory -25- 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. 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. 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. EX-4.2 4 dex42.txt GLOBAL SENIOR NOTE FIXED RATE Exhibit (4)(2) 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: ________ 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:_____ OTHER PROVISIONS: DEFAULT RATE: ________% 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 name this Senior Note (or any predecessor -2- 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. 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. THIS SENIOR NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, IS NOT A DEPOSIT OF, OR GUARANTEED BY, THE BANK, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. 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 -3- 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. 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 -4- 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 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 -5- 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 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. -6- 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 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. -7- The Bank shall cause to be kept at the corporate trust office of the Senior Note Registrar designated below a register (the register maintained in such corporate trust office or any other office or agency of the Bank in the Place of Payment herein referred to as the "Senior Note Register") in which, subject to such reasonable regulations as it may prescribe, the Bank shall provide for the registration of the Senior Notes and of transfers of the Senior Notes. The Bank is hereby initially appointed "Senior Note Registrar" for the 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. -8- All notices to the Bank under this Senior Note shall be in writing and addressed to the Bank at 50 South LaSalle Street (Level BB-A), Chicago, Illinois 60675, Attention: Securities Services, or to such other address of the Bank as the Bank may notify the holders of the Senior Notes. This Senior Note shall be governed by, and construed in accordance with, the laws of the State of Illinois. IN WITNESS WHEREOF, the Bank has caused this instrument to be duly executed. THE NORTHERN TRUST COMPANY By:___________________________ Authorized Signatory -9- 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. 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. 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. EX-4.3 5 dex43.txt GLOBAL SUBORDINATED BANK NOT FLOATING RATE Exhibit (4)(3) 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 BASE RATE: _______% MATURITY DATE: ________ INTEREST RATE BASIS: ________ INDEX MATURITY: ________ SPREAD AND/OR SPREAD REGULAR RECORD DATES MULTIPLIER: (If 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 made available for payment (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 -2- 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 Base Rate specified above, as adjusted by the addition or subtraction of the Spread, if any, specified above and/or by the multiplication by the Spread Multiplier, if any, specified above, until the first Interest Reset Date 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 on any overdue principal and premium, if any, and on any overdue installment of interest. The interest so payable, and punctually paid or made available for payment, 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. 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. THIS SUBORDINATED NOTE IS A DIRECT, UNCONDITIONAL AND UNSECURED GENERAL OBLIGATION OF THE BANK. THIS SUBORDINATED -3- NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, IS NOT A DEPOSIT OF, OR GUARANTEED BY, THE BANK, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. 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 or the third Wednesday of March, June, September and December of each year; 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 (unless it is also the Maturity Date) for this Subordinated Note falls on a day that is not a Business Day, such Interest Payment Date will be postponed to the next succeeding Business Day; provided, however, that, if -4- 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 (unless it is also the Maturity Date) will be the immediately preceding Business Day. If any Maturity Date or date of earlier redemption or repayment of this Subordinated Note falls on a day that is not a Business Day, the related payment of 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 Maturity Date or date of earlier redemption or repayment. "Business Day" means any day other than a Saturday, Sunday or 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 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 -5- 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, the $100,000,000 aggregate principal amount of 6.70% Subordinated Notes due 2005 issued by the Bank in 1995, the $100,000,000 aggregate principal amount of 7.30% Subordinated Notes due 2006 issued by the Bank in 1996, the $100,000,000 aggregate principal amount of 6.25% Subordinated Notes due 2008 issued by the Bank in 1998, the $200,000,000 aggregate principal amount of 7.10% Subordinated Notes due 2009 issued by the Bank in 1999, the $150,000,000 aggregate principal amount of 6.30% Subordinated Notes due 2011 issued by the Bank in 2001, 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 -6- 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. 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 the base rate in effect from the Original Issue Date to the first Interest Reset Date will be the Initial Base Rate specified on the face hereof. If any Interest Reset Date with respect to this Subordinated Note -7- 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. All calculations relating to this Subordinated Note will be made by the "Calculation Agent." The Bank will serve as Calculation Agent for this Subordinated Note as of its Original Issue Date, unless otherwise specified on the face hereof. The Bank may appoint a different institution to serve as Calculation Agent from time to time after the Original Issue Date of this Subordinated Note without the consent of the holder and without notice. The Calculation Agent will determine the interest rate that takes effect on an Interest Reset Date by reference to the Interest Determination Date. Unless otherwise specified on the face hereof, (i) if the Interest Rate Basis is not LIBOR or the Treasury Rate, the Interest Determination Date will be the second Business Day before the Interest Reset Date; (ii) if the Interest Rate Basis is LIBOR, the Interest Determination Date will be the second London Business Day (as defined below) preceding the Interest Reset Date; and (iii) if the Interest Rate Basis is the Treasury Rate, the Interest Determination Date will be the day of the week in which the Interest Reset Date falls on which treasury bills - i.e., direct obligations of the U.S. government - would normally be auctioned. Treasury bills are usually sold at auction on the Monday of each week, unless that day is a legal holiday, in which case the auction is usually held on the following Tuesday but may be held on the preceding Friday. If as the result of a legal holiday an auction is held on the preceding Friday, that Friday will be the Treasury Interest Determination Date relating to the Interest Reset Date occurring in the next succeeding week. If the auction is held on a day that would otherwise be an Interest Reset Date, then the Interest Reset Date will instead be the first Business Day following the auction date. Unless the Interest Rate is LIBOR, the Calculation Agent will calculate the interest rate that takes effect on a particular Interest Reset Date no later than the corresponding Interest Calculation Date. The Interest Calculation Date will be the earlier of (i) the tenth calendar day after the -8- Interest Determination Date or, if that tenth calendar day is not a Business Day, the next succeeding Business Day, and (ii) the Business Day immediately preceding the Interest Payment Date or the Maturity Date on which the next payment of interest will be due. The Calculation Agent need not wait until the relevant Interest Calculation Date to determine the interest rate if the rate information it needs to make the determination is available from the relevant sources sooner. For each Interest Reset Period, the Calculation Agent will calculate the amount of accrued interest by multiplying the face amount of this Subordinated Note by an accrued interest factor for the Interest Reset Period. This factor will equal the sum of the interest factors calculated for each day during the Interest Reset Period. The interest factor for each day will be expressed as a decimal and will be calculated by dividing the interest rate (also expressed as a decimal) applicable to that day (i) by 360, if the Interest Rate Basis is the Commercial Paper