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Northern Trust Corporation
Headnote
Subsection 74(1) - relief from registrationrequirement granted in connection with first trade of sharesacquired under employee stock option plans by non-employee formerparticipants and permitted transferees subject to certain conditions.
Statutes Cited
Securities Act, R.S.O. 1990, c.S.5, as am.,ss. 25, 35 and 74(1).
Rules Cited
OSC Rule 45-503 - Trades to Employees, Executivesand Consultants.
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, CHAPTER S.5,AS AMENDED (the "ACT")
AND
IN THE MATTER OF
NORTHERN TRUST CORPORATION
RULING
UPON the application (the "Application")of Northern Trust Corporation (the "Corporation")to the Ontario Securities Commission (the "Commission")for a ruling (the "Ruling") under subsection 74(1)of the Act that section 25 of the Act (the "RegistrationRequirement") shall not apply to the first trade effectedthrough the Agent (as defined below) in common shares (the "Shares")of the Corporation by a Former Participant or a Permitted Transferee(each, as defined below) who acquired such Shares under theCorporation's 1992 Incentive Stock Plan, as amended (the "1992Plan") or the Corporation's 2002 Stock Plan (the "2002Plan" and, together with the 1992 Plan, the "Plans");
AND UPON considering the Applicationand the recommendation of staff of the Commission;
AND UPON the Corporation having representedto the Commission as follows:
1. The Corporation is incorporated under thelaws of the State of Delaware. It is registered with the SecuritiesExchange Commission (the "SEC") in the U.S. underthe United States Securities Exchange Act of 1934 (the"Exchange Act") and is not exempt from the reportingrequirements of the Exchange Act.
2. The Corporation and its affiliates areleading providers of personal fiduciary, asset management,personal and private banking, master trust/custody, globalcustody, and treasury management services.
3. The authorized share capital of the Corporationconsists of 560,000,000 Shares. As of May 20, 2002, therewere 227,921,524 Shares issued and outstanding.
4. The Corporation is not a reporting issuerunder the Act and has no present intention of becoming a reportingissuer under the Act.
5. The Shares, including those issued underthe 1992 Plan and those issuable under the 2002 Plan, arequoted for trading on the NASDAQ Stock Market (the "Nasdaq").There is no market in Ontario for the Shares and none is expectedto develop.
1992 Plan
6. The 1992 Plan was established to providea sense of recognition and managerial participation amongthe Corporation's directors, and key officers of the Corporationand its affiliates. Under the 1992 Plan, the Corporation grantedawards in the form of options ("1992 Awards") toeligible participants, including officers and directors ofthe Corporation and its subsidiaries resident in Ontario.A prospectus prepared according to United States securitieslaws was delivered to each eligible participant who was grantedan Award under the 1992 Plan. All annual reports, proxy materialsand other materials that the Corporation has been requiredto file with the SEC have been provided to participants residentin Ontario at the same time and in the same manner as thedocuments have been provided to participants resident in theU.S. The Corporation will not issue any new Awards to residentsof Ontario under the 1992 Plan.
7. As of September 30, 2002, there were approximately8 persons in Canada who had received options under the 1992Plan, all of whom are residents of Ontario. A total of 18,351options were granted under the 1992 Plan to participants residentin Ontario. Directors and officers of the Corporation andits affiliates eligible to participate in the 1992 Plan werenot induced to participate in the 1992 Plan or to exerciseAwards by expectation of employment or continued employmentwith the Corporation or its affiliates.
2002 Plan
8. The 2002 Plan was put in place to promotethe growth and profitability of the Corporation and its affiliates.Under the 2002 Plan, the Corporation may grant Awards in theform of options, stock appreciation rights, stock awards,stock units and performance shares ("2002 Awards"and, together with the 1992 Awards, the "Awards")to present and future employees of the Corporation and itsaffiliates, and to present and future directors of the Corporation.A prospectus prepared according to United States securitieslaws will be delivered to each eligible participant who isgranted an Award under the 2002 Plan. All annual reports,proxy materials and other materials that the Corporation isrequired to file with the SEC will be provided to participantsresident in Ontario at the same time and in the same manneras the documents will be provided to participants residentin the U.S.
9. As of May 1, 2002, there were approximately31 persons in Canada eligible to participate in the 2002 Plan,all of whom are residents of Ontario. Employees and directorsof the Corporation and its affiliates eligible to participatein the 2002 Plan will not be induced to participate in the2002 Plan or to exercise Awards by expectation of employmentor continued employment with the Corporation or its affiliates.
