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<SEC-DOCUMENT>0000950152-99-002574.txt : 19990330
<SEC-HEADER>0000950152-99-002574.hdr.sgml : 19990330
ACCESSION NUMBER: 0000950152-99-002574
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 15
CONFORMED PERIOD OF REPORT: 19981231
FILED AS OF DATE: 19990329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: KEYCORP /NEW/
CENTRAL INDEX KEY: 0000091576
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 346542451
STATE OF INCORPORATION: OH
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-11302
FILM NUMBER: 99575709
BUSINESS ADDRESS:
STREET 1: 127 PUBLIC SQ
CITY: CLEVELAND
STATE: OH
ZIP: 44114-1306
BUSINESS PHONE: 2166896300
MAIL ADDRESS:
STREET 1: 127 PUBLIC SQ
CITY: CLEVELAND
STATE: OH
ZIP: 44114-1306
FORMER COMPANY:
FORMER CONFORMED NAME: SOCIETY CORP
DATE OF NAME CHANGE: 19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<DESCRIPTION>KEYCORP FORM 10-K405
<TEXT>
<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-850
KEYCORP LOGO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO
---------------------------
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
127 PUBLIC SQUARE, CLEVELAND, OHIO
---------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
34-6542451
----------------
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
44114-1306
----------------
(ZIP CODE)
(216) 689-6300
----------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<TABLE>
<S> <C>
Securities registered pursuant Securities registered pursuant
to Section 12(b) of the Act: to Section 12(g) of the Act:
Common Shares, $1 par value
Rights to Purchase Common Shares None
- ------------------------------------------------ ------------------------------------------------
(TITLE OF EACH CLASS) (TITLE OF CLASS)
New York Stock Exchange
- ------------------------------------------------
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
</TABLE>
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $14,451,041,949 at February 26, 1999. (The
aggregate market value has been computed using the closing market price of the
stock as reported by the New York Stock Exchange on February 26, 1999.)
448,094,324
- --------------------------------------------------------------------------------
(NUMBER OF KEYCORP COMMON SHARES OUTSTANDING AS OF FEBRUARY 26, 1999)
Certain specifically designated portions of KeyCorp's 1998 Annual Report to
Shareholders are incorporated by reference into Parts I, II and IV of this Form
10-K. Certain specifically designated portions of KeyCorp's definitive Proxy
Statement for its 1999 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Form 10-K.
<PAGE> 2
KEYCORP
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<C> <S> <C>
PART I
1 Business.................................................... 1
2 Properties.................................................. 7
3 Legal Proceedings........................................... 7
4 Submission of Matters to a Vote of Security Holders......... 7
PART II
5 Market for Registrant's Common Stock and Related Stockholder
Matters................................................... 7
6 Selected Financial Data..................................... 8
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 8
7A Quantitative and Qualitative Disclosures about Market
Risk...................................................... 8
8 Financial Statements and Supplementary Data................. 8
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 8
PART III
10 Directors and Executive Officers of the Registrant.......... 8
11 Executive Compensation...................................... 8
12 Security Ownership of Certain Beneficial Owners and
Management................................................ 8
13 Certain Relationships and Related Transactions.............. 9
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 9
Signatures.................................................. 13
Exhibits.................................................... 14
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW
KeyCorp (also referred to herein as the "Corporation") is a legal entity
separate and distinct from its banking and other subsidiaries. Accordingly, the
right of KeyCorp, its security holders and its creditors to participate in any
distribution of the assets or earnings of its banking and other subsidiaries is
necessarily subject to the prior claims of the respective creditors of such
banking and other subsidiaries, except to the extent that claims of the
Corporation in its capacity as creditor of such banking and other subsidiaries
may be recognized.
KeyCorp, organized in 1958 under the laws of the state of Ohio and registered
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), is
headquartered in Cleveland, Ohio, and is engaged primarily in the business of
commercial and retail banking. At December 31, 1998, it was one of the nation's
largest bank holding companies with consolidated total assets of $80.0 billion.
Its subsidiaries provide a wide range of banking, equipment leasing, fiduciary
and other financial services to its corporate, individual and institutional
customers through four businesses: Key Corporate Capital, Key Consumer Finance,
Key Community Bank and Key Capital Partners. These services are provided across
much of the country through subsidiaries operating 968 full-service banking
offices in 13 states, a 24-hour telephone banking call center services group and
nearly 2,600 automated teller machines ("ATMs") as of December 31, 1998.
Additional information pertaining to the four businesses referred to above is
included in the Line of Business Results section beginning on page 38 and in
Note 4, Line of Business Results, beginning on page 69 of the Financial Review
section of KeyCorp's 1998 Annual Report to Shareholders and is incorporated
herein by reference. The Corporation and its subsidiaries had 25,862 full-time
equivalent employees as of December 31, 1998.
In addition to the customary banking services of accepting deposits and making
loans, subsidiaries of the Corporation provide specialized services, including
personal and corporate trust services, personal financial services, customer
access to mutual funds, cash management services, investment banking and capital
markets products and international banking services. Through its subsidiary
banks, trust companies and registered investment adviser subsidiaries, KeyCorp
provides investment management services to institutional and individual clients,
including large corporate and public retirement plans, foundations and
endowments, high net worth individuals and Taft-Hartley plans (i.e.,
multiemployer trust funds established for providing pension, vacation or other
benefits to employees that are established in accordance with applicable law).
In addition, investment management subsidiaries serve as investment advisers to
KeyCorp's proprietary mutual funds.
KeyCorp provides other financial services both inside and outside of its primary
banking markets through its nonbank subsidiaries. These services include
accident and health insurance on loans made by subsidiary banks, venture
capital, community development financing, securities underwriting and brokerage,
automobile financing and other financial services. KeyCorp is an equity
participant in joint ventures with Integrion Financial Network, L.L.C., which is
building a platform for electronic banking, and Key Merchant Services, L.L.C.,
which provides merchant services to businesses. On February 28, 1999, Electronic
Payment Services, Inc. ("EPS"), an electronic funds transfer processor in which
Key held a 20% ownership interest, merged with a wholly owned subsidiary of
Concord EFS, Inc., a Delaware corporation, with EPS as the surviving
corporation. Key received approximately 5.9 million shares of Concord EFS and
recorded a gain on the transaction.
1
<PAGE> 4
The following financial data is included in the Financial Review section of
KeyCorp's 1998 Annual Report to Shareholders and is incorporated herein by
reference as indicated below:
<TABLE>
<CAPTION>
DESCRIPTION OF FINANCIAL DATA PAGE
----------------------------- ----
<S> <C>
Selected Financial Data..................................... 36
Average Balance Sheets, Net Interest Income and
Yields/Rates.............................................. 40
Components of Net Interest Income Changes................... 42
Composition of Loans........................................ 50
Maturities and Sensitivity of Certain Loans to Changes in
Interest Rates............................................ 51
Securities Available for Sale............................... 52
Investment Securities....................................... 52
Allocation of the Allowance for Loan Losses................. 53
Summary of Loan Loss Experience............................. 54
Summary of Nonperforming Assets and Past Due Loans.......... 55
Maturity Distribution of Time Deposits of $100,000 or
More...................................................... 55
Impaired Loans and Other Nonperforming Assets............... 73
Short-Term Borrowings....................................... 73
</TABLE>
The executive offices of KeyCorp are located at 127 Public Square, Cleveland,
Ohio 44114-1306, and its telephone number is (216) 689-6300.
MERGERS, ACQUISITIONS AND DIVESTITURES
The information presented in Note 3, Mergers, Acquisitions and Divestitures,
beginning on page 68 of the Financial Review section of KeyCorp's 1998 Annual
Report to Shareholders is incorporated herein by reference.
COMPETITION
The market for banking and related financial services is highly competitive.
KeyCorp and its subsidiaries ("Key") compete with other providers of financial
services, such as other bank holding companies, commercial banks, savings
associations, credit unions, mortgage banking companies, finance companies,
mutual funds, insurance companies, investment management firms, investment
banking firms, broker-dealers and a growing list of other local, regional and
national institutions which offer financial services. Key competes by offering
quality products and innovative services at competitive prices.
In recent years, mergers between financial institutions have added competitive
pressure to Key's core banking services. In addition, competition is expected to
intensify as a consequence of interstate banking and branching laws now in
effect which permit banking organizations to expand geographically. See
"Interstate Banking and Branching" and "Financial Modernization Legislation"
herein.
SUPERVISION AND REGULATION
The following discussion addresses certain of the material elements of the
regulatory framework applicable to bank holding companies and their
subsidiaries, and provides certain specific information regarding Key.
Regulation of financial institutions, such as Key, is intended primarily for the
protection of depositors, the deposit insurance funds of the Federal Deposit
Insurance Corporation ("FDIC") and the banking system as a whole, and generally
is not intended for the protection of shareholders or other investors.
In the following discussion, references to statutes and regulations are brief
summaries thereof and are qualified in their entirety by reference to the full
text of such statutes and regulations. In addition, there are other statutes and
regulations not described below that apply to the operation of banking
institutions. Changes in the applicable laws, and in their application by
regulatory agencies, cannot necessarily be predicted, but they may have a
material effect on the business and results of Key.
2
<PAGE> 5
General
As a bank holding company, KeyCorp is subject to regulation, supervision and
examination by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the BHCA. Under the BHCA, bank holding companies
may not, in general, directly or indirectly acquire the ownership or control of
more than 5% of the voting shares, or substantially all of the assets, of any
company, including a bank, without the prior approval of the Federal Reserve
Board. In addition, bank holding companies are generally prohibited under the
BHCA from engaging in commercial or industrial activities.
The Corporation's banking subsidiaries are also subject to extensive regulation,
supervision and examination by applicable Federal banking agencies. KeyCorp
operates two full-service, FDIC-insured national bank subsidiaries, KeyBank
National Association ("KeyBank") and Key Bank USA, National Association
("KeyBank USA"), and six national bank subsidiaries whose activities are limited
to that of a fiduciary. All of KeyCorp's national bank subsidiaries and their
subsidiaries are subject to regulation, supervision and examination by the
Office of the Comptroller of the Currency (the "OCC"). Because the deposits in
KeyBank and KeyBank USA are insured (up to applicable limits) by the FDIC, the
FDIC also has certain regulatory and supervisory authority over both banking
subsidiaries. The Corporation also operates two state-chartered trust company
subsidiaries that are subject to regulation, supervision and examination by
state banking authorities.
The Corporation also has other financial services subsidiaries that are subject
to regulation, supervision and examination by the Federal Reserve Board, as well
as other applicable state and Federal regulatory agencies and self-regulated
organizations. For example, the Corporation's brokerage and asset management
subsidiaries are subject to supervision and regulation by the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc. or the
New York Stock Exchange, and state securities regulators; the Corporation's
insurance subsidiaries are subject to regulation by the insurance regulatory
authorities of the various states. Other nonbank subsidiaries of the Corporation
may be subject to other laws and regulations of both the Federal government and
the various states in which they are authorized to do business.
Dividend Restrictions
The principal source of cash flow to the Corporation, including cash flow to pay
dividends on the Corporation's common shares and debt service on the
Corporation's debt, is dividends from its banking and other subsidiaries.
Various statutory and regulatory provisions limit the amount of dividends that
may be paid to the Corporation by its banking subsidiaries without regulatory
approval.
The approval of the OCC is required for the payment of any dividend by a
national bank if the total of all dividends declared by the board of directors
of such bank in any calendar year would exceed the total of: (i) the bank's net
income for the current year plus (ii) the retained net income (as defined and
interpreted by regulation) for the preceding two years, less any required
transfer to surplus or a fund for the retirement of any preferred stock. In
addition, a national bank can pay dividends only to the extent of its undivided
profits. All of the Corporation's national bank subsidiaries are subject to
these restrictions.
In addition, if, in the opinion of a Federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), the agency may require,
after notice and hearing, that such institution cease and desist from such
practice. The OCC and the FDIC have indicated that paying dividends that would
deplete a depository institution's capital base to an inadequate level would be
an unsafe and unsound practice. Moreover, under the Federal Deposit Insurance
Act (the "FDIA"), an insured depository institution may not pay any dividend if
payment would cause it to become less than "adequately capitalized". See
"Regulatory Capital Standards and Related Matters--Prompt Corrective Action."
The FDIA also prohibits the payment of any dividend while the institution is in
default in the payment of any assessment due to the FDIC. Also, the Federal
Reserve Board, the OCC and the FDIC have issued policy statements which provide
that FDIC-insured depository institutions and their holding companies should
generally pay dividends only out of their current operating earnings.
3
<PAGE> 6
Holding Company Structure
Transactions Involving Banking Subsidiaries. The Corporation's banking
subsidiaries are subject to Federal Reserve Act restrictions which limit the
amount of funds or other items of value that can be transferred from such
subsidiaries to either the Corporation and (with certain exceptions) the
Corporation's nonbanking subsidiaries. Any such loans or extensions of credit
are required to be secured in specified amounts.
Source of Strength Doctrine. Under Federal Reserve Board policy, a bank holding
company is expected to serve as a source of financial and managerial strength to
each of its subsidiary banks and, under appropriate circumstances, to commit
resources to support each such subsidiary bank. This support may be required by
the Federal Reserve Board at times when the Corporation may not have the
resources to provide it, or, for other reasons, would not otherwise be inclined
to provide it. Certain loans by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits in, and certain other indebtedness
of, the subsidiary bank. In addition, the Crime Control Act of 1990 provides
that in the event of a bank holding company's bankruptcy, any commitment by a
bank holding company to a Federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
Depositor Preference. The FDIA provides that, in the event of the "liquidation
or other resolution" of an insured depository institution, the claims of
depositors of such institution (including claims by the FDIC as subrogee of
insured depositors) and certain claims for administrative expenses of the FDIC
as a receiver would be afforded a priority over other general unsecured claims
against such an institution, including Federal funds and letters of credit. If
an insured depository institution fails, insured and uninsured depositors along
with the FDIC will be placed ahead of unsecured, nondeposit creditors, including
a parent holding company, in order of priority of payment.