Rate, the Prime Rate, LIBOR, the CD Rate or the Federal Funds Rate, or (ii) by the actual number of days in the year, if the Interest Rate Basis is the Treasury Rate or the CMT Rate. Upon the request of the holder of this Subordinated Note, the Calculation Agent will provide such holder with the interest rate then in effect for this Subordinated Note and, if determined, the interest rate that will become effective on the next Interest Reset Date. The Calculation Agent's determination of any interest rate, and its calculation of the amount of interest for any Interest Reset Period, will be final and binding in the absence of manifest error. All percentages resulting from any calculation relating to this Subordinated Note will be rounded upward or downward, as appropriate, to the next higher or lower one hundred-thousandth of a percentage point. For example, 9.876541% (or .09876541) would be rounded down to 9.87654% (or .0987654) and 9.876545% (or .09876545) would be rounded up to 9.87655% (or .0987655). All amounts used in or resulting from any calculation relating to this Subordinated Note will be rounded upward or downward, as appropriate, to the nearest cent, with one-half cent or more being rounded upward. In determining the Base Rate that applies this Subordinated Note during a particular Interest Reset Period, the Calculation Agent may obtain rate quotes from various -9- banks or dealers active in the relevant market, as described in the following subsections. Those reference banks and dealers may include the Calculation Agent itself, including the Bank, and its affiliates. Except as otherwise provided herein, the rate of interest on this Subordinated Note for each Interest Reset Date will 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. 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 greater than the maximum rate permitted by Illinois law, as the same may be modified by United States law of general application. Commercial Paper Rate. If the Interest Rate Basis of this Subordinated Note --------------------- is the Commercial Paper Rate, this Subordinated Note will bear interest at a Base Rate equal to the Commercial Paper Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Commercial Paper Rate will be the Money Market Yield (as defined below) of the rate, for the relevant Interest Determination Date, for commercial paper having the Index Maturity (as defined below) specified on the face of this Subordinated Note, as published in H.15(519) (as defined below) under the heading "Commercial Paper -- Nonfinancial." If the Commercial Paper Rate cannot be determined as described above, the following procedures will apply: (i) If the rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the Commercial Paper Rate will be the rate, for the relevant Interest Determination Date, for commercial paper having the Index Maturity specified on the face of this Subordinated Note, as published in H.15 Daily Update (as defined below) or another recognized electronic source used for displaying that rate, under the heading "Commercial Paper -- Nonfinancial." -10- (ii) If the rate described above does not appear in H.15(519), H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Commercial Paper Rate 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 the relevant Interest Determination Date, by three leading U.S. dollar commercial paper dealers in New York City selected by the Calculation Agent for U.S. dollar commercial paper that has the relevant Index Maturity and is placed for an industrial issuer whose bond rating is "AA", or the equivalent, from a nationally recognized rating agency. (iii) If fewer than three dealers selected by the Calculation Agent are quoting as described above, the Commercial Paper Rate for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. LIBOR. If the Interest Rate Basis of this Subordinated Note is LIBOR, this ----- Subordinated Note will bear interest at a Base Rate equal to LIBOR, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. LIBOR will be the London interbank offered rate for deposits of U.S. dollars. LIBOR will be either (a) the offered rate appearing on the Telerate LIBOR Page (as defined below) or (b) the arithmetic mean of the offered rates appearing on the Reuters screen LIBOR Page (as defined below), unless that page by its terms cites only one rate, in which case that rate; in either case, as of 11:00 A.M., London time, on the relevant LIBOR Interest Determination Date, for deposits of U.S. dollars having the relevant Index Maturity beginning on the relevant Interest Reset Date. If no reference page is specified on the face of this Subordinated Note, the Telerate LIBOR Page will apply. If LIBOR cannot be determined in this manner, the following procedures will apply: (i) If the Telerate LIBOR Page applies and the rate described above does not appear on that page, or if the Reuters Screen LIBOR Page applies and fewer than two of the rates described above appear on that page or no rate appears on any page on which only one rate normally appears, then LIBOR will be determined on the basis of -11- the rates, at approximately 11:00 A.M., London time, on the relevant LIBOR Interest Determination Date, at which deposits of U.S. dollars having the relevant Index Maturity, beginning on the relevant Interest Reset Date and in a Representative Amount (as defined below) are offered to prime banks in the London interbank market by four major banks in that market selected by the Calculation Agent. The Calculation Agent will request the principal London office of each of these banks to provide a quotation of its rate. If at least two quotations are provided, LIBOR for the relevant LIBOR Interest Determination Date will be the arithmetic mean of the quotations. (ii) If fewer than two quotations are provided as described above, LIBOR for the relevant LIBOR Interest Determination Date will be the arithmetic mean of the rates for loans of U.S. dollars having the relevant Index Maturity, beginning on the relevant Interest Reset Date and in a Representative Amount to leading European banks quoted, at approximately 11:00 A.M., New York City time, on that LIBOR Interest Determination Date, by three major banks in New York City selected by the Calculation Agent. (iii) If fewer than three banks selected by the Calculation Agent are quoting as described above, LIBOR for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Treasury Rate. If the Interest Rate Basis of this Subordinated Note is the ------------- Treasury Rate, this Subordinated Note will bear interest at a Base Rate equal to the Treasury Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Treasury Rate will be the rate for the auction, on the relevant Treasury Interest Determination Date, of treasury bills having the Index Maturity specified in the on the face of this Subordinated Note, as that rate appears on Telerate Page (as defined below) 56 or 57 under the heading "Investment Rate." If the Treasury Rate cannot be determined in this manner, the following procedures will apply: (i) If the rate described above does not appear on either page at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the -12- calculation is made earlier and the rate is available from that source at that time), the Treasury Rate will be the Bond Equivalent Yield (as defined below) of the rate, for the relevant Interest Determination Date, for the type of treasury bill described above, as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "U.S. Government Securities/Treasury Bills (Secondary Market)." (ii) If the rate described in the prior paragraph does not appear in H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Treasury Rate will be the Bond Equivalent Yield of the auction rate, for the relevant Treasury Interest Determination Date and for treasury bills of the kind described above, as announced by the U.S. Department of the Treasury. (iii) If the auction rate described in the prior paragraph is not so announced by 3:00 P.M., New York City time, on the relevant Interest Calculation Date, or if no such auction is held for the relevant week, then the Treasury Rate will be the Bond Equivalent Yield of the rate, for the relevant Treasury Interest Determination Date and for treasury bills having a remaining maturity closest to the specified Index Maturity, as published in H.15(519) under the heading "U.S. Government Securities/Treasury Bills (Secondary Market)." (iv) If the rate described in the prior paragraph does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the Treasury Rate will be the rate, for the relevant Treasury Interest Determination Date and for treasury bills having a remaining maturity closest to the specified Index Maturity, as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "U.S. Government Securities/Treasury Bills (Secondary Market)." (v) If the rate described in the prior paragraph does not appear in H.15 Daily Update or another -13- recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Treasury Rate will be the Bond Equivalent Yield of the arithmetic mean of the secondary market bid rates as of approximately 3:30 P.M., New York City time, on the relevant Treasury Interest Determination Date, of three primary U.S. government securities dealers in New York City selected by the Calculation Agent for the issue of treasury bills with a remaining maturity closest to the specified Index Maturity. (vi) If fewer than three dealers selected by the Calculation Agent are quoting as described in the prior paragraph, the Treasury Rate in effect for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. CMT Rate. If the Interest Rate Basis of this Subordinated Note is the CMT -------- Rate, this Subordinated Note will bear interest at a Base Rate equal to the CMT Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The CMT Rate will be the rate displayed on the Designated CMT Telerate Page (as defined below) under the heading ". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . . Mondays Approximately 3:45 P.M.," under the column for the Designated CMT Index Maturity (as defined below), as follows: (a) if the Designated CMT Telerate Page is Telerate Page 7051, the rate for the relevant Interest Determination Date, or (b) if the Designated CMT Telerate Page is Telerate Page 7052, the weekly or monthly average, as specified on the face of this Subordinated Note, for the week that ends immediately before the week in which the relevant Interest Determination Date falls, or for the month that ends immediately before the month in which the relevant Interest Determination Date falls, as applicable. If the CMT Rate cannot be determined in this manner, the following procedures will apply: (i) If the applicable rate described above is not displayed on the relevant Designated CMT Telerate Page at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier -14- and the rate is available from that source at that time), then the CMT Rate will be the applicable treasury constant maturity rate described above -- that is, for the Designated CMT Index Maturity and for either the relevant Interest Determination Date or the weekly or monthly average, as applicable --as published in H.15(519). (ii) If the applicable rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the CMT Rate will be the treasury constant maturity rate, or other U.S. treasury rate, for the Designated CMT Index Maturity and with reference to the relevant Interest Determination Date, that (a) is published by the Board of Governors of the Federal Reserve System, or the U.S. Department of the Treasury, and (b) is determined by the Calculation Agent to be comparable to the applicable rate formerly displayed on the Designated CMT Telerate Page and published in H.15(519). (iii) If the rate described in the prior paragraph does not appear at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the CMT Rate will be the yield to maturity of the arithmetic mean of the offered rates, as of approximately 3:30 P.M., New York City time, on the relevant Interest Determination Date, of three primary U.S. government securities dealers in New York City selected by the Calculation Agent for the most recently issued treasury notes having an original maturity of approximately the Designated CMT Index Maturity and a remaining term to maturity of not less than the Designated CMT Index Maturity minus one year, and in a Representative Amount. In selecting these offered rates, the Calculation Agent will request quotations from five of these primary dealers and will disregard the highest quotation -- or, if there is equality, one of the highest -- and the lowest quotation -- or, if there is equality, one of the lowest. Treasury notes are direct, non-callable, fixed rate obligations of the U.S. government. -15- (iv) If the Calculation Agent is unable to obtain three quotations of the kind described in the prior paragraph, the CMT rate will be the yield to maturity of the arithmetic mean of the offered rates, as of approximately 3:30 P.M., New York City time, on the relevant Interest Determination Date, of three primary U.S. government securities dealers in New York City selected by the Calculation Agent for treasury notes with an original maturity longer than the Designated CMT Index Maturity, with a remaining term to maturity closest to the Designated CMT Index Maturity and in a Representative Amount. In selecting these offered rates, the Calculation Agent will request quotations from five of these primary dealers and will disregard the highest quotation -- or, if there is equality, one of the highest -- and the lowest quotation -- or, if there is equality, one of the lowest. If two treasury notes with an original maturity longer than the Designated CMT Index Maturity have remaining terms to maturity that are equally close to the Designated CMT Index Maturity, the Calculation Agent will obtain quotations for the treasury note with the shorter remaining term to maturity. (v) If fewer than five but more than two of these primary dealers are quoting as described in the prior paragraph, then the CMT Rate for the relevant Interest Determination Date will be based on the arithmetic mean of the offered rates so obtained, and neither the highest nor the lowest of those quotations will be disregarded. (vi) If two or fewer primary dealers selected by the Calculation Agent are quoting as described above, the CMT Rate in effect for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. CD Rate. If the Interest Rate Basis of this Subordinated Note is the CD ------- Rate, this Subordinated Note will bear interest at a Base Rate equal to the CD Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The CD Rate will be the rate, on the relevant Interest Determination Date, for negotiable U.S. dollar certificates of deposit having the Index Maturity specified on the face of this Subordinated Note, as published in H.15(519) under the heading "CDs (Secondary Market)." If the CD Rate cannot be -16- determined in this manner, the following procedures will apply: (i) If the rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the CD Rate will be the rate, for the relevant Interest Determination Date, described above as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "CDs (Secondary Market)." (ii) If the rate described above does not appear in H.15(519), H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the CD Rate will be the arithmetic mean of the rates offered as of 10:00 A.M., New York City time, on the relevant Interest Determination Date, by three leading nonbank dealers in negotiable U.S. dollar certificates of deposit in New York City, as selected by the Calculation Agent for negotiable U.S. dollar certificates of deposit of major U.S. money center banks with a remaining maturity closest to the specified Index Maturity, and in a Representative Amount. (iii) If fewer than three dealers selected by the Calculation Agent are quoting as described above, the CD Rate in effect for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Federal Funds Rate. If the Interest Rate Basis of this Subordinated Note is ------------------ the Federal Funds Rate, this Subordinated Note will bear interest at a Base Rate equal to the Federal Funds Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Federal Funds Rate will be the rate for U.S. dollar federal funds on the relevant Interest Determination Date, as published in H.15(519) under the heading "Federal Funds (Effective)," as that rate is displayed on Telerate Page 120. If the Federal Funds Rate cannot be determined in this manner, the following procedures will apply: -17- (i) If the rate described above is not displayed on Telerate Page 120 at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from that source at that time), then the Federal Funds Rate, for the relevant Interest Determination Date, will be the rate described above as published in H.15 Daily Update or another recognized electronic source used for displaying that rate, under the heading "Federal Funds (Effective)." (ii) If the rate described above is not displayed on Telerate Page 120 and does not appear in H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), the Federal Funds Rate will be the arithmetic mean of the rates for the last transaction in overnight, U.S. dollar federal funds arranged, before 9:00 A.M., New York City time, on the relevant Interest Determination Date, by three leading brokers of U.S. dollar federal funds transactions in New York City selected by the Calculation Agent. (iii) If fewer than three brokers selected by the Calculation Agent are quoting as described above, the Federal Funds Rate in effect for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Prime Rate. If the Interest Rate Basis of this Subordinated Note is the ---------- Prime Rate, this Subordinated Note will bear interest at a Base Rate equal to the Prime Rate, as adjusted by the Spread or Spread Multiplier, if any, specified on the face hereof. The Prime Rate will be the rate, for the relevant Interest Determination Date, published in H.15(519) under the heading "Bank Prime Loan." If the Prime