10. Awards may be forfeited by participantsin the 2002 Plan: (a) to the extent such Awards are not exercisedwithin the time limit prescribed under the 2002 Plan; (b)where the participant's relationship with the Corporationor its affiliates is terminated; or (c) where an Award iscancelled upon performance measures or goals not being satisfied.
11. Subject to adjustment as described inthe 2002 Plan and increases made in accordance with U.S. securitieslaws, an aggregate of 22,000,000 Shares may be issued underthe 2002 Plan.
The Plans
12. The Plans are administered by a committee(the "Committee") designated by the board of directorsof the Corporation. Unless otherwise determined by the Committee,Awards are not transferable other than by will or pursuantto the laws of intestacy.
13. The payment by a participant residentin Ontario of an option's exercise price under the Plans maybe made (i) in cash; (ii) by the Corporation's withholdingof a portion of the Shares otherwise distributable to theparticipant; and (iii) by delivery of a properly executednotice of exercise, together with irrevocable instructionsto the Agent (as defined below) to deliver promptly to theCorporation the amount of sale proceeds from the sale of theoption shares to pay the exercise price and any withholdingtaxes due to the Corporation (a "Cashless Exercise"),or by such other method as the Committee may deem appropriate,in accordance with the terms of the Plans.
14. If the exercise price of an option ispaid in whole or in part through the withholding by the Corporationof a portion of the Shares otherwise distributable to theparticipant, the number of Shares withheld is equal to thenumber of Shares having an aggregate fair market value (asdetermined by the Committee) equal to the exercise price,or portion thereof, paid by the participant.
15. The term of each option will be fixedby the Committee, provided that the term does not exceed aperiod of ten years from the date of the grant.
16. The Corporation intends to use the servicesof one or more agents/brokers (each an "Agent")in connection with the 2002 Plan. The Corporation has alreadyappointed an Agent for the 1992 Plan.
17. Northern Trust Securities Incorporated("NTSI"), an affiliate of the Corporation, has beenappointed as the initial Agent under the 2002 Plan and isthe current Agent under the 1992 Plan. NTSI is not a registrantunder the Act but is registered under applicable U.S. securitieslegislation. Any replacement Agent authorized by the Corporationto provide services as Agent under the 1992 Plan or the 2002Plan will be a registrant under the Act or a corporation registeredunder applicable U.S. securities legislation.
18. The role of the Agent may include: (a)disseminating information and materials to Participants inconnection with the Plans; (b) assisting with the administrationof and general record-keeping for the Plans; (c) holding Shareson behalf of Participants, Former Participants and PermittedTransferees (each as defined below) in limited purpose brokerageaccounts; (d) facilitating Award exercises (including CashlessExercises) under the Plans; (e) facilitating the payment ofwithholding taxes, if any, by cash or withholding of Shares;and (f) facilitating the resale of Shares issued in connectionwith the Plans.
19. In order to exercise an option under thePlans, an optionee must call a designated 1-800 number, providea personal identification security number and identify tothe Agent the option, the number of Shares being purchasedand the method of payment.
20. Under the Plans, following the terminationof a participant's relationship with the Corporation and/orits affiliates for reasons of disability, retirement, termination,change of control or any other reason (such participants being"Former Participants"), and on the death of a participantwhere Awards have been transferred by will or under the lawsof intestacy or otherwise as permitted under the Plans (suchbeneficiaries being "Permitted Transferees"), theFormer Participants and Permitted Transferees will continueto have rights in respect of the Plans ("Post-TerminationRights").
21. Post-Termination Rights may include, amongother things: (a) the right to exercise an Award for a perioddetermined in accordance with the Plans and the Award; and(b) the right to sell Shares acquired under the Plans throughthe Agent.
22. Post-Termination Rights will only be effectivewhere the Award to which they relate was granted while theparticipant had a relationship with the Corporation and/orits affiliates.
23. Because there is no market for the Sharesin Canada and none is expected to develop, any resale by participants,Former Participants and Permitted Transferees of the Sharesacquired under the Plans will be effected through the facilitiesof, and in accordance with the rules and laws applicable to,Nasdaq.
24. As of September 30, 2002, residents ofOntario did not own, directly or indirectly, more than 10%of the issued and outstanding Shares and did not representin number more than 10% of the shareholders of the Corporation.
25. An exemption from the Registration Requirementis not currently available for the first trade effected throughthe Agent by a non-employee Former Participant or PermittedTransferee in Shares acquired under the Plans (a "FirstTrade").
AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest;
IT IS RULED pursuant to subsection 74(1)of the Act that a First Trade will not be subject to the RegistrationRequirement, provided that the conditions in subsection 2.14(1)of Multilateral Instrument 45-102 Resale of Securitiesare satisfied.
November 15, 2002.
"Robert L. Shirriff" "HaroldP. Hands"