Liability of Commonly Controlled Institutions. Under the FDIA an insured
depository institution which is under common control with another insured
depository institution is generally liable for any loss incurred, or reasonably
anticipated to be incurred, by the FDIC in connection with the default of such
commonly controlled institution, or any assistance provided by the FDIC to such
commonly controlled institution which is in danger of default. The term
"default" is defined generally to mean the appointment of a conservator or
receiver and the term "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance.
Regulatory Capital Standards and Related Matters
Regulatory Capital. Applicable law and regulation define and prescribe minimum
levels of regulatory capital for bank holding companies and their banking
subsidiaries. Adequacy of regulatory capital is assessed periodically by the
Federal banking agencies in the examination and supervision process, and in the
evaluation of applications in connection with specific transactions and
activities, including acquisitions, expansion of existing activities, and
commencement of new activities.
Bank holding companies are subject to risk-based capital guidelines adopted by
the Federal Reserve Board. These guidelines establish minimum ratios of
qualifying capital to risk-weighted assets. Qualifying capital includes Tier 1
capital and Tier 2 capital. Risk-weighted assets are calculated by assigning
varying risk-weights to broad categories of assets and off-balance-sheet
exposures, based primarily on counterparty credit risk. The required minimum
Tier 1 risk-based capital ratio, calculated by dividing Tier 1 capital by
risk-weighted assets, is currently 4%. The required minimum total risk-based
capital ratio is currently 8%. It is calculated by dividing the sum of Tier 1
capital and Tier 2 capital not in excess of Tier 1 capital, after deductions for
investments in certain subsidiaries and associated companies and for reciprocal
holdings of capital instruments, by risk-weighted assets.
Tier 1 capital includes common equity, qualifying perpetual preferred equity,
and minority interests in the equity accounts of consolidated subsidiaries less
certain intangible assets (including goodwill) and certain other assets. Tier 2
capital includes qualifying hybrid capital instruments, perpetual debt,
mandatory convertible debt securities, perpetual preferred equity not includable
in Tier 1 capital, and limited amounts of term subordinated debt, medium-term
preferred equity, certain unrealized holding gains on certain equity securities,
and the allowance for loan and lease losses.
4
<PAGE> 7
Effective January 1, 1998, the Federal Reserve Board amended its risk-based
capital rules to require banking organizations having relatively large trading
activities (such as Key) to maintain capital for market risk in an amount that
may be calculated by using internal value-at-risk models which meet the
standards prescribed by the rules. Market risk includes changes in the market
value of trading account, foreign exchange, and commodity positions, whether
resulting from broad market movements (such as changes in the general level of
interest rates, equity prices, foreign exchange rates, or commodity prices) or
from position specific factors (such as idiosyncratic variation, event risk, and
default risk). At December 31, 1998, Key's Tier 1 and total capital to risk-
weighted assets ratios were 7.21% and 11.69%, respectively, which include all
required adjustments for market risk.
In addition to the risk-based standard, bank holding companies are subject to
the Federal Reserve Board's leverage ratio guidelines. These guidelines
establish minimum ratios of Tier 1 capital to total assets. The minimum leverage
ratio, calculated by dividing Tier 1 capital by average total consolidated
assets, is 3% for bank holding companies that either have the highest
supervisory rating or have implemented the Federal Reserve Board's risk-based
capital measure for market risk. All other bank holding companies must maintain
a minimum leverage ratio of at least 4%. Neither Key nor any of its banking
affiliates has been advised by its primary Federal banking regulator of any
specific leverage ratio applicable to it. At December 31, 1998, Key's Tier 1
capital leverage ratio was 6.95%.
The Corporation's national bank subsidiaries are also subject to risk-based and
leverage capital requirements adopted by the OCC which are substantially similar
to those imposed by the Federal Reserve Board on bank holding companies. At
December 31, 1998, each of the Corporation's banking subsidiaries had regulatory
capital in excess of all minimum risk-based and leverage capital requirements.
Besides establishing regulatory minimum ratios of capital to assets for all bank
holding companies and their banking subsidiaries, the risk-based and leverage
capital guidelines also identify various organization-specific factors and risks
which are not taken into account in the computation of the capital ratios yet
affect the overall supervisory evaluation of a banking organization's regulatory
capital adequacy and can result in the imposition of higher minimum regulatory
capital ratio requirements upon the particular organization. Neither the Federal
Reserve Board nor the OCC has advised the Corporation or any national bank
subsidiary of the Corporation of any specific minimum risk-based or leverage
capital ratio applicable to the Corporation or such national bank subsidiary.
Amendments were adopted by the Federal Reserve Board and OCC in 1998 to address
the risk-based and leverage capital treatment of (i) mortgage and nonmortgage
servicing assets, purchased credit card relationships, and interest-only strips
receivable on serviced assets and (ii) pretax net unrealized holding gains on
available-for-sale equity securities having readily determinable fair values.
Another amendment adopted by the Federal Reserve Board in 1998 clarified that
all but either the most highly rated bank holding companies or those bank
holding companies which have implemented the Federal Reserve Board's risk-based
capital measure for market risk are subject to a minimum 4% Tier 1 capital
leverage ratio. In March 1999, the OCC adopted its proposed amendment which
similarly clarifies that the same minimum 4% Tier 1 capital leverage ratio
requirement applies to all but the most highly rated national banks. Amendments
proposed in 1997 but not acted upon during 1998 by the Federal Reserve Board and
OCC include proposals to address the risk-based capital treatment of recourse
obligations, direct credit substitutes, and securitized transactions. Finally,
proposals that make uniform the risk-based capital treatment for loans secured
by junior liens on 1-4 family residential properties, construction loans on
presold residential properties, and investments in mutual funds were adopted by
the Federal Reserve Board and OCC in March 1999.
Prompt Corrective Action. The "prompt corrective action" provisions of the FDIA
added by the FDIC Improvement Act ("FDICIA") create a statutory framework that
applies a system of both discretionary and mandatory supervisory actions indexed
to the capital level of FDIC-insured depository institutions. These provisions
impose progressively more restrictive constraints on operations, management, and
capital distributions of the institution as its regulatory capital decreases, or
in some cases, based on supervisory information other than the institution's
capital level. This framework and the authority it confers on the Federal
banking agencies supplements other existing authority vested in such agencies to
initiate supervisory actions to address capital
5
<PAGE> 8
deficiencies. Moreover, other provisions of law and regulation employ regulatory
capital level designations the same as or similar to those established by the
prompt corrective action provisions both in imposing certain restrictions and
limitations and in conferring certain economic and other benefits upon
institutions. These include restrictions on brokered deposits, FDIC deposit
insurance limits on pass-through deposits, limits on exposure to interbank
liabilities, risk-based FDIC deposit insurance premium assessments, and
expedited action upon regulatory applications.
FDIC-insured depository institutions are grouped into one of five prompt
corrective action capital categories -- well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized -- using the Tier 1 risk-based, total risk-based, and Tier 1
leverage capital ratios as the relevant capital measures. An institution is
considered well capitalized if it has a total risk-based capital ratio of at
least 10%, a Tier 1 risk-based capital ratio of at least 6% and a Tier 1
leverage capital ratio of at least 5% and is not subject to any written
agreement, order or capital directive to meet and maintain a specific capital
level for any capital measure. An adequately capitalized institution must have a
total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio
of at least 4% or greater and a Tier 1 leverage capital ratio of at least 4% (3%
if the institution has achieved the highest composite rating in its most recent
examination) and is not well capitalized. At December 31, 1998, each KeyCorp
insured depository institution subsidiary met the requirements for the "well
capitalized" capital category. An institution's prompt corrective action capital
category, however, may not constitute an accurate representation of the overall
financial condition or prospects of the Corporation or its banking subsidiaries,
and should be considered in conjunction with other available information
regarding Key's financial condition and results of operations.
FDIC DEPOSIT INSURANCE AND FINANCING CORPORATION BOND ASSESSMENTS
Since substantially all of the deposits of the Corporation's depository
institution subsidiaries are insured up to applicable limits by the FDIC, these
subsidiaries are subject to deposit insurance premium assessments by the FDIC to
maintain the Bank Insurance Fund (the "BIF") and the Savings Association
Insurance Fund (the "SAIF") of the FDIC. The FDIC has adopted a risk-related
deposit insurance assessment system under which premiums, ranging in 1998 from
zero to $.27 for each $100 of domestic deposits, are imposed based upon the
depository institution's capitalization and Federal supervisory evaluation. Each
of the Corporation's depository institution subsidiaries in 1998 qualified for a
deposit insurance assessment rate of zero. The FDIC is authorized to increase
deposit insurance premium assessments in certain circumstances. Any such
increase would have an adverse effect on Key's earnings.
Beginning in 1997, all BIF-member institutions are required to join with
SAIF-member institutions in servicing the approximately $793 million of annual
interest on 30-year non-callable bonds issued by the Financing Corporation
("FICO") in the late 1980s to fund losses incurred by the former Federal Savings
and Loan Insurance Corporation. FICO bond assessments are separate from and in
addition to deposit insurance premium assessments and, unlike deposit insurance
premium assessments, do not vary with the depository institution's
capitalization and Federal supervisory evaluation. Federal law requires the FICO
assessment rate on BIF assessable deposits to be one-fifth of that imposed on
SAIF assessable deposits through 1999, or until BIF and SAIF are merged,
whichever occurs first, when BIF and SAIF assessable deposits will be assessed
at the same rate. For 1998, the average annualized FICO assessment rates were
$.06105 per $100 of SAIF-assessable deposits and $.01221 per $100 of
BIF-assessable deposits. The 1998 FICO assessment expense to Key was
approximately $6 million.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was enacted into Federal law. The
Interstate Act generally authorizes bank holding companies to acquire banks
located in any state, and also generally permits FDIC-insured banks located in
different states to merge, allowing the resulting institution to operate
interstate branches. In addition, the Interstate Act allows an FDIC-insured bank
to establish (or acquire) and operate a branch in a state in which such bank
does not maintain a branch if that state expressly permits such transactions.
Using the authority conferred by the Interstate Act,
6
<PAGE> 9
during the period from mid-1997 through mid-1998, the number of FDIC-insured
depository institutions operated by the Corporation decreased from thirteen to
two -- KeyBank and KeyBank USA.
FINANCIAL MODERNIZATION LEGISLATION
Congress, the President, the Federal banking agencies and most participants in
the financial services industry have recognized the need for comprehensive
Federal financial modernization legislation which would enhance customer choice
in the financial services marketplace, eliminate anti-competitive regulatory
disparities among financial services providers, and increase competition among
providers of financial services. No such legislation, however, was enacted
during 1998. It is impossible to predict whether or in what form any such
Federal financial modernization legislation may be adopted in the future, and,
if adopted, what its effect will be on Key.
ITEM 2. PROPERTIES
The headquarters of KeyCorp, KeyBank and KeyBank USA are located in Key Tower at
127 Public Square, Cleveland, Ohio 44114-1306. At December 31, 1998, Key leased
approximately 695,000 square feet of the complex, encompassing the first
twenty-three floors, the 28th floor and the 54th through 56th floors of the 57-
story Key Tower. As of the same date, the banking subsidiaries of KeyCorp owned
542 of their branch banking offices and leased 426 offices. The lease terms for
applicable branch banking offices are not individually material, with terms
ranging from month-to-month to 99-year leases from inception. Additional
information pertaining to Key's properties is presented in Note 1, Summary of
Significant Accounting Policies, beginning on page 65 of the Financial Review
section of KeyCorp's 1998 Annual Report to Shareholders and is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, Key is subject to legal actions which
involve claims for substantial monetary relief. Based on information presently
known to management and Key's counsel, management does not believe that there
exists any legal action to which KeyCorp or any of its subsidiaries is a party,
or of which their properties are the subject, that, individually or in the
aggregate, will have a material adverse effect on the financial condition of
Key.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders of KeyCorp.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The dividend restrictions discussion on page 3 of this report and the following
disclosures included in the Financial Review section of KeyCorp's 1998 Annual
Report to Shareholders are incorporated herein by reference:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Discussion of Common Shares and shareholder information
presented in the Capital and Dividends section............ 56
Presentation of quarterly market price and cash dividends
per Common Share.......................................... 58
Discussion of dividend restrictions presented in Note 16,
Commitments, Contingent Liabilities and Other
Disclosures............................................... 79
</TABLE>
7
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data presented on page 36 of the Financial Review section
of KeyCorp's 1998 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations presented on pages 35 through 58 of the Financial Review section of
KeyCorp's 1998 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included in the Market Risk Management section beginning on page
43 of the Financial Review section of KeyCorp's 1998 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Selected Quarterly Financial Data and the financial statements and the notes
thereto, presented on page 58 and on pages 61 through 84, respectively, of the
Financial Review section of KeyCorp's 1998 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in the sections captioned
"Issue One -- ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS" contained in
KeyCorp's definitive Proxy Statement for the 1999 Annual Meeting of Shareholders
to be held May 20, 1999, and is incorporated herein by reference. KeyCorp
expects to file its final proxy statement on or before April 15, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the sections captioned
"THE BOARD OF DIRECTORS AND ITS COMMITTEES," "COMPENSATION OF EXECUTIVE
OFFICERS" and "EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS" contained in
KeyCorp's definitive Proxy Statement for the 1999 Annual Meeting of Shareholders
to be held May 20, 1999, and is incorporated herein by reference. The
information set forth in the sections captioned "COMPENSATION AND ORGANIZATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION" and "KEYCORP STOCK PRICE
PERFORMANCE" contained in KeyCorp's definitive Proxy Statement for the 1999
Annual Meeting of Shareholders to be held May 20, 1999, is not incorporated by
reference in this Report on Form 10-K. KeyCorp expects to file its final proxy
statement on or before April 15, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the section captioned
"SHARE OWNERSHIP AND PHANTOM STOCK UNITS" contained in KeyCorp's definitive
Proxy Statement for the 1999 Annual Meeting of Shareholders to be held May 20,
1999, and is incorporated herein by reference. KeyCorp expects to file its final
proxy statement on or before April 15, 1999.