Rate cannot be determined as described above, the following procedures will apply. (i) If the rate described above does not appear in H.15(519) at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the -18- calculation is made earlier and the rate is available from that source at that time), then the Prime Rate will be the rate, for the relevant Interest Determination Date, as published in H.15 Daily Update or another recognized electronic source used for the purpose of displaying that rate, under the heading "Bank Prime Loan." (ii) If the rate described above does not appear in H.15(519), H.15 Daily Update or another recognized electronic source at 3:00 P.M., New York City time, on the relevant Interest Calculation Date (unless the calculation is made earlier and the rate is available from one of those sources at that time), then the Prime Rate will be the arithmetic mean of the rates of interest publicly announced by each bank appearing on the Reuters Screen US PRIME 1 Page (as defined below) as that bank's prime rate or base lending rate, as of 11:00 A.M., New York City time, on the relevant Interest Determination Date. (iii) If fewer than four of these rates appear on the Reuters Screen US PRIME 1 Page, the Prime Rate will be the arithmetic mean of the prime rates or base lending rates, as of the close of business on the relevant Interest Determination Date, of three major banks in New York City selected by the Calculation Agent. For this purpose, the Calculation Agent will use rates quoted on the basis of the actual number of days in the year divided by a 360-day year. (iv) If fewer than three banks selected by the Calculation Agent are quoting as described above, the Prime Rate for the new Interest Reset Period will be the rate in effect for the prior Interest Reset Period. Definitions of Terms Used in Interest Rate Bases. The terms listed below ------------------------------------------------ are defined as follows: "Bond Equivalent Yield" means a yield expressed as a percentage and calculated in accordance with the following formula: D x N x 100 ------------- 360 - (D x M) -19- where (i) "D" means the annual rate for treasury bills quoted on a bank discount basis and expressed as a decimal, (ii) "N" means the number of days in the year, 365 or 366, as the case may be, and (iii) "M" means the actual number of days in the applicable Interest Reset Period. "Business Day" means, for purposes of calculating interest on this Subordinated Note, a day that is a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in New York City generally are authorized or obligated by law, regulation or executive order to close and, if the Interest Rate Basis specified on the face hereof is LIBOR, is also a London Business Day. "Designated CMT Index Maturity" means the Index Maturity for a Note having as its Interest Rate Basis the CMT Rate and will be the original period to maturity of a U.S. treasury security -- either 1, 2, 3, 5, 7, 10, 20 or 30 years --specified in the applicable pricing supplement. If no such original maturity period is so specified, the Designated CMT Index Maturity will be 2 years. "Designated CMT Telerate Page" means the Telerate Page specified on the face of this Subordinated Note (if the Interest Rate Basis is the CMT Rate) that displays treasury constant maturities as reported in H.15(519). If no Telerate Page is so specified, then the applicable page will be Telerate Page 7052. If Telerate Page 7052 applies but this Subordinated Note does not specify whether the weekly or monthly average applies, the weekly average will apply. "H.15(519)" means the weekly statistical release entitled "Statistical Release H.15 (519)," or any successor publication, published by the Board of Governors of the Federal Reserve System. "H.15 Daily Update" means the daily update of H.15(519) available through the world wide web site of the Board of Governors of the Federal Reserve System, at http://www.federalreserve.gov/releases/h15/update or any successor site or publication. "Index Maturity" means the period to maturity of the instrument or obligation on which the interest rate formula is based, as specified on the face of this Subordinated Note. -20- "London Business Day" means any day on which dealings in U.S. dollars are transacted in the London interbank market. "Money Market Yield" means a yield expressed as a percentage and calculated in accordance with the following formula: D x 360 x 100 ----------------- 360 - (D x M) where (a) "D" means the annual rate for commercial paper quoted on a bank discount basis and expressed as a decimal, and (b) "M" means the actual number of days in the relevant Interest Reset Period. "Representative Amount" means an amount that, in the Calculation Agent's judgment, is representative of a single transaction in the relevant market at the relevant time. "Reuters Screen LIBOR Page" means the display on the Reuters Monitor Money Rates Service, or any successor service, on the page designated as "LIBO" or any replacement page or pages on which London interbank rates of major banks for U.S. dollars are displayed. "Reuters Screen US PRIME 1 Page" means the display on the "US PRIME 1" page on the Reuters Monitor Money Rates Service, or any successor service, or any replacement page or pages on that service, for the purpose of displaying prime rates or base lending rates of major U.S. banks. "Telerate LIBOR Page" means Telerate Page 3750 or any replacement page or pages on which London interbank rates of major banks for U.S. dollars are displayed. "Telerate Page" means the display on Bridge Telerate, Inc., or any successor service, on the page or pages specified in a Subordinated Note, or any replacement page or pages on that service. References to particular headings on pages designated by the following terms include any successor or replacement heading or headings as determined by the Calculation Agent: CMT Telerate Page, H.15(519), H.15 Daily Update, Reuters Screen LIBOR Page, Reuters Screen US PRIME 1 Page, Telerate LIBOR Page or Telerate Page. -21- 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 (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. -22- 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 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 -23- 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 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 -24- 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. IN WITNESS WHEREOF, the Bank has caused this instrument to be duly executed. THE NORTHERN TRUST COMPANY By:__________________________ Authorized Signatory -25- 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. 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. EX-4.4 6 dex44.txt GLOBAL SUBORDINATED BANK NOTE FIXED RATE Exhibit (4)(4) 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) ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT: _______________ $_______________ INTEREST RATE: MATURITY DATE: _______________% ________________ INTEREST PAYMENT REGULAR RECORD DATES DATES: (If other than the April 1 or October 1, prior to each _______________ Interest Payment Date): ________________ INITIAL REDEMPTION DATE: INITIAL REDEMPTION PERCENTAGE: ________________ _______________ 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 2 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 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. THIS SUBORDINATED NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, IS NOT A DEPOSIT OF, OR GUARANTEED BY, THE BANK, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. 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"). 3 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. 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, the $100,000,000 aggregate 4 principal amount of 6.70% Subordinated Notes due 2005 issued by the Bank in 1995, the $100,000,000 aggregate principal amount of 7.30% Subordinated Notes due 2006 issued by the Bank in 1996, the $100,000,000 aggregate principal amount of 6.25% Subordinated Notes due 2008 issued by the Bank in 1998, the $200,000,000 aggregate principal amount of 7.10% Subordinated Notes due 2009 issued by the Bank in 1999, the $150,000,000 aggregate principal amount of 6.30% Subordinated Notes due 2011 issued by the Bank in 2001, 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 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. 5 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 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 6 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 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. 7 The transfer of this Subordinated Note is registrable in the Subordinated Note Register, upon surrender of this Subordinated Note for registration of transfer at the office or agency of the Bank in the Place of Payment, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Bank and the Paying Agent duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Subordinated Notes of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Notwithstanding the foregoing, the Bank shall not be required to register the transfer of any Subordinated Note that has been called for redemption during a period beginning at the opening of business fifteen calendar days before the day of mailing of a notice of such redemption and ending at the close of business on the day of such mailing. No service charge shall be made for any such registration of transfer or exchange, but the Bank may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Subordinated Notes are issuable only in registered form without coupons in minimum denominations of $250,000 and any integral multiple of $1,000 in excess thereof. Each owner of a beneficial interest in this Subordinated Note is required to hold a beneficial interest in $250,000 principal amount or any integral multiple of $1,000 in excess thereof of this Subordinated Note at all times. Prior to due presentment of this Subordinated Note for registration of transfer, the Bank, the Paying Agent or any agent of the Bank or the Paying Agent may treat the person in whose name this Subordinated Note is registered as the owner hereof for all purposes, whether or not this Subordinated Note be overdue, and neither the Bank, the Paying Agent nor any such agent shall be affected by notice to the contrary. 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. 8 THE NORTHERN TRUST COMPANY By:____________________________ Authorized Signatory 9 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. 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. EX-10.(I) 7 dex10i.txt AMENDED EMPLOYEE STOCK OWNERSHIP PLAN Exhibit (10)(i) AMENDMENT NUMBER THIRTEEN TO THE NORTHERN TRUST EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, The Northern Trust Company (the "Company") maintains the Northern Trust Employee Stock Ownership Plan, as amended and restated effective January 1, 1989 (as further amended, the "Plan"); and WHEREAS, amendment of the Plan is now considered desirable; NOW, THEREFORE, by virtue and in exercise of the amending power reserved to the Company under Section 13.1 of the Plan, and pursuant to the authority delegated to the undersigned officer by resolution of the Board of Directors dated September 25, 2001 the Plan is hereby amended, effective September 25, 2001, in the following particulars: 1. The definition of "Change in Control" set forth in Section 16.11 is hereby amended and restated in its entirety, as follows: A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Northern Trust Corporation (the "Corporation") (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates) representing 20% or more of the combined voting power of the Corporation's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or (2) The election to the Board of Directors of the Corporation, without the recommendation or approval of two thirds of the incumbent Board of Directors of the Corporation, of the lesser of: (A) three directors; or (B) directors constituting a majority of the number of directors of the Corporation then in office, provided, however, that directors whose initial assumption of office is in connection with an actual or threat- ened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation will not be considered as incumbent members of the Board of Directors of the Corporation for purposes of this section; or (3) there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary of the Corporation with any other company, other than (i) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), at least 60% of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Corporation or its Affiliates) representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (4) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions. 2 For purposes of the foregoing, the following definitions shall apply: "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities with respect to which such Person has properly filed a Form 13-G; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Corporation or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefits plan of the Corporation or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation. IN WITNESS WHEREOF, the Company has caused this amendment to be executed on its behalf as of this 25th day of September, 2001. THE NORTHERN TRUST COMPANY By: /s/ Marty J. Joyce, Jr. ------------------------- Name: Marty J. Joyce, Jr. Title: Senior Vice President 3 EX-10.(II) 8 dex10ii.txt AMENDED RESTATED SUPPLEMENTAL PENSION PLAN Exhibit (10)(ii) SECOND AMENDMENT OF THE RESTATED NORTHERN TRUST CORPORATION SUPPLEMENTAL PENSION PLAN WHEREAS, the Northern Trust Corporation (the "Corporation") sponsors the Restated Northern Trust Corporation Supplemental Pension Plan (the "Plan"); and WHEREAS, pursuant to Section 6.1 of the Plan, the Corporation has the right to amend the Plan when the Corporation deems such amendment to be advisable; and WHEREAS, the Corporation deems it advisable to amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: 1. A new Section 1.9(d) shall be added to the Plan, as follows: (d) In the event the Participant is entitled to additional age and/or service credit under the Plan pursuant to an Employment Security Agreement, such additional credit will be taken into account in calculating the Modified Pension Benefit only for purposes of determining whether the Participant is treated as having attained Early Retirement Age or Normal Retirement Age, and shall not otherwise affect the calculation of the Participant's Modified Pension Benefit. If, as a result of such additional credit, the Participant is treated as having attained Early Retirement Age, the reduction in the Accrued Benefit for early commencement will equal 1/2 of 1% for each month the Participant's benefit commencement date under the Plan precedes his or her attainment of age 62 (without regard to any such additional age credit). This Second Amendment to the Plan shall be effective from and after September 25, 2001. IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed on its behalf as of this September 25, 2001. NORTHERN TRUST CORPORATION By: /s/ Marty J. Joyce, Jr. --------------------------- Name: Marty J. Joyce, Jr. Title: Senior Vice President 2 EX-10.(III) 9 dex10iii.txt AMENDED 1992 INCENTIVE PLAN Exhibit (10)(iii) AMENDMENT TO THE NORTHERN TRUST CORPORATION AMENDED 1992 INCENTIVE STOCK PLAN WHEREAS, Northern Trust Corporation (the "Corporation") maintains the Northern Trust Corporation Amended 1992 Incentive Stock Plan (as amended, the "Plan"); and WHEREAS, amendment of the Plan is now considered desirable; NOW, THEREFORE, by virtue and in exercise of the amending power reserved to the Board of Directors of the Corporation under Section 15 of the Plan, the Plan is hereby amended, effective September 25, 2001 in the following particulars: 1. The introductory clause of the second sentence of Section 6(g) shall be restated in its entirety as follows: "For purposes of Stock Options granted prior to September 25, 2001, a "Change in Control" of the Corporation shall be deemed to occur on the earliest of:" 2. Section 6(h) of the Plan shall be re-designated as Section 6(i) of the Plan, and the following new Section 6(h) shall be added to the Plan: (h) For purposes of Stock Options granted on or following September 25, 2001, a "Change in Control" of the Corporation shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates) representing 20% or more of the combined voting power of the Corporation's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) The election to the Board of Directors of the Corporation, without the recommendation or approval of two thirds of the incumbent Board of Directors of the Corporation, of the lesser of: (A) three directors; or (B) directors constituting a majority of the number of directors of the Corporation then in office, provided, however, that directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation will not be considered as incumbent members of the Board of Directors of the Corporation for purposes of this section; or (iii) there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary of the Corporation with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), at least 60% of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Corporation or its Affiliates) representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of 2 integrated transactions immediately following which the record holders of the common stock of the Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions. For purposes of the Change in Control definition set forth in this Section 6(h), the following definitions shall apply: "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities with respect to which such Person has properly filed a Form 13-G; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Corporation or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefits plan of the Corporation or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed on its behalf as of this 25th day of September, 2001. NORTHERN TRUST CORPORATION By: /s/ William A. Osborn ----------------------- Name: William A. Osborn Title: Chairman and Chief Executive Officer 3 EX-10.