8
<PAGE> 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the section captioned
"Issue One -- ELECTION OF DIRECTORS" contained in KeyCorp's definitive Proxy
Statement for the 1999 Annual Meeting of Shareholders to be held May 20, 1999,
and is incorporated herein by reference. KeyCorp expects to file its final proxy
statement on or before April 15, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements of KeyCorp and its subsidiaries, and the
auditor's report thereon, are incorporated herein by reference to the pages
indicated in the Financial Review section of KeyCorp's 1998 Annual Report to
Shareholders:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors......... 60
Consolidated Balance Sheets at December 31, 1998 and
1997................................................... 61
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996....................... 62
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996... 63
Consolidated Statements of Cash Flow for the Years Ended
December 31, 1998, 1997 and 1996....................... 64
Notes to Consolidated Financial Statements................ 65
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules for KeyCorp and its subsidiaries have been
included in the consolidated financial statements or the related footnotes, or
they are either inapplicable or not required.
(a)(3) EXHIBITS*
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation of KeyCorp
filed as Exhibit 3 to Form 10-Q for the quarter ended
September 30, 1998, and incorporated herein by reference.
3.2 Amended and Restated Regulations of KeyCorp, effective May
15, 1997, filed on June 19, 1997, as Exhibit 2 to Form
8-A/A, and incorporated herein by reference.
4.1 Restated Rights Agreement, dated as of May 15, 1997, between
KeyCorp and KeyBank National Association, as Rights Agent,
filed on June 19, 1997, as Exhibit 1 to Form 8-A, and
incorporated herein by reference.
10.1 KeyCorp Short-Term Incentive Compensation Plan (January 1,
1997 Restatement) filed as Exhibit 10.1 to Form 10-K for the
year ended December 31, 1996, and incorporated herein by
reference.
10.2 KeyCorp Long-Term Cash Incentive Compensation Plan (January
1, 1997 Restatement) filed as Exhibit 10.2 to Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
10.3 KeyCorp Long-Term Incentive Plan (January 1, 1998) filed as
Exhibit 10.3 to Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
</TABLE>
9
<PAGE> 12
<TABLE>
<C> <S>
10.4 KeyCorp Annual Incentive Plan (January 1, 1998) filed as
Exhibit 10.4 to Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
10.5 Form of Change of Control Agreements between KeyCorp and
certain executive officers of KeyCorp, effective November
20, 1997, filed as Exhibit 10.5 to Form 10-K for the year
ended December 31, 1997, and incorporated herein by
reference.
10.6 Form of Stock Performance Option Grants between KeyCorp and
certain executive officers of KeyCorp, dated January 15,
1997, filed as Exhibit 10.35 to Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
10.7 Form of Stock Performance Option Grants between KeyCorp and
Robert W. Gillespie, dated January 2, 1998, filed as Exhibit
10.7 to Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference.
10.8 Amended and Restated Employment Agreement between KeyCorp
and Robert W. Gillespie, effective November 21, 1996, filed
as Exhibit 10.33 to Form 10-K for the year ended December
31, 1996, and incorporated herein by reference.
10.9 Employment Agreement between KeyCorp and Henry L. Meyer III,
dated May 5, 1997, filed as Exhibit 10.1 to Form 10-Q for
the quarter ended June 30, 1997, and incorporated herein by
reference.
10.10 First Amendment to Amended and Restated Employment Agreement
between KeyCorp and Robert W. Gillespie, dated December 7,
1998.
10.11 Amendment to Employment Agreement between KeyCorp and Henry
L. Meyer III, dated November 20, 1997, filed as Exhibit
10.10 to Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference.
10.12 Letter Agreement between KeyCorp and Thomas C. Stevens,
dated May 10, 1996, as amended April 7, 1997, filed as
Exhibit 10.12 to Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
10.13 Employment Agreement between KeyCorp and William B. Summers,
Jr., dated October 23, 1998.
10.14 Society Corporation 1984 Stock Option Plan, as amended,
filed as Exhibit 10.14 to Form 10-K for the year ended
December 31, 1995, and incorporation herein by reference.
10.15 Society Corporation 1988 Stock Option Plan, amended as of
September 19, 1996, filed as Exhibit 10.11 to Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
10.16 KeyCorp Directors' Stock Option Plan (November 17, 1994
Restatement) filed as Exhibit 10.37 to Form 10-K for the
year ended December 31, 1994, and incorporated herein by
reference.
10.17 KeyCorp 1988 Stock Option Plan as Amended and Restated as of
September 19, 1996, filed as Exhibit 10.20 to Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
10.18 KeyCorp 1997 Stock Option Plan for Directors, effective
January 16, 1997, filed as Exhibit 10.17 to Form 10-K for
the year ended December 31, 1997, and incorporated herein by
reference.
10.19 First Amendment to KeyCorp 1997 Stock Option Plan for
Directors, dated November 19, 1997, filed as Exhibit 10.18
to Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference.
10.20 Trust Agreement for certain amounts that may become payable
to certain executive officers and directors of KeyCorp,
dated April 1, 1997, filed as Exhibit 10.2 to Form 10-Q for
the quarter ended June 30, 1997, and incorporated herein by
reference.
</TABLE>
10
<PAGE> 13
<TABLE>
<C> <S>
10.21 Trust Agreement (Executive Benefits Rabbi Trust), dated
November 3, 1988, filed as Exhibit 10.20 to Form 10-K for
the year ended December 31, 1995, and incorporated herein by
reference.
10.22 KeyCorp Umbrella Trust for Executives, between KeyCorp and
National Bank of Detroit, dated July 1, 1990, filed as
Exhibit 10.27 to Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
10.23 KeyCorp Umbrella Trust for Directors, between KeyCorp and
National Bank of Detroit, dated July 1, 1990, filed as
Exhibit 10.28 to Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
10.24 Amended and Restated Director Deferred Compensation Plan
(May 6, 1998 Amendment and Restatement) filed as Exhibit 10
to Form 10-Q for the quarter ended September 30, 1998, and
incorporated herein by reference.
10.25 KeyCorp Directors' Survivor Benefit Plan, effective
September 1, 1990, filed as Exhibit 10.25 to Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
10.26 KeyCorp Supplemental Retirement Benefit Plan, effective
January 1, 1981, restated August 16, 1990, amended January
1, 1995, and August 1, 1996.
10.27 KeyCorp Executive Supplemental Pension Plan, amended,
restated and effective August 1, 1996, filed as Exhibit
10.29 to Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference.
10.28 KeyCorp Amended and Restated 1991 Equity Compensation Plan
(Amended as of May 6, 1998). The Amendment filed as Exhibit
10 to Form 10-Q for the quarter ended June 30, 1998, and
incorporated herein by reference.
10.29 First Amendment to KeyCorp Executive Supplemental Pension
Plan, effective January 1, 1997, filed as Exhibit 10.27 to
Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference.
10.30 KeyCorp Supplemental Retirement Benefit Plan for Key
Executives, effective July 1, 1990, restated August 16,
1990, amended as of January 1, 1995, and August 1, 1996,
filed as Exhibit 10.26 to Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
10.31 KeyCorp Excess 401(k) Savings Plan (Amended and Restated as
of January 1, 1998).
10.32 KeyCorp Survivor Benefit Plan, effective September 1, 1990,
filed as Exhibit 10.24 to Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
10.33 KeyCorp Supplemental Retirement Plan, amended, restated and
effective August 1, 1996, filed as Exhibit 10.32 to Form
10-K for the year ended December 31, 1997, and incorporated
herein by reference.
10.34 KeyCorp Excess Cash Balance Pension Plan (Amended and
Restated as of January 1, 1998).
10.35 KeyCorp Universal Life Insurance Plan filed as Exhibit 10.15
to Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference.
10.36 KeyCorp Supplemental Long-Term Disability Plan filed as
Exhibit 10.15 to Form 10-K for the year ended December 31,
1993, and incorporated herein by reference.
10.37 Old KeyCorp Supplemental Disability Plan (Specimen Document)
filed as Exhibit 10.17 to Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
10.38 KeyCorp Deferred Compensation Plan (Amended and Restated as
of January 1, 1998).
10.39 McDonald & Company Investments, Inc. Stock Option Plan.
10.40 McDonald & Company Investments, Inc. 1995 Key Employees
Stock Option Plan.
</TABLE>
11
<PAGE> 14
<TABLE>
<C> <S>
12 Statement re: Computation of Ratios.
13 KeyCorp 1998 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
The Corporation hereby agrees to furnish the Securities and Exchange Commission
upon request, copies of instruments outstanding, including indentures, which
define the rights of long-term debt security holders.
All documents listed as Exhibits 10.1 through 10.40 constitute management
contracts or compensatory plans or arrangements.
* Copies of these Exhibits have been filed with the Securities and Exchange
Commission. Shareholders may obtain a copy of any exhibit, upon payment of
reproduction costs, by writing KeyCorp Investor Relations, at 127 Public
Square (Mail Code OH-01-27-1113), Cleveland, OH 44114-1306.
(b) REPORTS ON FORM 8-K
October 16, 1998 -- The Registrant's October 15, 1998, press release announcing
its earnings results for the three-month and nine-month periods ended September
30, 1998.
No other reports on Form 8-K were filed during the fourth quarter of 1998.
12
<PAGE> 15
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTIONS 13 OR 15(d) 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, ON THE DATE INDICATED.
KEYCORP
/S/ THOMAS C. STEVENS
--------------------------------------
THOMAS C. STEVENS
Senior Executive Vice President,
General Counsel and Secretary
March 18, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Robert W. Gillespie Chairman, Chief
Executive Officer
(Principal Executive
Officer) and
Director
* K. Brent Somers Senior Executive
Vice President and
Chief Financial
Officer (Principal
Financial Officer)
* Lee G. Irving Executive Vice
President and Chief
Accounting Officer
(Principal
Accounting Officer)
* Cecil D. Andrus Director
* William G. Bares Director
* Albert C. Bersticker Director
* Edward P. Campbell Director
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Thomas A. Commes Director
* Kenneth M. Curtis Director
* John C. Dimmer Director
* Stephen R. Hardis Director
* Henry S. Hemingway Director
* Charles R. Hogan Director
* Douglas J. McGregor Director
* Henry L. Meyer III President, Chief
Operating Officer
and Director
* Steven A. Minter Director
* M. Thomas Moore Director
* Richard W. Pogue Director
* Ronald B. Stafford Director
* Dennis W. Sullivan Director
* Peter G. Ten Eyck, II Director
</TABLE>
/s/ Thomas C. Stevens
* By Thomas C. Stevens,
attorney-in-fact
March 18, 1999
13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>2
<DESCRIPTION>EXHIBIT 10.10
<TEXT>
<PAGE> 1
EXHIBIT 10.10
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN KEYCORP AND ROBERT W. GILLESPIE
THIS FIRST AMENDMENT is made this 7th day of December, 1998, and amends the
Amended and Restated Employment Agreement dated as of November 21, 1996 (the
"Agreement"), between KEYCORP ("Key"), and ROBERT W. GILLESPIE ("Gillespie").
W I T N E S S E T H:
WHEREAS, Key and Gillespie desire to amend the Agreement in the following
respects: (a) payments to be made in the event of Gillespie's death during the
Supplemental Term, (b) Gillespie's agreement not to compete with Key, (c) a
formal mechanism for instituting negotiation of an extension of the term of the
Agreement, (d) treatment, for purposes of the KeyCorp Deferred Compensation
Plan, of termination of employment at or after the end of the Scheduled Term as
retirement by Gillespie at greater than age 65, and (e) miscellaneous and
conforming changes;
NOW, THEREFORE, Key and Gillespie, in consideration of the promises and
mutual covenants contained in the Agreement and in this Amendment, hereby agree
as follows (certain terms used in and not otherwise defined in this Amendment
have the meanings assigned to them in the Agreement):
1. Effect of Death During Supplemental Term. If Gillespie dies during the
Supplemental Term and at a time when he is entitled to receive semimonthly
compensation continuation payments under any of Sections 6.1, 8.1, 9.1, or 11.3
of the Agreement, (a) Key shall not make any further semimonthly compensation
continuation payments to or on account of Gillespie for any period after the
date of his death, and (b) if Gillespie's wife survives him, Key shall pay to
her, during her lifetime, such amounts so that she receives the same retirement
benefit, under Section 17.1 of the Agreement and any plans referred to therein,
as she would have been entitled to receive, under Section 17.1 of the Agreement
and any plans referred to therein, had Gillespie (i) been actively employed by
Key through the day immediately before the date of his death, (ii) retired on
that day (such retirement for these purposes not constituting a Voluntary
Resignation or termination for Cause under clauses (a) or (b) of Section 17.1),
and (iii) elected a 100% joint and survivor retirement benefit.
2. Noncompetition. From the date of this Amendment through March 26, 2009
(Gillespie's 65th birthday) and thereafter for so long as he is entitled to
receive either (a) semimonthly compensation continuation payments under any of
Sections 6.1, 8.1, 9.1, or 11.3 of the Agreement or (b) retirement benefits
under Section 17 of the Agreement, Gillespie shall not engage, without the
consent of Key, in any business or business activity in which Key or any of its
Subsidiaries engages, including, without limitation, any business activity in
the banking or financial services industry (other than as a director, officer,
or employee of Key or any of its Subsidiaries or of another entity while serving
at the request of Key or any of its Subsidiaries). If Gillespie continues to
violate the restriction set forth in this Section 2 for 30 days after the
Compensation and
<PAGE> 2
Organization Committee of the Board of Directors or its successor (the "C&O
Committee") has advised him in writing to cease those activities and the
continuing violation is not inconsequential, (x) Key shall thereupon be relieved
of all further obligations to make payments and provide benefits to or with
respect to Gillespie under any of the provisions of the Agreement (but no
termination of the Agreement shall affect Gillespie's rights under any plan or
benefit of Key, all of which shall be governed by their respective terms) and
(y) in addition to all other remedies to which it may be entitled, Key shall be
entitled to an injunction and other equitable relief to restrain Gillespie from
further violation of that restriction.