(IV) 10 dex10iv.txt AMENDMENT TO FORM OF EMPLOYMENT SECURITY AGREEMENT Exhibit (10)(iv) FORM OF AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT -------------------------------------------------- (Tier 1 Agreement) This Amendment, dated as of [insert date], expressly amends that certain Employment Security Agreement, dated as of [insert date of original agreement], by and between Northern Trust Corporation, a Delaware corporation (the "Company") and [insert name of executive] (the "Executive"). WHEREAS, effective as of [insert date of original agreement], the Company and the Executive entered into an Employment Security Agreement concerning the provision of certain security to the Executive in connection with any potential change in control of the Company; and WHEREAS, the Company and the Executive desire to amend the Employment Security Agreement with respect to certain definitions contained therein and certain other matters; NOW, THEREFORE, the Company and the Executive agree as follows: Effective as of the date hereof, the Employment Security Agreement is amended as follows: 1. The following clause shall be added at the beginning of the first sentence of Section 1(e) of the Agreement: "Whether or not there is a termination of Executive's employment entitling him to the other benefits described in this Section 1," 1. The following passage shall be added to the end of Section 1(e) of the Agreement, as follows: In addition, each other outstanding equity based award (including stock units issued under an ISP) shall become fully vested (and, to the extent applicable, exercisable or distributable) upon a Change in Control (or upon a termination during a Period Pending a Change in Control under circumstances which entitle the Executive to payments and benefits hereunder). Notwithstanding anything to the contrary contained in an ISP or an option agreement issued pursuant to an ISP, following any termination of the Executive's employment entitling him to benefits under this Section 1, (i) all outstanding non- qualified stock options granted to the Executive under an ISP and (ii) all outstanding incentive stock options granted to the Executive on or following September 25, 2001 shall remain outstanding and exercisable until the earlier of (a) the exercise of such option by the Executive, (b) the fifth anniversary of the Executive's Employment Termination or (c) the expiration date of the option term. For the avoidance of doubt, in the event of any conflict between the terms of this Section 1(e) and those of any outstanding equity based award held by the Executive, the terms of this Section 1(e) shall govern. 1. A new Section 1(g) shall be added to the Employment Security Agreement, as follows: "(g) In the event that the Executive is a participant in the Northern Trust Corporation Supplemental Pension Plan (or any successor plan thereto) (the "Supplemental Pension Plan"), and the Executive qualifies for neither early nor normal retirement benefits pursuant to the terms of The Northern Trust Company Pension Plan (or any successor plan thereto) (the "Qualified Pension Plan"), the Executive will be credited with up to an additional thirty-six (36) months of age and/or service credit with respect to the Supplemental Pension Plan, provided, however, that such additional age and/or service credit will only be credited to the Executive with respect to the Supplemental Pension Plan if and to the extent that such additional credit would, as of the Executive's Employment Termination, enable the Executive to qualify for early or normal retirement benefits pursuant to the terms of the Qualified Pension Plan (if such additional credit were taken into account under such plan). Any additional credit shall be applied to calculate the Executive's benefit only as specified under the terms of the Supplemental Pension Plan. Notwithstanding the foregoing, if the Executive's entire benefit under the Qualified Pension Plan is derived from the pension equity formula under such plan, no additional credit shall be awarded. 1. Clause (i) of Section 2(a) of the Employment Security Agreement is hereby restated as follows: "(i) Executive's conviction of any criminal violation involving dishonesty, fraud or breach of trust which involves the business of the Company or any of its subsidiaries;" 2 1. Section 2(a) of the Employment Security Agreement is hereby further amended by adding the following language following the last sentence thereof: "For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's act, or failure to act, was in the best interest of the Company. In the event of a dispute concerning the application of this provision, no claim by the Company that Good Cause exists shall be given effect unless the Company establishes to the Board of Directors of the Company by clear and convincing evidence that Good Cause exists." 1. Section 2(b) of the Employment Security Agreement is hereby amended by adding the following language following clause (v) thereof: "Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board of Directors of the Company by clear and convincing evidence that Good Reason does not exist." 1. Section 2(c) of the Employment Security Agreement is hereby amended and restated in its entirety, as follows: For all purposes under this Agreement (including, without limitation, for purposes of the application of the accelerated vesting provision of Section 1(e) to equity awards granted prior to September 25, 2001), a "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in 3 connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) The election to the Board of Directors of the Company, without the recommendation or approval of two thirds of the incumbent Board of Directors of the Company, of the lesser of: (A) three directors; or (B) directors constituting a majority of the number of directors of the Company then in office, provided, however, that directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company will not be considered as incumbent members of the Board of Directors of the Company for purposes of this section; or (iii) there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary of the Company with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Corpora- 4 tion in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. For purposes of the Change in Control definition set forth in this Section 2(c) and for purposes of Section 2(h) (where applicable) the following definitions shall apply: "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities with respect to which such Person has properly filed a Form 13-G; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefits plan of the Corporation or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 1. Section 2(h) of the Employment Security Agreement is hereby amended and restated, in its entirety, to read as follows: "Period Pending a Change in Control shall be deemed to have commenced if the event set forth in any one of the following shall have occurred: (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (B) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (C) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Corpo- 5 ration representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Corporation's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates); or (D) the Board adopts a resolution to the effect that, for purposes of this Plan, a Period Pending a Change in Control has commenced. The Period Pending a Change in Control and shall lapse upon the occurrence of a Change in Control or, if earlier (i) with respect to a Period Pending a Change in Control occurring pursuant to clause (A) of the definition, immediately upon the abandonment or termination of the applicable agreement, (ii) with respect to a Period Pending a Change in Control occurring pursuant to clause (B) of the definition, immediately upon a public announcement by the applicable party that such party has abandoned its intention to take or consider taking actions which if consummated would result in a Change in Control or (iii) with respect to a Period Pending a Change in Control occurring pursuant to clause (C) or (D) of the definition, upon the one year anniversary of the commencement of the Period Pending a Change in Control (or such earlier date as may be determined by the Board)." IN WITNESS WHEREOF, Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Amendment to be executed as of the day and year first above written. NORTHERN TRUST CORPORATION By ----------------------------- Name: Title: ------------------------------- [Executive] 6 EX-10.(V) 11 dex10v.txt AMENDED FORM OF EMPLOYMENT SECURITY AGREEMENT TIER Exhibit (10)(v) FORM OF AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT -------------------------------------------------- (Tier 2 Agreement) This Amendment, dated as of [insert date], expressly amends that certain Employment Security Agreement, dated as of [insert date of original agreement], by and between Northern Trust Corporation, a Delaware corporation (the "Company") and [insert name of executive] (the "Executive"). WHEREAS, effective as of [insert date of original agreement], the Company and the Executive entered into an Employment Security Agreement concerning the provision of certain security to the Executive in connection with any potential change in control of the Company; and WHEREAS, the Company and the Executive desire to amend the Employment Security Agreement with respect to certain definitions contained therein and certain other matters; NOW, THEREFORE, the Company and the Executive agree as follows: Effective as of the date hereof, the Employment Security Agreement is amended as follows: 1. The following clause shall be added at the beginning of the first sentence of Section 1(e) of the Agreement: "Whether or not there is a termination of Executive's employment entitling him to the other benefits described in this Section 1," 1. The following passage shall be added to the end of Section 1(e) of the Agreement, as follows: In addition, each other outstanding equity based award (including stock units issued under an ISP) shall become fully vested (and, to the extent applicable, exercisable or distributable) upon a Change in Control (or upon a termination during a Period Pending a Change in Control under circumstances which entitle the Executive to payments and benefits hereunder). Notwithstanding anything to the contrary contained in an ISP or an option agreement issued pursuant to an ISP, following any termination of the Executive's employment entitling him to benefits under this Section 1, (i) all outstanding non- qualified stock options granted to the Executive under an ISP and (ii) all outstanding incentive stock options granted to the Executive on or following September 25, 2001 shall remain outstanding and exercisable until the earlier of (a) the exercise of such option by the Executive, (b) the fifth anniversary of the Executive's Employment Termination or (c) the expiration date of the option term. For the avoidance of doubt, in the event of any conflict between the terms of this Section 1(e) and those of any outstanding equity based award held by the Executive, the terms of this Section 1(e) shall govern. 1. A new Section 1(g) shall be added to the Employment Security Agreement, as follows: "(g) In the event that the Executive is a participant in the Northern Trust Corporation Supplemental Pension Plan (or any successor plan thereto) (the "Supplemental Pension Plan"), and the Executive qualifies for neither early nor normal retirement benefits pursuant to the terms of The Northern Trust Company Pension Plan (or any successor plan thereto) (the "Qualified Pension Plan"), the Executive will be credited with up to an additional twenty-four (24) months of age and/or service credit with respect to the Supplemental Pension Plan, provided, however, that such additional age and/or service credit will only be credited to the Executive with respect to the Supplemental Pension Plan if and to the extent that such additional credit would, as of the Executive's Employment Termination, enable the Executive to qualify for early or normal retirement benefits pursuant to the terms of the Qualified Pension Plan (if such additional credit were taken into account under such plan). Any additional credit shall be applied to calculate the Executive's benefit only as specified under the terms of the Supplemental Pension Plan. Notwithstanding the foregoing, if the Executive's entire benefit under the Qualified Pension Plan is derived from the pension equity formula under such plan, no additional credit shall be awarded. 1. Clause (i) of Section 2(a) of the Employment Security Agreement is hereby restated as follows: "(i) Executive's conviction of any criminal violation involving dishonesty, fraud or breach of trust which involves the business of the Company or any of its subsidiaries;" 2 1. Section 2(a) of the Employment Security Agreement is hereby further amended by adding the following language following the last sentence thereof: "For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's act, or failure to act, was in the best interest of the Company. In the event of a dispute concerning the application of this provision, no claim by the Company that Good Cause exists shall be given effect unless the Company establishes to the Board of Directors of the Company by clear and convincing evidence that Good Cause exists." 1. Section 2(b) of the Employment Security Agreement is hereby amended by adding the following language following clause (v) thereof: "Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board of Directors of the Company by clear and convincing evidence that Good Reason does not exist." 1. Section 2(c) of the Employment Security Agreement is hereby amended and restated in its entirety, as follows: "For all purposes under this Agreement (including, without limitation, for purposes of the application of the accelerated vesting provision of Section 1(e) to equity awards granted prior to September 25, 2001), a "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in 3 connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) The election to the Board of Directors of the Company, without the recommendation or approval of two thirds of the incumbent Board of Directors of the Company, of the lesser of: (A) three directors; or (B) directors constituting a majority of the number of directors of the Company then in office, provided, however, that directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company will not be considered as incumbent members of the Board of Directors of the Company for purposes of this section; or (iii) there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary of the Company with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Corpora- 4 tion in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. For purposes of the Change in Control definition set forth in this Section 2(c) and for purposes of Section 2(h) (where applicable) the following definitions shall apply: "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities with respect to which such Person has properly filed a Form 13-G; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefits plan of the Corporation or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 1. Section 2(h) of the Employment Security Agreement is hereby amended and restated, in its entirety, to read as follows: "Period Pending a Change in Control shall be deemed to have commenced if the event set forth in any one of the following shall have occurred: (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (B) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (C) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Corpo- 5 ration representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Corporation's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates); or (D) the Board adopts a resolution to the effect that, for purposes of this Plan, a Period Pending a Change in Control has commenced. The Period Pending a Change in Control and shall lapse upon the occurrence of a Change in Control or, if earlier (i) with respect to a Period Pending a Change in Control occurring pursuant to clause (A) of the definition, immediately upon the abandonment or termination of the applicable agreement, (ii) with respect to a Period Pending a Change in Control occurring pursuant to clause (B) of the definition, immediately upon a public announcement by the applicable party that such party has abandoned its intention to take or consider taking actions which if consummated would result in a Change in Control or (iii) with respect to a Period Pending a Change in Control occurring pursuant to clause (C) or (D) of the definition, upon the one year anniversary of the commencement of the Period Pending a Change in Control (or such earlier date as may be determined by the Board)." IN WITNESS WHEREOF, Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Amendment to be executed as of the day and year first above written. NORTHERN TRUST CORPORATION By_____________________________ Name: Title: _______________________________ [Executive] 6 EX-10.