3. Formal Mechanism for Instituting Negotiation of an Extension. Either
Gillespie or Key may notify the other in writing, at any time on or before
December 31, 1999, that he or it desires to enter into negotiations with the
other to determine whether they can reach a mutually satisfactory agreement for
the extension of Gillespie's active employment with Key beyond the date of Key's
2000 Annual Meeting (which is the end of the Scheduled Term). If either party
delivers such a notice to the other, the parties will endeavor in good faith to
reach a determination as to whether or not the term of Gillespie's active
employment with Key will be extended and, if so, for what period and on what
terms, by not later than the 90th day after the date on which the notice is
delivered. Any such notice by Gillespie to Key shall be made to the Chair of the
C&O Committee. Any such notice by Key to Gillespie shall be made by the Chair of
the C&O Committee.
4. Treat Termination of Employment at or after End of Scheduled Term as
Retirement at Greater than Age 65 for Purposes of Deferred Compensation Plan. If
Gillespie's employment with Key terminates for any reason other than (a)
Voluntary Resignation that is effective before the end of the Scheduled Term,
(b) Cause, or (c) death or disability, for purposes of the KeyCorp Deferred
Compensation Plan or any successor or similar plan, Gillespie shall be treated
as though, on the Termination Date, he (a) had retired and (b) was more than 65
years of age.
5. Conforming Edits. This Amendment is intended to alter the provisions
of the Agreement to the extent necessary to give effect to Sections 1, 2, 3, and
4 hereof. In order to conform the Agreement to this Amendment and to effect
certain other miscellaneous changes, the specific amendments set forth on the
Appendix to this Amendment are hereby made to the Agreement, effective as of the
time of execution of this Amendment.
KEYCORP
By /s/ Thomas C. Stevens
-----------------------------------------
Thomas C. Stevens, Senior Executive Vice
President, General Counsel, and Secretary
/s/ Robert W. Gillespie
--------------------------------------------
ROBERT W. GILLESPIE
FINAL
<PAGE> 3
APPENDIX
TO
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN KEYCORP AND ROBERT W. GILLESPIE
To conform the Agreement to the Amendment, and to make certain miscellaneous
changes, the following specific amendments to the Agreement are hereby made:
1. Section 1.7 is hereby restated to read, in its entirety, as follows:
"1.7 Competitive Activity. Gillespie shall be deemed to have engaged
in "Competitive Activity" if he engages, without the consent of Key, in any
business or business activity in which Key or any of its Subsidiaries
engages, including, without limitation, engaging in any business activity
in the banking or financial services industry (other than as a director,
officer, or employee of Key or any of its Subsidiaries or of another entity
while serving at the request of Key or any of its Subsidiaries)."
2. Section 1.8, previously containing a definition of the term "Competitive
Activity (Before Termination Date)," is hereby deleted.
3. Section 1.12, previously containing a definition of the term "Financial
Services Company," is hereby deleted.
4. Section 1.18 is hereby amended by adding the following sentence at the end
thereof:
"Without limiting the foregoing definition, it is acknowledged that Key's
Long Term Incentive Plan, effective as of January 1, 1998, is a successor
to the KeyCorp Long Term Cash Incentive Compensation Plan."
5. Section 1.19, previously containing a definition of the term "Restricted
State," is hereby deleted.
6. Section 1.23 is hereby amended by adding the following sentence at the end
thereof:
"Without limiting the foregoing definition, it is acknowledged that Key's
Annual Incentive Plan, effective as of January 1, 1998, is a successor to
the KeyCorp Short Term Incentive Compensation Plan."
7. Section 1.25 is hereby restated to read, in its entirety, as follows:
"1.25 Supplemental Term. The term "Supplemental Term" shall mean the
period commencing on the day after the last day of the Scheduled Term and
ending on the first to occur of (a) the second anniversary of the last day
of the Scheduled Term or (b) the date of Gillespie's death."
A-1
<PAGE> 4
8. Section 6 is hereby amended by deleting the phrase (which appears immediately
before Section 6.1) "Key shall pay and provide the following amounts and
benefits to Gillespie:" and substituting in its place the following language:
"Key shall, subject to Section 14.3 of this Agreement, pay and provide the
following amounts and benefits to Gillespie:"
9. Section 6.1 is hereby amended by deleting therefrom the last three sentences
and inserting in their place the following sentences:
"If Gillespie dies after becoming entitled to payments under this Section
6.1 but before the second anniversary of the end of the Scheduled Term, (x)
Key shall not make any further semimonthly compensation continuation
payments to or on account of Gillespie for any period after the date of his
death, and (y) if Gillespie's wife survives him, Key shall pay to her,
during her lifetime, such amounts so that she receives the same retirement
benefit, under Section 17.1 of this Agreement and any plans referred to
therein, as she would have been entitled to receive, under Section 17.1 of
this Agreement and any plans referred to therein, had Gillespie (i) been
actively employed by Key through the day immediately before the date of his
death, (ii) retired on that day (such retirement for these purposes will
not be considered a Voluntary Resignation or termination for Cause under
clauses (a) or (b) of Section 17.1), and (iii) elected a 100% joint and
survivor retirement benefit. The amounts payable to Gillespie for any month
under this Section 6.1 shall be reduced, but not below zero, by the full
amount of the payments, if any, received by Gillespie for that month from
all Retirement Plans."
10. Section 6.2 is hereby amended by adding at the end thereof the following
sentence:
"If Gillespie dies before the second anniversary of the end of the
Scheduled Term, Key shall continue to provide to his wife, through that
second anniversary, medical benefits (including, if applicable, dental) at
substantially the same level of coverage, and subject to the same (by
dollar amount) employee contribution requirement (if any), as those which
she was receiving as Gillespie's wife immediately before Gillespie's
death."
11. Section 6.3 is hereby amended as follows:
(a) by deleting at the beginning thereof "For the period beginning on the
first day of the Supplemental Term and ending on the earlier of (a)
the last day of the Supplemental Term, or (b) the date of Gillespie's
death" and substituting in its place, "For the period beginning on
the first day of the Supplemental Term and ending the last day of the
Supplemental Term",
(b) by deleting in the third sentence thereof the phrase "but in lieu
thereof" and substituting in its place the following language: " but
in lieu thereof, except as otherwise provided in the last sentence of
this Section 6.3 (which is intended to prevent a double benefit),"
and
(c) by adding at the end thereof the following sentence:
A-2
<PAGE> 5
"If and to the extent that (m) participation in one or more Retirement
Plans during the Section 6.3 Benefit Period is Impermissible, (n)
participation in one or more other Retirement Plans is not Impermissible,
and (o) as a result of the interplay of one or more Retirement Plans
described in clause (m) with one or more Retirement Plans described in
clause (n) (taking into account the application, if any, of Section 17.1 of
this Agreement), Gillespie does not suffer a loss of economic benefit by
reason of participation in one or more of the Retirement Plans described in
clause (m) being Impermissible, then, and to that extent, no lump sum
payment shall be made to Gillespie under this Section 6.3."
12. Section 8 is hereby amended by deleting the phrase (which appears
immediately before Section 8.1) "Key shall pay and provide the following amounts
and benefits to Gillespie:" and substituting in its place the following
language:
"Key shall, subject to Section 14.3 of this Agreement, pay and provide the
following amounts and benefits to Gillespie:"
13. Section 8.1 is hereby amended by deleting therefrom the last three sentences
and inserting in their place the following sentences:
"If Gillespie dies after becoming entitled to payments under this Section
8.1 but before the second anniversary of the end of the Scheduled Term, (x)
Key shall not make any further semimonthly compensation continuation
payments to or on account of Gillespie for any period after the date of his
death, and (y) if Gillespie's wife survives him, Key shall pay to her,
during her lifetime, such amounts so that she receives the same retirement
benefit, under Section 17.1 of this Agreement and any plans referred to
therein, as she would have been entitled to receive, under Section 17.1 of
this Agreement and any plans referred to therein, had Gillespie (i) been
actively employed by Key through the day immediately before the date of his
death, (ii) retired on that day (such retirement for these purposes will
not be considered a Voluntary Resignation or termination for Cause under
clauses (a) or (b) of Section 17.1), and (iii) elected a 100% joint and
survivor retirement benefit. The amounts payable to Gillespie for any month
under this Section 8.1 shall be reduced, but not below zero, by the full
amount of the payments, if any, received by Gillespie for that month from
all Retirement Plans."
14. Section 8.2 is hereby amended by adding at the end thereof the following
sentence:
"If Gillespie dies before the second anniversary of the end of the
Scheduled Term, Key shall continue to provide to his wife, through that
second anniversary, medical benefits (including, if applicable, dental) at
substantially the same level of coverage, and subject to the same (by
dollar amount) employee contribution requirement (if any), as those which
she was receiving as Gillespie's wife immediately before Gillespie's
death."
A-3
<PAGE> 6
15. Section 8.3 is hereby amended by deleting in the third sentence thereof the
phrase "but in lieu thereof" and substituting in its place the following
language: " but in lieu thereof, except as otherwise provided in the last
sentence of this Section 8.3 (which is intended to prevent a double benefit),"
and by adding at the end of Section 8.3 the following sentence:
"If and to the extent that (m) participation in one or more Retirement
Plans during the Section 8.3 Benefit Period is Impermissible, (n)
participation in one or more other Retirement Plans is not Impermissible,
and (o) as a result of the interplay of one or more Retirement Plans
described in clause (m) with one or more Retirement Plans described in
clause (n) (taking into account the application, if any, of Section 17.1 of
this Agreement), Gillespie does not suffer a loss of economic benefit by
reason of participation in one or more of the Retirement Plans described in
clause (m) being Impermissible, then, and to that extent, no lump sum
payment shall be made to Gillespie under this Section 8.3."
16. Section 9 is hereby amended by deleting the phrase (which appears
immediately before Section 9.1) "Key shall pay and provide the following amounts
and benefits to Gillespie:" and substituting in its place the following
language:
"Key shall, subject to Section 14.3 of this Agreement, pay and provide the
following amounts and benefits to Gillespie:"
17. Section 9.1 is hereby amended by deleting therefrom the last three sentences
and inserting in their place the following sentences:
"If Gillespie dies after becoming entitled to payments under this Section
9.1 but before the second anniversary of the end of the Scheduled Term, (x)
Key shall not make any further semimonthly compensation continuation
payments to or on account of Gillespie for any period after the date of his
death, and (y) if Gillespie's wife survives him, Key shall pay to her,
during her lifetime, such amounts so that she receives the same retirement
benefit, under Section 17.1 of this Agreement and any plans referred to
therein, as she would have been entitled to receive, under Section 17.1 of
this Agreement and any plans referred to therein, had Gillespie (i) been
actively employed by Key through the day immediately before the date of his
death, (ii) retired on that day (such retirement for these purposes will
not be considered a Voluntary Resignation or termination for Cause under
clauses (a) or (b) of Section 17.1), and (iii) elected a 100% joint and
survivor retirement benefit. The amounts payable to Gillespie for any month
under this Section 9.1 shall be reduced, but not below zero, by the full
amount of the payments, if any, received by Gillespie for that month from
all Retirement Plans."
18. Section 9.2 is hereby amended by adding at the end thereof the following
sentence:
"If Gillespie dies before the second anniversary of the end of the
Scheduled Term, Key shall continue to provide to his wife, through that
second anniversary, medical benefits (including, if applicable, dental) at
substantially the same level of coverage, and subject to the same (by
dollar amount) employee contribution requirement (if any), as those which
she was receiving as Gillespie's wife immediately before Gillespie's
death."
A-4
<PAGE> 7
19. Section 9.3 is hereby amended by deleting in the third sentence thereof the
phrase "but in lieu thereof" and substituting in its place the following
language: " but in lieu thereof, except as otherwise provided in the last
sentence of this Section 9.3 (which is intended to prevent a double benefit),"
and by adding at the end of Section 9.3 the following sentence:
"If and to the extent that (m) participation in one or more Retirement
Plans during the Section 9.3 Benefit Period is Impermissible, (n)
participation in one or more other Retirement Plans is not Impermissible,
and (o) as a result of the interplay of one or more Retirement Plans
described in clause (m) with one or more Retirement Plans described in
clause (n) (taking into account the application, if any, of Section 17.1 of
this Agreement), Gillespie does not suffer a loss of economic benefit by
reason of participation in one or more of the Retirement Plans described in
clause (m) being Impermissible, then, and to that extent, no lump sum
payment shall be made to Gillespie under this Section 9.3."
20. Section 11.3 is hereby amended by deleting in the first sentence thereof the
phrase "Key shall pay to Gillespie semimonthly compensation continuation
payments:" and substituting in its place the following language:
"Key shall, subject to Section 14.3 of this Agreement, pay to Gillespie
semimonthly compensation continuation payments:"
21. Section 14 is hereby restated to read, in its entirety, as follows:
"14. Limitations on Competition.
"14.1 Gillespie shall not engage in any Competitive Activity at any
time before March 26, 2009 (his 65th birthday).
"14.2 Gillespie shall not engage in any Competitive Activity during
any period after March 26, 2009 (his 65th birthday) during which he is
receiving semimonthly compensation continuation payments under any of
Sections 6.1, 8.1, 9.1, or 11.3 of this Agreement or retirement benefits
under Section 17 of this Agreement.
"14.3 If Gillespie continues to violate the restriction set forth in
Section 14.1 or 14.2 for 30 days after the Board of Directors has advised
him in writing to cease those activities and the continuing violation is
not inconsequential,
"(a) Key shall thereupon be relieved of all further obligations
to make payments and provide benefits to Gillespie under any of the
provisions contained in any of Sections 6, 7, 8, 9, 11, and/or 17 of
this Agreement (Gillespie shall not be required to repay to Key any
payment received by him before he began to engage in any such
Competitive Activity), and
A-5
<PAGE> 8
"(b) in addition to all other remedies to which it may be
entitled, Key shall be entitled to an injunction and other equitable
relief to restrain Gillespie from further violation of that
restriction."
22. Section 15 is hereby amended by deleting in the first sentence thereof the
phrase "one-third of the monthly amount Gillespie or his wife or his estate
would receive under Section 8.1" and substituting in its place the following
language: "one-third of the monthly amount Gillespie would receive under Section
8.1".
23. Section 17.1 is hereby amended by deleting the phrase "Key shall pay to
Gillespie:" and substituting in its place the following language:
"Key shall, subject to Section 14.3 of this Agreement, pay to Gillespie"
24. Section 17.2 is hereby amended by deleting the phrase "Key shall pay to
Gillespie:" and substituting in its place the following language:
"Key shall, subject to Section 14.3 of this Agreement, pay to Gillespie"
25. Section 18 is hereby restated to read, in its entirety, as follows:
18. Long Term and Short Term Incentive Compensation Plan; Deferred
Compensation Plan. If Gillespie's employment with Key terminates for any
reason other than (a) Voluntary Resignation that is effective before the
end of the Scheduled Term, (b) Cause, or (c) death or disability, for
purposes of the KeyCorp Deferred Compensation Plan (and any successor or
similar plan) and for purposes of determining Gillespie's rights to awards
under the Long Term Incentive Compensation Plan and the Short Term
Incentive Compensation Plan, Gillespie shall be treated as though, on the
Termination Date, he (a) had retired and (b) was more than 65 years of age.
26. Section 22 is amended by adding at the end thereof, immediately before the
final period, the following language:
"and the provisions of Sections 14.1 and 14.3 shall continue to be
applicable"
* * *
A-6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>3
<DESCRIPTION>EXHIBIT 10.13
<TEXT>
<PAGE> 1
EXHIBIT 10.13
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23rd day of October, 1998,
between KEYCORP, an Ohio corporation ("Key"), and WILLIAM B. SUMMERS, JR. (the
"Executive").
Key is entering into this Agreement in recognition of the importance of the
Executive's services to the continuity of management of Key and based upon its
determination that it will be in the best interests of Key and its Subsidiaries
to encourage the Executive's continued attention and dedication to the
Executive's duties in the potentially disruptive circumstances of a possible
Change of Control of Key. (As used in this Agreement, the terms "Subsidiaries"
and "Change of Control" and certain other capitalized terms have the meanings
ascribed to them in Section 7, at the end of this Agreement.)
Key and the Executive agree, effective as of the date first set forth
above, as follows:
1. BASIC SEVERANCE BENEFITS. The benefits described in Sections 1.1,
1.2, and 1.3 below are subject to the limitations set forth in Sections 4.1
(which requires an election among applicable agreements providing severance
benefits if more than one such agreement would apply in the particular
circumstances of the termination of the Executive's employment and stipulates
that any payments received under this Agreement are in lieu of other claims or
rights), 4.2 (regarding withholding), and 4.3 (requiring the execution of a
waiver and release by the Executive).
1.1 IF EMPLOYMENT IS TERMINATED WITHOUT CAUSE, ETC., WITHIN TWO YEARS OF
A CHANGE OF CONTROL. If, within two years following the occurrence of a Change
of Control, the Executive's employment with Key and its Subsidiaries is
terminated by Key or its Subsidiary for any reason other than Cause, Disability,
or death or by the Executive after a Reduction of Base Salary or a Mandatory
Relocation has occurred:
(a) LUMP SUM PAYMENT. Key shall pay to the Executive, within 30 business
days after the Termination Date, a lump sum severance benefit equal
to 2 1/2 times the sum of (i) one year's Base Salary (at the highest
rate in effect at any time during the one year period ending on the
date of the Change of Control) plus (ii) Average Annual Incentive
Compensation; and
(b) RETIREMENT AND SAVINGS PLANS. Effective as of the Termination Date,
the Executive's interest in all Relevant Plans shall become fully
vested and nonforfeitable and the Executive's right to and interest
in all subsequent accruals provided for in the remainder of this
Section 1.1(b) under any of the Relevant Plans shall also be fully
vested and nonforfeitable. For the period beginning on the day after
the Termination Date and ending thirty months, to the day, after the
Termination Date (the "Section 1.1 Benefit Period"), Key shall cause
the Executive to continue to be covered by and to participate in all
of the Relevant Plans in the same manner and to the same extent as if
the Executive continued in the full-time
<PAGE> 2
employ of Key throughout the Section 1.1 Benefit Period, except that,
if Key determines that such coverage or participation in any one or
more of the Relevant Plans is Impermissible, the Executive shall
continue to be covered by and participate as aforesaid in all of the
Relevant Plans as to which such coverage or participation is not
Impermissible and, with respect to each Relevant Plan as to which
such continued coverage or participation is Impermissible, Section
1.4(b) shall apply. With respect to each Discontinued Plan, Section
1.4(c) shall apply.
1.2 IF EMPLOYMENT IS TERMINATED BY EXECUTIVE FOR GOOD REASON DURING A
WINDOW PERIOD. Except as provided in the last sentence of this Section 1.2, if
the Executive's employment with Key and its Subsidiaries is terminated by the
Executive for Good Reason during a Window Period:
(a) LUMP SUM PAYMENT. Key shall pay to the Executive, within 30 business
days after the Termination Date, a lump sum severance benefit equal
to one and one half times the sum of (i) one year's Base Salary (at
the highest rate in effect at any time during the one year period
ending on the date of the Change of Control) plus (ii) Average Annual
Incentive Compensation, and
(b) RETIREMENT AND SAVINGS PLANS. Effective as of the Termination Date,
the Executive's interest in all Relevant Plans shall become fully
vested and nonforfeitable and the Executive's right to and interest
in all subsequent accruals provided for in the remainder of this
Section 1.2(b) under any of the Relevant Plans shall also be fully
vested and nonforfeitable. For the period beginning on the day after
the Termination Date and ending eighteen months, to the day, after
the Termination Date (the "Section 1.2 Benefit Period"), Key shall
cause the Executive to continue to be covered by and to participate
in all of the Relevant Plans in the same manner and to the same
extent as if the Executive continued in the full-time employ of Key
throughout the Section 1.2 Benefit Period, except that, if Key
determines that such coverage or participation in any one or more of
the Relevant Plans is Impermissible, the Executive shall continue to
be covered by and participate as aforesaid in all of the Relevant
Plans as to which such coverage or participation is not Impermissible
and, with respect to each Relevant Plan as to which such continued
coverage or participation is Impermissible, Section 1.4(b) shall
apply. With respect to each Discontinued Plan, Section 1.4(c) shall
apply.
This Section 1.2 shall not apply if, at the Termination Date, (x) there has been
either any Reduction of Base Salary or any Mandatory Relocation (in which event
Section 1.1 would apply to the termination) or (y) Key or any Subsidiary has
Cause to terminate the Executive's employment (in which case no lump sum
severance benefit would be payable under either of Sections 1.1 or 1.2).
1.3 PAYMENT OF COST OF COBRA HEALTH BENEFITS. If the Executive becomes
entitled to payment of a lump sum severance benefit under either of Sections 1.1
or 1.2 of this Agreement and the Executive elects to continue to receive health
benefits pursuant to an election that Key or any Subsidiary is required to
provide to the Executive in order to comply with Section 4980B(f)
-2-
<PAGE> 3
of the Internal Revenue Code (commonly referred to as "COBRA continuation
coverage") during the period specified in Section 4980B(f) (the "COBRA
continuation period"), Key will pay the cost of continuing those benefits from
the Termination Date through the first to occur of (a) the end of the COBRA
continuation period or (b) the date on which the Executive becomes employed
(other than on a part-time or temporary basis) by any other person or entity.
1.4 PROVISIONS APPLICABLE TO CONTINUED RETIREMENT AND SAVINGS PLAN
PARTICIPATION.
(a) If the Executive becomes entitled to payment of a lump sum severance
benefit under either of Section 1.1 or Section 1.2, the rules set
forth in the remainder of this Section 1.4(a) shall be applicable for
purposes of all Relevant Plans:
(i) the entire Section 1.1 Benefit Period or Section 1.2 Benefit
Period (each, a "Benefit Period"), as the case may be, shall be
included in determining the Executive's years of service,
(ii) amounts received by the Executive under clause (a)(i) of either
of Section 1.1 or Section 1.2, as the case may be, shall be
deemed to be base salary received by the Executive ratably
during the applicable Benefit Period, and
(iii) amounts received by the Executive under clause (a)(ii) of
either of Section 1.1 or Section 1.2, as the case may be, shall
be deemed to be incentive compensation received by the
Executive ratably during the applicable Benefit Period and
shall, if relevant, be allocated between short term incentive
compensation and long term incentive compensation based on the
degree to which awards of each type of incentive compensation
were taken into account in determining Average Annual Incentive
Compensation.
(b) If either Section 1.1(b) or Section 1.2(b) becomes applicable and at
any time during the applicable Benefit Period, Key determines in good
faith that continuing the Executive's coverage by and participation
in any of the Relevant Plans during the applicable Benefit Period is
Impermissible, the Executive shall not be covered by and participate
in such affected plan or plans during the applicable Benefit Period,
but Key shall provide to the Executive under this Agreement, as a
supplemental retirement benefit, payments and benefits that put the
Executive in the same position that the Executive would have been in
had the Executive continued to be covered by and to participate in
all such affected plans throughout the applicable Benefit Period
(taking into account the rules set forth in Section 1.4(a) above) to
the same extent as the Executive was a participant immediately before
the Termination Date, with the supplemental payments and benefits
under this sentence being payable to the Executive (or, if
applicable, to the Executive's spouse, estate, or designated
beneficiary) at the same time and with the same payment options as
would be applicable under the affected plan or plans in question.
-3-
<PAGE> 4
(c) If either Section 1.1(b) or Section 1.2(b) becomes applicable and any
of the Relevant Plans are Discontinued Plans, as to each such
Discontinued Plan, Key shall provide to the Executive under this
Agreement, as a supplemental retirement benefit, payments and
benefits that put the Executive in the same position that the
Executive would have been in had the Discontinued Plan continued
through the end of the applicable Benefit Period without having
become a Discontinued Plan and had the Executive continued to be
covered by and to participate in that Discontinued Plan throughout
the applicable Benefit Period (taking into account the rules set
forth in Section 1.4(a) above) to the same extent as the Executive
was a participant immediately before the date of the Change of
Control, with the supplemental payments and benefits under this
sentence being payable to the Executive (or, if applicable, to the
Executive's spouse, estate, or designated beneficiary) at the same
time and with the same payment options as would be applicable under
the Discontinued Plan, provided however, that to the extent the
Discontinued Plan has been substituted for by another Relevant Plan,
the amount payable by Key under this Section 1.4(c) shall be offset
by the amounts actually paid under that substitute plan.
2. OTHER BENEFITS.
2.1 REIMBURSEMENT OF CERTAIN EXPENSES AFTER A CHANGE OF CONTROL.
(a) From and after a Change of Control, Key shall pay, as incurred, all
expenses of the Executive, including the reasonable fees of counsel
engaged by the Executive, of defending any action brought to have
this Agreement declared invalid or unenforceable.
(b) From and after a Change of Control, Key shall pay, as incurred, all
expenses of the Executive, including the reasonable fees of counsel
engaged by the Executive, of prosecuting any action to compel Key to
comply with the terms of this Agreement upon receipt from Executive
of an undertaking to repay Key for such expenses if, and only if, it
is ultimately determined by a court of competent jurisdiction that
the Executive had no reasonable grounds for bringing that action
(which determination need not be made simply because the Executive
fails to succeed in the action).
(c) From and after a Change of Control, expenses (including attorney's
fees) incurred by the Executive in defending any action, suit, or
proceeding commenced or threatened (whether before or after the
Change of Control) against the Executive for any action or failure to
act as an employee, officer, or director of Key or any Subsidiary
shall be paid by Key, as they are incurred, in advance of final
disposition of the action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the Executive in which the Executive
agrees to reasonably cooperate with Key or the Subsidiary, as the
case may be, concerning the action, suit, or proceeding, and (i) if
the action, suit, or proceeding is commenced or threatened
-4-
<PAGE> 5
against the Executive for any action or failure to act as a director, to
repay the amount if it is proved by clear and convincing evidence in a
court of competent jurisdiction that the Executive's action or failure to
act involved an act or omission undertaken with deliberate intent to cause
injury to Key or a Subsidiary or undertaken with reckless disregard for the
best interests of Key or a Subsidiary, or (ii) if the action, suit, or
proceeding is commenced or threatened against the Executive for any action
or failure to act as an officer or employee, to repay the amount if it is
ultimately determined that the Executive is not entitled to be indemnified.
The obligation of Key to advance expenses provided for in this Section
2.1(c) shall not be deemed exclusive of any other rights to which the
Executive may be entitled under the articles of incorporation or
regulations of Key or of any Subsidiary, any agreement, vote of
shareholders or disinterested directors, or otherwise.