(VI) 12 dex10vi.txt AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT TIER 3 Exhibit (10)(vi) FORM OF AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT -------------------------------------------------- (Tier 3 Agreement) This Amendment, dated as of [insert date], expressly amends that certain Employment Security Agreement, dated as of [insert date of original agreement], by and between Northern Trust Corporation, a Delaware corporation (the "Company") and [insert name of executive] (the "Executive"). WHEREAS, effective as of [insert date of original agreement], the Company and the Executive entered into an Employment Security Agreement concerning the provision of certain security to the Executive in connection with any potential change in control of the Company; and WHEREAS, the Company and the Executive desire to amend the Employment Security Agreement with respect to certain definitions contained therein and certain other matters; NOW, THEREFORE, the Company and the Executive agree as follows: Effective as of the date hereof, the Employment Security Agreement is amended as follows: 1. Section 1 of the Employment Security Agreement is hereby amended by adding the following new clause (d) thereto, as follows: (d) Stock Incentive Plans. Whether or not there is a termination of Executive's employment entitling him to the other benefits described in this Section 1, all outstanding stock options granted to the Executive under the Northern Trust Corporation Amended 1985 Incentive Stock Plan, the Northern Trust Corporation 1992 Incentive Stock Plan, the Northern Trust Corporation Amended 1992 Incentive Stock Plan and any other stock plan or program (collectively referred to as the "ISPs"), will immediately become fully vested and exercisable upon the Change in Control (or upon a termination during a Period Pending a Change in Control under circumstances which entitle the Executive to payments and benefits hereunder). All restricted stock granted to the Executive under the ISPs will immediately be fully vested and distributed to Executive upon the Change in Control. With respect to performance shares granted to the Executive under the ISPs pursuant to the Northern Trust Corporation Long Term Incentive Plan ("LTIP") or otherwise, upon the Change in Control: (i) all performance shares credited to Executive's performance share account will be immediately distributed to Executive (together with any other amounts then credited to Executive's performance share account); (ii) a pro rata portion of all performance shares awarded to Executive but not then credited to Executive's performance share account will be immediately distributed to Executive; and (iii) Executive will remain eligible for crediting to Executive's performance share account as of the end of the performance period, in accordance with the provisions of the LTIP in effect as of the Change in Control, any remaining performance shares awarded to Executive but not distributed in accordance with this paragraph. In addition, each other equity based award granted to the Executive (including stock units issued under an ISP) shall become fully vested (and, to the extent applicable, exercisable or distributable) upon a Change in Control. Notwithstanding anything to the contrary contained in an ISP or an option agreement issued pursuant to an ISP, following any termination of the Executive's employment entitling him to benefits under this Section 1, (i) all outstanding non-qualified stock options granted to the Executive under an ISP and (ii) all outstanding incentive stock options granted to the Executive on or following September 25, 2001 shall remain outstanding and exercisable until the earlier of (a) the exercise of such option by the Executive, (b) the fifth anniversary of the Executive's Employment Termination or (c) the expiration date of the option term. For the avoidance of doubt, in the event of any conflict between the terms of this Section 1(d) and those of any outstanding equity based award held by the Executive, the terms of this Section 1(d) shall govern. 1. Section 1 of the Employment Security Agreement is hereby amended by adding the following new clause (e) thereto, as follows: (e) In the event that the Executive is a participant in the Northern Trust Corporation Supplemental Pension Plan (or any successor plan thereto) (the "Supplemental Pension Plan"), and the Executive qualifies for neither early nor normal retirement benefits pursuant to the terms of The Northern Trust Company Pension Plan (or any successor plan thereto) (the "Qualified Pension Plan"), the Executive will be credited with up to an additional twenty-four (24) months of age and/or service credit with respect to the Supplemental Pension Plan, provided, however, that such additional age and/or service credit will only be credited to the Executive with respect to the Supplemental Pension Plan if and to the extent that such additional credit would, as of the Executive's Employment Termination, enable the Executive to qualify for early or normal retirement benefits pursuant to the terms of the Qualified Pension Plan (if such additional credit were taken into account 2 under such plan). Any additional credit shall be applied to calculate the Executive's benefit only as specified under the terms of the Supplemental Pension Plan. Notwithstanding the foregoing, if the Executive's entire benefit under the Qualified Pension Plan is derived from the pension equity formula under such plan, no additional credit shall be awarded. 1. Clause (i) of Section 2(a) of the Employment Security Agreement is hereby restated as follows: "(i) Executive's conviction of any criminal violation involving dishonesty, fraud or breach of trust which involves the business of the Company or any of its subsidiaries;" 1. Section 2(a) of the Employment Security Agreement is hereby further amended by adding the following language following the last sentence thereof: "For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's act, or failure to act, was in the best interest of the Company. In the event of a dispute concerning the application of this provision, no claim by the Company that Good Cause exists shall be given effect unless the Company establishes to the Board of Directors of the Company by clear and convincing evidence that Good Cause exists." 1. Section 2(b) of the Employment Security Agreement is hereby amended by adding the following language following clause (v) thereof: "Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board of Directors of the Company by clear and convincing evidence that Good Reason does not exist." 1. Section 2(c) of the Employment Security Agreement is hereby amended and restated in its entirety, as follows: 3 For all purposes under this Agreement (including, without limitation, for purposes of the application of the accelerated vesting provision of Section 1(d) to equity awards granted prior to September 25, 2001), a "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) The election to the Board of Directors of the Company, without the recommendation or approval of two thirds of the incumbent Board of Directors of the Company, of the lesser of: (A) three directors; or (B) directors constituting a majority of the number of directors of the Company then in office, provided, however, that directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company will not be considered as incumbent members of the Board of Directors of the Company for purposes of this section; or (iii) there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary of the Company with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% 4 or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. For purposes of the Change in Control definition set forth in this Section 2(c) and for purposes of Section 2(h) (where applicable) the following definitions shall apply: "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities with respect to which such Person has properly filed a Form 13-G; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefits plan of the Corporation or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 5 1. Section 2(h) of the Employment Security Agreement is hereby amended and restated, in its entirety, to read as follows: "Period Pending a Change in Control shall be deemed to have commenced if the event set forth in any one of the following shall have occurred: (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (B) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (C) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Corporation's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates); or (D) the Board adopts a resolution to the effect that, for purposes of this Plan, a Period Pending a Change in Control has commenced. The Period Pending a Change in Control and shall lapse upon the occurrence of a Change in Control or, if earlier (i) with respect to a Period Pending a Change in Control occurring pursuant to clause (A) of the definition, immediately upon the abandonment or termination of the applicable agreement, (ii) with respect to a Period Pending a Change in Control occurring pursuant to clause (B) of the definition, immediately upon a public announcement by the applicable party that such party has abandoned its intention to take or consider taking actions which if consummated would result in a Change in Control or (iii) with respect to a Period Pending a Change in Control occurring pursuant to clause (C) or (D) of the definition, upon the one year anniversary of the commencement of the Period Pending a Change in Control (or such earlier date as may be determined by the Board)." 6 IN WITNESS WHEREOF, Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Amendment to be executed as of the day and year first above written. NORTHERN TRUST CORPORATION By:__________________________ Name: Title: _____________________________ [Executive] 7 -----END PRIVACY-ENHANCED MESSAGE-----