2.2 INDEMNIFICATION. From and after a Change of Control, Key shall
indemnify the Executive, to the full extent permitted or authorized by the Ohio
General Corporation Law as it may from time to time be amended, if the Executive
is (whether before or after the Change of Control) made or threatened to be made
a party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that the Executive is or was a director, officer, or employee of Key or any
Subsidiary, or is or was serving at the request of Key or any Subsidiary as a
director, trustee, officer, or employee of a bank, corporation, partnership,
joint venture, trust, or other enterprise. The indemnification provided by this
Section 2.2 shall not be deemed exclusive of any other rights to which the
Executive may be entitled under the articles of incorporation or the regulations
of Key or of any Subsidiary, or any agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in the Executive's
official capacity and as to action in another capacity while holding such
office, and shall continue as to the Executive after the Executive has ceased to
be a director, trustee, officer, or employee and shall inure to the benefit of
the heirs, executors, and administrators of the Executive.
2.3 DISABILITY. If, after a Change of Control and prior to the
Termination Date, the Executive is unable to perform services for Key or any
Subsidiary for any period by reason of disability of the Executive, Key will pay
and provide to the Executive all compensation and benefits to which the
Executive would have been entitled had the Executive continued to be actively
employed by Key or any Subsidiary through the earliest of the following dates:
(a) the first date on which the Executive is no longer so disabled to such an
extent that the Executive is unable to perform services for Key or any
Subsidiary (whereupon the Executive shall be restored to his duties and this
Agreement shall apply in accordance with its terms), (b) the date on which the
Executive becomes eligible for payment of long term disability benefits under a
long term disability plan generally applicable to executives of Key or a
Subsidiary, (c) the date on which Key has paid and provided 24 months of
compensation and benefits to the Executive during the Executive's disability, or
(d) the date of the Executive's death.
-5-
<PAGE> 6
2.4 GROSS-UP OF PAYMENTS DEEMED TO BE EXCESS PARACHUTE PAYMENTS.
(a) Key and the Executive acknowledge that, following a Change of
Control, one or more payments or distributions to be made by Key to
or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement,
under some other plan, agreement, or arrangement, or otherwise) (a
"Payment") may be determined to be an "excess parachute payment" that
is not deductible by Key for federal income tax purposes and with
respect to which the Executive will be subject to an excise tax
because of Sections 280G and 4999, respectively, of the Internal
Revenue Code (hereinafter referred to respectively as "Section 280G"
and "Section 4999"). If the Executive's employment is terminated
after a Change of Control occurs, the Accounting Firm, which, subject
to any inconsistent position asserted by the Internal Revenue
Service, shall make all determinations required to be made under this
Section 2.4, shall determine whether any Payment would be an excess
parachute payment and shall communicate its determination, together
with detailed supporting calculations, to Key and to the Executive
within 30 days after the Termination Date or such earlier time as is
requested by Key. Key and the Executive shall cooperate with each
other and the Accounting Firm and shall provide necessary information
so that the Accounting Firm may make all such determinations. Key
shall pay all of the fees of the Accounting Firm for services
performed by the Accounting Firm as contemplated in this Section 2.4.
(b) If the Accounting Firm determines that any Payment gives rise,
directly or indirectly, to liability on the part of the Executive for
excise tax under Section 4999 (and/or any penalties and/or interest
with respect to any such excise tax), Key shall make additional cash
payments to the Executive, from time to time and at the same time as
any Payment constituting an excess parachute payment is paid or
provided to the Executive, in such amounts as are necessary to put
the Executive in the same position, after payment of all federal,
state, and local taxes (whether income taxes, excise taxes under
Section 4999 or otherwise, or other taxes) and any and all penalties
and interest with respect to any such excise tax, as the Executive
would have been in after payment of all federal, state, and local
income taxes if the Payments had not given rise to an excise tax
under Section 4999 and no such penalties or interest had been
imposed.
(c) If the Internal Revenue Service determines that any Payment gives
rise, directly or indirectly, to liability on the part of the
Executive for excise tax under Section 4999 (and/or any penalties
and/or interest with respect to any such excise tax) in excess of the
amount, if any, previously determined by the Accounting Firm, Key
shall make further additional cash payments to the Executive not
later than the due date of any payment indicated by the Internal
Revenue Service with respect to these matters, in such amounts as are
necessary to put the Executive in the same position, after payment of
all federal, state, and local taxes (whether income taxes, excise
taxes under Section 4999 or otherwise, or other taxes) and any and
all penalties and interest with respect to any such excise tax, as
the Executive would
-6-
<PAGE> 7
have been in after payment of all federal, state, and local income
taxes if the Payments had not given rise to an excise tax under
Section 4999 and no such penalties or interest had been imposed.
(d) If Key desires to contest any determination by the Internal Revenue
Service with respect to the amount of excise tax under Section 4999,
the Executive shall, upon receipt from Key of an unconditional
written undertaking to indemnify and hold the Executive harmless (on
an after tax basis) from any and all adverse consequences that might
arise from the contesting of that determination, cooperate with Key
in that contest at Key's sole expense. Nothing in this Paragraph (d)
shall require the Executive to incur any expense other than expenses
with respect to which Key has paid to the Executive sufficient sums
so that after the payment of the expense by the Executive and taking
into account the payment by Key with respect to that expense and any
and all taxes that may be imposed upon the Executive as a result of
the Executive's receipt of that payment, the net effect is no cost to
the Executive. Nothing in this Paragraph (d) shall require the
Executive to extend the statute of limitations with respect to any
item or issue in the Executive's tax returns other than, exclusively,
the excise tax under Section 4999. If, as the result of the contest
of any assertion by the Internal Revenue Service with respect to
excise tax under Section 4999, the Executive receives a refund of a
Section 4999 excise tax previously paid and/or any interest with
respect thereto, the Executive shall promptly pay to Key such amount
as will leave the Executive, net of the repayment and all tax
effects, in the same position, after all taxes and interest, that the
Executive would have been in if the refunded excise tax had never
been paid.
3. NO SET-OFF; NO OBLIGATION TO SEEK OTHER EMPLOYMENT OR TO OTHERWISE
MITIGATE DAMAGES; NO EFFECT UPON OTHER PLANS. Key's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense, or other claim whatsoever that Key or any of its Subsidiaries may have
against the Executive. The Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Agreement by seeking other
employment or otherwise. The amount of any payment provided for under this
Agreement shall not be reduced by any compensation or benefits earned by the
Executive as the result of employment by another employer or otherwise after the
termination of the Executive's employment. Neither the provisions of this
Agreement, nor the execution of the waiver and release referred to in Section
4.3 below, nor the making of any payment provided for hereunder shall reduce any
amounts otherwise payable, or in any way diminish the Executive's rights, under
any incentive compensation plan, stock option or stock appreciation rights plan,
retirement or supplemental retirement plan, stock purchase and savings plan,
disability or insurance plan, or other similar contract, plan, or arrangement of
Key or any Subsidiary.
4. CERTAIN LIMITATIONS ON BENEFITS.
4.1 ELECTION OF BENEFITS REQUIRED; PAYMENTS IN LIEU OF OTHER CLAIMS OR
RIGHTS. If (a) the Executive is a party to either or both of an employment
agreement (which includes any
-7-
<PAGE> 8
letter agreement regarding Executive's employment with Key) or severance
agreement with Key (singularly or collectively, the "Prior Agreement"), and (b)
the Executive's employment with Key is terminated under circumstances giving
rise to a right on the part of the Executive to receive continuing compensation,
separation pay, or other severance benefits under the Prior Agreement and under
this Agreement, the Executive shall have the right to elect to have either the
Prior Agreement (if and only to the extent the Prior Agreement is applicable) or
this Agreement (if and only to the extent this Agreement is applicable) , but
not both, apply to the termination. If this Section 4.1 applies: (x) Key shall
not make any payments arising out of the termination of the Executive's
employment, either under the Prior Agreement or under this Agreement, until
after the Executive has delivered to Key a signed notice of election to receive
payments under the Prior Agreement or under this Agreement, and (y) if the
Executive elects to receive payments under the Prior Agreement, the provisions
of Sections 2.1, 2.2, and 2.4 of this Agreement shall nevertheless continue to
be applicable, but without duplication of payments. If the Executive receives
any payments under this Agreement as a result of the termination of the
Executive's employment following a Change of Control, those payments shall be in
lieu of any and all other claims or rights that the Executive may have for
severance, separation, and/or salary continuation pay upon that termination of
the Executive's employment.
4.2 TAXES; WITHHOLDING OF TAXES. Without limiting either the right of Key
or its Subsidiary to withhold taxes pursuant to this Section 4.2 or the
obligation of Key to make gross-up payments pursuant to Section 2.4, the
Executive shall be responsible for all income, excise, and other taxes (federal,
state, city, or other) imposed on or incurred by the Executive as a result of
receiving the payments provided in this Agreement, including, without
limitation, the payments provided under Section 1 of this Agreement. Key or its
Subsidiary may withhold from any amounts payable under this Agreement all
federal, state, city, or other taxes as Key shall determine to be required
pursuant to any law or government regulation or ruling. Without limiting the
generality of the foregoing, Key or its Subsidiary may withhold from any amount
payable under either of Sections 1.1 or 1.2 of this Agreement amounts sufficient
to satisfy any withholding requirements that may arise out of any payment made
to the Executive by Key or any Subsidiary under Section 1.3 of this Agreement.
4.3 WAIVER AND RELEASE. Key may condition the payment of any amounts
otherwise due under Section 1 of this Agreement upon (a) the execution by the
Executive of a waiver and release in the form attached to this Agreement as
Exhibit A, with blanks appropriately filled and, in the case of clause (e)
contained therein, completed with the number of days that Key determines is
required under applicable law, but in no event more than 45 days, and (b) the
observation of such waiting periods, if any, before and after execution of the
waiver and release by the Executive as are required by law, such as, for
example, the waiting periods required for a waiver and release to be effective
with respect to claims under the Age Discrimination in Employment Act, provided
that Key delivers to the Executive such a waiver and release, appropriately
completed, within seven days of the date on which the Executive's employment is
terminated.
5. TERM OF THIS AGREEMENT. This Agreement shall be effective upon the
date first above written and shall thereafter apply to any Change of Control
occurring on or before December 31, 1999. Unless this Agreement is terminated
earlier pursuant to Section 5.1, on
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<PAGE> 9
December 31, 1999 and on December 31 of each succeeding year thereafter (a
"Renewal Date"), the term of this Agreement shall be automatically extended for
an additional year unless either party has given notice to the other, at least
one year in advance of that Renewal Date, that the Agreement shall not apply to
any Change of Control occurring after that Renewal Date.
5.1 TERMINATION OF AGREEMENT UPON TERMINATION OF EMPLOYMENT BEFORE A
CHANGE OF CONTROL. This Agreement shall automatically terminate and cease to be
of any further effect on the first date occurring before a Change of Control on
which the Executive is no longer employed by Key or any Subsidiary, except that,
for purposes of this Agreement, any termination of employment of the Executive
that is effected before and in contemplation of a Change of Control that occurs
after the date of the termination shall be deemed to be a termination of the
Executive's employment as of immediately after that Change of Control and this
Agreement shall be deemed to be in effect immediately after that Change of
Control.
5.2 NO TERMINATION OF AGREEMENT DURING TWO YEAR PERIOD BEGINNING ON DATE
OF A CHANGE OF CONTROL. After a Change of Control, this Agreement may not be
terminated. However, if the Executive's employment with Key and its Subsidiaries
continues for more than two years following the occurrence of a Change of
Control, then, for all purposes of this Agreement other than Sections 2.1 and
2.2, that particular Change of Control shall thereafter be treated as if it
never occurred.
6. MISCELLANEOUS.
6.1 SUCCESSOR TO KEY. Key shall not consolidate with or merge into any
other corporation, or transfer all or substantially all of its assets to another
corporation or bank, unless such other corporation or bank shall assume this
Agreement in a signed writing and deliver a copy thereof to the Executive. Upon
such assumption the successor corporation or bank shall become obligated to
perform the obligations of Key under this Agreement and the term "Key" as used
in this Agreement shall be deemed to refer to such successor corporation or
bank.
6.2 NOTICES. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, and addressed, in
the case of notices to Key or a Subsidiary, as follows:
KeyCorp
127 Public Square
Cleveland, Ohio 44114
Attention: Secretary
and, in the case of notices to the Executive, properly addressed to the
Executive at the Executive's most recent home address as shown on the records of
Key or its Subsidiary, or such other address as either party may have furnished
to the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
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<PAGE> 10
6.3 EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement
shall create any right or duty on the part of Key or the Executive to have the
Executive continue as an officer of Key or a Subsidiary or to remain in the
employment of Key or a Subsidiary.
6.4 ADMINISTRATION. Key shall be responsible for the general
administration of this Agreement and for making payments under this Agreement.
All fees and expenses billed by the Accounting Firm for services contemplated
under this Agreement shall be the responsibility of Key.
6.5 SOURCE OF PAYMENTS. Any payment specified in this Agreement to be
made by Key may be made, at the election of Key, directly by Key or through any
Subsidiary of Key. All payments under this Agreement shall be made solely from
the general assets of Key or one of its Subsidiaries (or from a grantor trust,
if any, established by Key for purposes of making payments under this Agreement
and other similar agreements), and the Executive shall have the rights of an
unsecured general creditor of Key with respect thereto.
6.6 CLAIMS REVIEW PROCEDURE. Whenever Key decides for whatever reason to
deny, whether in whole or in part, a claim for benefits under this Agreement by
the Executive, Key shall transmit a written notice of its decision to the
Executive, which notice shall be written in a manner calculated to be understood
by the Executive and shall contain a statement of the specific reasons for the
denial of the claim and a statement advising the Executive that, within 60 days
of the date on which the Executive receives such notice, the Executive may
obtain review of the decision of Key in accordance with the procedures
hereinafter set forth. Within such 60-day period, the Executive or the
Executive's authorized representative may request that the claim denial be
reviewed by filing with Key a written request therefor, which request shall
contain the following information:
(a) the date on which the request was filed with Key,
(b) the specific portions of the denial of the Executive's claim that the
Executive requests Key to review, and
(c) any written material that the Executive desires Key to examine.
Within 30 days of the date specified in clause (a) of this Section 6.6, Key
shall conduct a full and fair review of its decision to deny the Executive's
claim for benefits and deliver to the Executive its written decision on review,
written in a manner calculated to be understood by the Executive, specifying the
reasons and the Agreement provisions upon which its decision is based. Nothing
in this Section 6.6 shall be construed as limiting or restricting the
Executive's right to institute legal proceedings in a court of competent
jurisdiction to enforce this Agreement after complying with the procedures set
forth in this Section 6.6 or as limiting or restricting the scope of the court's
review (which review shall be de novo); provided, further, that the failure of
the Executive to comply with the procedures set forth in this Section 6.6 shall
not bar or prohibit the subsequent compliance by the Executive with those
procedures and thereafter the Executive shall have the right to institute legal
proceedings to enforce this Agreement.
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<PAGE> 11
6.7 VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement which shall remain in full force and effect.
6.8 MODIFICATION, WAIVER, ETC. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in a writing signed by the Executive and Key. No waiver by either
party hereto at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same time or at any prior or subsequent time. No agreement or
representation, oral or otherwise, express or implied, with respect to the
subject matter hereof has been made by either party that is not set forth
expressly in this Agreement. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal representatives, executors,
administrators, successors, heirs, and designees. This Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio.
6.9 SAVINGS CLAUSE. If any payments otherwise payable to the Executive
under this Agreement are prohibited or limited by any statute or regulation in
effect at the time the payments would otherwise be payable, including, without
limitation, any regulation issued by the Federal Deposit Insurance Corporation
(the "FDIC") that limits executive change of control payments that can be made
by an FDIC insured institution or its holding company if the institution is
financially troubled (any such limiting statute or regulation a "Limiting
Rule"):
(a) Key will use its best efforts to obtain the consent of the
appropriate governmental agency (whether the FDIC or any other
agency) to the payment by Key to the Executive of the maximum amount
that is permitted (up to the amounts that would be due to the
Executive absent the Limiting Rule); and
(b) the Executive will be entitled to elect to have apply, and therefore
to receive benefits directly under, either (i) this Agreement (as
limited by the Limiting Rule) or (ii) any generally applicable Key
severance, separation pay, and/or salary continuation plan that may
be in effect at the time of the Executive's termination.
Following any such election, the Executive will be entitled to receive benefits
under the agreement or plan elected only if and to the extent the agreement or
plan is applicable and subject to its specific terms.
7. DEFINITIONS.
7.1 ACCOUNTING FIRM. The term "Accounting Firm" means the independent
auditors of Key for the fiscal year preceding the year in which the Change of
Control occurred and such firm's successor or successors; provided, however, if
such firm is unable or unwilling to serve and perform in the capacity
contemplated by this Agreement, Key shall select another national accounting
firm of recognized standing to serve and perform in that capacity under this
Agreement, except that such other accounting firm shall not be the then
independent auditors for
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Key or any of its affiliates (as defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act")).
7.2 AVERAGE ANNUAL INCENTIVE COMPENSATION. The term "Average Annual
Incentive Compensation" means the sum of Average Short Term Incentive
Compensation, as defined in clause (a) below, and Average Long Term Incentive
Compensation, as defined in clause (b) below.
(a) The term "Average Short Term Incentive Compensation" means the higher
of:
(i) the average of the short term incentive compensation payable to
the Executive for each of the last two years immediately
preceding the year in which the Change of Control occurred (the
"Change Year") or, if, for any reason, short term incentive
compensation was payable to the Executive for only one of those
two years, the amount of short term incentive compensation
payable to the Executive for that year, and
(ii) the Executive's targeted short term incentive compensation for
the Change Year or for the year immediately preceding the
Change Year, whichever is higher,
except that if the Executive first became a participant in Key's
short term incentive compensation program during the Change Year,
Average Short Term Incentive Compensation means the Executive's
targeted short term incentive compensation for the Change Year.
(b) The term "Average Long Term Incentive Compensation" means the higher
of:
(i) the average of the "Applicable Amounts" (as defined in clauses
(x) and (y) below) of the long term incentive compensation
awards payable to the Executive for each of the last two
multi-year cycles that ended before the Change Year or, if, for
any reason, long term incentive compensation was payable to the
Executive for only one of those two multi-year cycles, the
Applicable Amount of the long term incentive compensation award
payable to the Executive for that multi-year cycle, and
(ii) the Applicable Amount of the Executive's targeted long term
incentive compensation award for the multi-year cycle that
began with the Change Year or, if higher or if no multi-year
cycle began with the Change Year, the Applicable Amount of the
Executive's targeted long term incentive compensation award for
the most recently commenced multi-year cycle that began before
the Change Year,
except that if the Executive first became a participant in Key's long
term incentive compensation program during the Change Year, Average
Long Term Incentive Compensation means the Applicable Amount of the
Executive's targeted long
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term incentive compensation award for the most recently commenced
multi-year cycle. For these purposes:
(x) if the plan in question provides for a series of successive
multi-year periods, the last year of each of which follows the
last year of the immediately preceding multi-year period under
the plan by a single year (i.e., a plan that provides for
possible payment of long term incentive compensation each and
every year for as long as the plan continues), the Applicable
Amount of the award for each multi-year cycle under that plan
shall be the full amount (i.e.: 100%) of the award for that
multi-year period; and
(y) if the plan in question provides for a series of successive
multi-year periods, the last year of each of which follows the
last year of the immediately preceding period under the plan by
two years (i.e., a plan that provides for possible payment of
long term incentive compensation every other year for as long
as the plan continues), the Applicable Amount of the award for
each multi-year cycle under that plan shall be one half of the
full amount (i.e.: 50%) of the award for that multi-year
period.
The effect of clauses (x) and (y) is shown in the following table
which assumes that the multi-year long term incentive compensation
plan in question was one described in clause (x) (contemplating
payments every year for successive three-year cycles) through the
three-year cycle ending with the year 1999 and one described in
clause (y) (contemplating payments every other year for successive
four-year cycles) starting with a four-year cycle ending with the
year 2001:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Multi-Year Cycle Last Year "Applicable Amount" of Full Award
for the Multi-Year Cycle
--------------------------------------------------------------------
<S> <C> <C> <C>
1995-1997 1997 100%
--------------------------------------------------------------------
1996-1998 1998 100%
--------------------------------------------------------------------
1997-1999 1999 100%
--------------------------------------------------------------------
1998-2001 2001 50%
--------------------------------------------------------------------
2000-2003 2003 50%
--------------------------------------------------------------------
2002-2005 2005 50%
--------------------------------------------------------------------
</TABLE>
As used in this Section 7.2, incentive compensation means any cash based
incentive compensation, including bonuses (but excluding signing bonuses paid to
a newly hired executive) and is calculated before any reduction on account of
deferrals; short term incentive compensation means incentive compensation for
periods of time of one year or less and long term incentive compensation means
incentive compensation for periods of time of more than one year; targeted long
term or short term incentive compensation, as the case may be, means: (i) if the
incentive compensation plan, program, or arrangement in question designates a
targeted amount or a targeted level of achievement for the Executive, it means
that targeted amount or level, (ii) if the incentive compensation plan, program,
or arrangement in question has only one level of payout for the Executive (other
than zero), it means that level (i.e. the level other than
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zero), (iii) if the incentive compensation plan, program, or arrangement in
question does not designate a targeted amount or level of achievement for the
Executive but does have multiple anticipated levels of possible payout or
achievement for the Executive, it means (in each case excluding from
consideration any level that results in zero payout) the middle level of payout
or achievement for the Executive (or if there are an even number of levels, the
average of the two levels if there are only two levels or the average of the
middle two levels if there are four or more levels), and (iv) in all other
cases, the amount anticipated or projected to be paid under the plan, program,
or arrangement in question at the time the performance period in question
commenced. For purposes of calculating Average Annual Incentive Compensation
under this Section 7.2, in determining the amount of incentive compensation
(short or long term) payable to or targeted for the Executive for any past or
current incentive compensation period or cycle, if the incentive compensation
was for a partial period or cycle (such as where an executive becomes a
participant in an incentive plan after the incentive compensation period or
cycle has commenced so that the award payable to or targeted for the executive
is prorated), such incentive compensation payable to or targeted for the
Executive shall be determined as if the Executive had participated throughout
the complete incentive compensation period or cycle in question. For example,
if, with respect to a 12-month plan that would have paid the Executive incentive
compensation of $12X if the Executive had been a participant for the full plan
year, the Executive became a participant when only seven months were left in the
plan year and the Executive was therefore paid incentive compensation of only
$7X, the Executive would be treated for purposes of this Section 7.2 as if the
Executive had been a participant for the full plan year and had been paid
incentive compensation of $12X under the plan.
7.3 BASE SALARY. The term "Base Salary" means the salary payable to the
Executive from time to time before any reduction for voluntary contributions to
the KeyCorp 401(k) Plan or any other deferral. Base Salary does not include
imputed income from payment by Key of country club membership fees or other
noncash benefits.
7.4 CAUSE. The employment of the Executive by Key or any of its
Subsidiaries shall have been terminated for "Cause" if, after a Change of
Control and prior to the termination of employment, any of the following has
occurred:
(a) the Executive shall have been convicted of a felony,
(b) the Executive commits an act or series of acts of dishonesty in the
course of the Executive's employment which are materially inimical to
the best interests of Key or a Subsidiary and which constitutes the
commission of a felony, all as determined by the vote of three
fourths of all of the members of the Board of Directors of Key (other
than the Executive, if the Executive is a Director of Key) which
determination is confirmed by a panel of three arbitrators appointed
and acting in accordance with the rules of the American Arbitration
Association for the purpose of reviewing that determination,
(c) Key or any Subsidiary has been ordered or directed by any federal or
state regulatory agency with jurisdiction to terminate or suspend the
Executive's
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<PAGE> 15
employment and such order or directive has not been vacated or
reversed upon appeal, or
(d) after being notified in writing by the Board of Directors of Key to
cease any particular Competitive Activity, the Executive shall
intentionally continue to engage in such Competitive Activity while
the Executive remains in the employ of Key or a Subsidiary.
If (x) Key or any Subsidiary terminates the employment of the Executive during
the two year period beginning on the date of a Change of Control and at a time
when it has "Cause" therefor under clause (c), above, (y) the order or directive
is subsequently vacated or reversed on appeal and the vacation or reversal
becomes final and no longer subject to further appeal, and (z) Key or the
Subsidiary fails to offer to reinstate the Executive to employment within ten
days of the date on which the vacation or reversal becomes final and no longer
subject to further appeal, Key or the Subsidiary will be deemed to have
terminated the Executive without Cause during the two year period beginning on
the date of the Change of Control.
7.5 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have
occurred if, at any time while this Agreement is in effect pursuant to Section 5
hereof, there is a Change of Control under any of clauses (a), (b), (c), or (d)
below. For these purposes, Key will be deemed to have become a subsidiary of
another corporation if any other corporation (which term shall, for all purposes
of this Section 7.5, include, in addition to a corporation, a limited liability
company, partnership, trust, or other organization) owns, directly or
indirectly, 50 percent or more of the total combined outstanding voting power of
all classes of stock of Key or any successor to Key.
(a) A Change of Control will have occurred under this clause (a) if Key
is a party to a transaction pursuant to which Key is merged with or
into, or is consolidated with, or becomes the subsidiary of another
corporation and either
(i) immediately after giving effect to that transaction, less than
65% of the then outstanding voting securities of the surviving
or resulting corporation or (if Key becomes a subsidiary in the
transaction) of the ultimate parent of Key represent or were
issued in exchange for voting securities of Key outstanding
immediately prior to the transaction, or
(ii) immediately after giving effect to that transaction,
individuals who were directors of Key on the day before the
first public announcement of (x) the pendency of the
transaction or (y) the intention of any person or entity to
cause the transaction to occur, cease for any reason to
constitute at least 51% of the directors of the surviving or
resulting corporation or (if Key becomes a subsidiary in the
transaction) of the ultimate parent of Key.
(b) A Change of Control will have occurred under this clause (b) if a
tender or exchange offer shall be made and consummated for 35% or
more of the outstanding voting stock of Key or any person (as the
term "person" is used in
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Section 13(d) and Section 14(d)(2) of the 1934 Act) is or becomes the
beneficial owner of 35% or more of the outstanding voting stock of
Key or there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as adopted under the
1934 Act, disclosing the acquisition of 35% or more of the
outstanding voting stock of Key in a transaction or series of
transactions by any person (as defined earlier in this clause (b));
(c) A Change of Control will have occurred under this clause (c) if
either
(i) without the prior approval, solicitation, invitation, or
recommendation of the Key Board of Directors any person or
entity makes a public announcement of a bona fide intention (A)
to engage in a transaction with Key that, if consummated, would
result in a Change Event (as defined below in this clause (c)),
or (B) to "solicit" (as defined in Rule 14a-1 under the 1934
Act) proxies in connection with a proposal that is not approved
or recommended by the Key Board of Directors, or
(ii) any person or entity publicly announces a bona fide intention
to engage in an election contest relating to the election of
directors of Key (pursuant to Regulation 14A, including Rule
14a-11, under the 1934 Act),
and, at any time within the 24 month period immediately following the
date of the announcement of that intention, individuals who, on the
day before that announcement, constituted the directors of Key (the
"Incumbent Directors") cease for any reason to constitute at least a
majority thereof unless both (A) the election, or the nomination for
election by Key's shareholders, of each new director was approved by
a vote of at least two-thirds of the Incumbent Directors in office at
the time of the election or nomination for election of such new
director, and (B) prior to the time that the Incumbent Directors no
longer constitute a majority of the Board of Directors, the Incumbent
Directors then in office, by a vote of at least 75% of their number,
reasonably determine in good faith that the change in Board
membership that has occurred before the date of that determination
and that is anticipated to thereafter occur within the balance of the
24 month period to cause the Incumbent Directors to no longer be a
majority of the Board of Directors was not caused by or attributable
to, in whole or in any significant part, directly or indirectly,
proximately or remotely, any event under subclause (i) or (ii) of
this clause (c).
For purposes of this clause (c), the term "Change Event" shall mean
any of the events described in the following subclauses (x), (y), or
(z) of this clause (c):
(x) A tender or exchange offer shall be made for 25% or more of the
outstanding voting stock of Key or any person (as the term
"person" is used in Section 13(d) and Section 14(d)(2) of the
1934 Act) is or becomes the beneficial owner of 25% or more of
the outstanding voting stock of Key or there is a report filed
on Schedule 13D or Schedule 14D-1 (or any
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<PAGE> 17
successor schedule, form, or report), each as adopted under the
1934 Act, disclosing the acquisition of 25% or more of the
outstanding voting stock of Key in a transaction or series of
transactions by any person (as defined earlier in this
subclause (x)).
(y) Key is a party to a transaction pursuant to which Key is merged
with or into, or is consolidated with, or becomes the
subsidiary of another corporation and, after giving effect to
such transaction, less than 50% of the then outstanding voting
securities of the surviving or resulting corporation or (if Key
becomes a subsidiary in the transaction) of the ultimate parent
of Key represent or were issued in exchange for voting
securities of Key outstanding immediately prior to such
transaction or less than 51% of the directors of the surviving
or resulting corporation or (if Key becomes a subsidiary in the
transaction) of the ultimate parent of Key were directors of
Key immediately prior to such transaction.
(z) There is a sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of Key.
(d) A Change of Control will have occurred under this clause (d) if there
is a sale, lease, exchange, or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the
assets of Key.
7.6 COMPETITIVE ACTIVITY. The Executive shall be deemed to have engaged
in "Competitive Activity" if the Executive:
(a) engages in any business or business activity in which Key or any of
its Subsidiaries engages, including, without limitation, engaging in
any business activity in the banking or financial services industry
(other than as a director, officer, or employee of Key or any of its
Subsidiaries), or
(b) serves as a director, officer, or employee of any bank, bank holding
company, savings and loan association, building and loan association,
savings and loan holding company, insurance company, investment
banking or securities company, mutual fund company, or other
financial services company other than Key or any of its Subsidiaries
(each of the foregoing being hereinafter referred to as a "Financial
Services Company"), or renders services of a consultative or advisory
nature or otherwise to any such Financial Services Company; provided,
however, this clause (b) shall not prohibit or restrict the Executive
from serving in any such capacity with the consent of Key.
7.7 DISABILITY. For purposes of this Agreement, the Executive's
employment will have been terminated by Key or its Subsidiary by reason of
"Disability" of the Executive only if (a) as a result of bodily injury or
sickness, the Executive has been unable to perform the Executive's normal duties
for Key or its Subsidiary for a period of 180 consecutive days, and
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(b) the Executive begins to receive payments under the KeyCorp Long Term
Disability Benefit Plan not later than 30 days after the Termination Date.
7.8 DISCONTINUED PLAN. The term "Discontinued Plan" means any Retirement
Plan and/or Savings Plan that:
(a) the Executive was covered by and participating in immediately before
the occurrence of a Change of Control, and
(b) was, between the date of the Change of Control and the Termination
Date, either terminated or altered in such a way as to substantially
reduce the benefits provided to the Executive thereunder without
having been substituted for by a similar plan providing substantially
similar benefits to the Executive.
7.9 GOOD REASON. The Executive shall be deemed to have "Good Reason" to
terminate the Executive's employment under this Agreement during a Window Period
if, at any time after the occurrence of a Change of Control and before the end
of the Window Period, one or more of the events listed in clauses (a) through
(c) of this Section 7.9 occurs without the written consent of the Executive:
(a) following notice by the Executive to Key and an opportunity by Key to
cure, the Executive determines in good faith that the Executive's
position, responsibilities, duties, or status with Key are at any
time materially less than or reduced from those in effect before the
Change of Control or that the Executive's reporting relationships
with superior executive officers have been materially changed from
those in effect before the Change of Control;
(b) following notice by the Executive to Key and an opportunity by Key to
cure, the Executive is excluded from full participation in any
incentive compensation plan or stock option, stock appreciation, or
similar equity based plan in which similarly situated executives of
Key and its Subsidiaries generally participate; or
(c) Key's headquarters, if it was the Executive's principal place of
employment before the Change of Control, is relocated outside of the
greater Cleveland metropolitan area. (If the Executive's principal
place of employment before the Change of Control was not at Key's
headquarters, then this clause (c) shall not be applicable.)
For purposes of clauses (a) and (b), Key will be deemed to have had an
opportunity to cure and to have failed to effect a cure if the circumstance
otherwise constituting Good Reason persists (as determined in good faith by the
Executive) for more than seven calendar days after the Executive has given
notice to Key of the existence of that circumstance.
7.10 IMPERMISSIBLE. The term "Impermissible," when used in the context of
the Executive's continued coverage by and participation in any of the Retirement
Plans or Savings Plans shall mean that such a continuation would violate the
provisions of any such plan, would cause any such plan that is or is intended to
be qualified under Section 401(a) of the Internal
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Revenue Code to fail to be so qualified, would require shareholder approval, or
would be unlawful.
7.11 MANDATORY RELOCATION. A "Mandatory Relocation" shall have occurred
if, at any time after a Change of Control, the Executive is required to relocate
the Executive's principal place of employment for Key or its Subsidiary without
the Executive's written consent more than 35 miles from where the Executive was
located prior to the Change of Control.
7.12 REDUCTION OF BASE SALARY. A "Reduction of Base Salary" shall have
occurred if the Base Salary of the Executive is reduced at any time after a
Change of Control.
7.13 RELEVANT PLANS. The term "Relevant Plans" means:
(a) all Retirement Plans and Savings Plans that the Executive was covered
by and participating in immediately before the Termination Date, and
(b) all Discontinued Plans.
Reference to a "Relevant Plan," in the singular, means any of the Relevant
Plans.
7.14 RETIREMENT PLANS. The term "Retirement Plans" means the KeyCorp Cash
Balance Pension Plan and the Supplemental Retirement Plan, each as from time to
time amended, restated, or otherwise modified, and any plan that, after the date
of this Agreement, succeeds, replaces, or is substituted for any such plan, and
all retirement plans of any nature maintained by Key or any of its Subsidiaries
in which the Executive was participating prior to the Termination Date.
Reference to a "Retirement Plan," in the singular, means any of the Retirement
Plans.
7.15 SAVINGS PLANS. The term "Savings Plans" means and includes the
KeyCorp 401(k) Savings Plan and the KeyCorp Excess 401(k) Savings Plan, in both
cases, as from time to time amended, restated, or otherwise modified, including
any plan that, after the date of this Agreement, succeeds, replaces, or is
substituted for either such plan, and all salary reduction, savings,
profit-sharing, or stock bonus plans (including, without limitation, all plans
involving employer matching contributions, whether or not constituting a
qualified cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code), maintained by Key or any of its Subsidiaries in which the
Executive was participating prior to the Termination Date. Reference to a
"Savings Plan," in the singular, shall mean any of the Savings Plans.
7.16 SUPPLEMENTAL RETIREMENT PLAN. The term "Supplemental Retirement Plan"
means the KeyCorp Supplemental Retirement Plan, the KeyCorp Excess Cash Balance
Pension Plan, the KeyCorp Supplemental Retirement Plan for Key Executives, the
KeyCorp Supplemental Retirement Benefit Plan, and the KeyCorp Executive
Supplemental Pension Plan, each as from time to time amended, restated, or
otherwise modified, and any plan that, after the date of this Agreement,
succeeds, replaces, or is substituted for any of such plans.
-19-
<PAGE> 20
7.17 SUBSIDIARY. A "Subsidiary" means any corporation, bank, partnership,
or other entity a majority of the voting control of which is directly or
indirectly owned or controlled at the time in question by Key.
7.18 TERMINATION DATE. The term "Termination Date" means the date on which
the Executive's employment with Key and its Subsidiaries terminates.
7.19 WINDOW PERIOD. The term "Window Period," with respect to any
particular Change of Control, means the three-month period beginning on the date
that falls on the same day of the month as the date of the Change of Control in
the fifteenth month after the month in which the Change of Control occurs. If at
any time there has been more than one Change of Control, there shall be a
separate Window Period with respect to each such Change of Control.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
KEYCORP
By /s/ Robert W. Gillespie
---------------------------------
Robert W. Gillespie
Chairman and Chief Executive Officer
THE "EXECUTIVE"
/s/ William B. Summers, Jr.
------------------------------------
WILLIAM B. SUMMERS, JR.
-20-
<PAGE> 21
EXHIBIT A
WAIVER AND RELEASE
DO NOT SIGN WITHOUT READING AND UNDERSTANDING
In consideration of the payments to be made to me following termination of my
employment with KeyCorp pursuant to the agreement between KeyCorp and me dated
as of November 20, 1997 (the "Change of Control Agreement"), which payments I
acknowledge I am not entitled to receive without execution of this Waiver and
Release, and which payments will not commence earlier than eight days after the
execution of this Waiver and Release, I, for myself, my heirs, administrators,
executors, and assigns, release and discharge KeyCorp, its affiliates,
subsidiaries, divisions, successors, and assigns and the employees, officers,
directors, and agents thereof (collectively referred to throughout this Waiver
and Release as "Key") from any and all causes of action, charges of
discrimination, proceedings, or claims of every kind, nature, and character,
arising out of or relating to my employment with Key and the termination of my
employment with Key based upon or related to any contention (i) that my
employment terminated because of any tortious, wrongful, unlawful, or improper
conduct or act or in violation or breach of any express or implied contract or
agreement, or (ii) that Key engaged in any discriminatory act, event, pattern,
or practice involving age, religion, creed, sex, national origin, ancestry,
handicap, disability, veteran status, marital status, race, or color, or the
continuing or future effects thereof (including, without limitation, the federal
Age Discrimination in Employment Act, 29 U.S.C. ss.621 et seq., or any similar
state law).
I warrant that no promise or inducement has been offered to me other than as set
forth in the Change of Control Agreement, that I am relying on no other
statement or representation by Key, and that I have not assigned any of my
rights. I have read this Waiver and Release; I have had a full opportunity to
consider it (including the opportunity to consult with an attorney of my
choice); and I understand that by signing it I am giving up important rights,
including any right to sue under federal, state, or local law. I also verify
that my entering into this Waiver and Release is wholly voluntary.
I further warrant that:
(a) I understand that I am specifically waiving rights or claims under the
federal Age Discrimination in Employment Act, 29 U.S.C. ss.621 et seq.;
(b) I understand that I am not hereby waiving any rights or claims that may
arise after this Waiver and Release is executed by me;
(c) I understand that this Waiver and Release is being given by me in
exchange for consideration that is more valuable to me than what I am
entitled to without the Change of Control Agreement and the execution of
this Waiver and Release;
<PAGE> 22
EXHIBIT A
(CONT'D)
(d) I have been advised in writing by Key that I should have, at my
expense, an attorney of my choice review this Waiver and Release;
(e) I have been advised by Key that I may take up to _____ days from
receipt of this Waiver and Release to determine whether to execute the
same; and
(f) I have been advised by Key that this Waiver and Release may be revoked
by me within seven (7) days following execution of this Waiver and Release
whereupon this Waiver and Release shall be null and void.
IN WITNESS WHEREOF, I have hereby set my hand this _________ day of
_______________, ____.
Witness:
_________________________________ _________________________________
<PAGE> 23
EXHIBIT A
(CONT'D)
ACKNOWLEDGMENT OF RECEIPT OF WAIVER AND RELEASE
I do hereby acknowledge that on _____________________, ____, I received a
copy of the Waiver and Release which is attached hereto, and I understand that I
have _____* days from the date of receipt of the Waiver and Release to determine
whether to execute it.
Witness:_________________________ _________________________________
*to be completed the same as clause (e) of the Waiver and Release.
<PAGE> 24
EXHIBIT A
(CONT'D)
Director of Human Resources
KeyCorp
127 Public Square
Cleveland, Ohio 44114
Re: WAIVER AND RELEASE
Dear Sir or Madam:
On ________ __, ____, I executed a Waiver and Release in favor of KeyCorp.
More than seven (7) days have elapsed since I executed the Waiver and Release. I
have at no time revoked my acceptance or execution of the Waiver and Release
and, accordingly, I hereby request that KeyCorp commence making the payments due
to me under my Change of Control Agreement.
Very truly yours,
Witness:
_________________________________ _________________________________
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>4
<DESCRIPTION>EXHIBIT 10.26
<TEXT>
<PAGE> 1
Exhibit 10.26
KEYCORP
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
RESTATED AUGUST 16, 1990
PREAMBLE
The purpose of this Supplemental Retirement Benefit Plan is to provide
certain employees with supplemental retirement benefits. It is intended that
this Plan will aid in attracting and retaining employees of exceptional ability
by providing them with this benefit. This Plan is effective as of January 1,
1981.
ARTICLE I
DEFINITIONS
For the purposes herein, the following terms shall have the meaning
indicated:
1.1 BOARD. "Board" shall mean the Board of Directors of KeyCorp as from
time to time constituted.
1.2 CREDITED SERVICE. "Credited Service" shall mean the same period of
time as constitutes Credited Service for that Participant under the Pension Plan
except that:
(a) It shall not be subject to a thirty-five (35) year maximum, and
(b) It shall continue to accrue during periods of total and
permanent disability to the extent provided by Article VI hereof.
PAGE 1 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 2
1.3 EFFECTIVE DATE. "Effective Date" shall mean January 1, 1981.
1.4 EMPLOYEE. "Employee" shall mean any person regularly employed by the
Employer, including officers, but not including directors unless a director is
also an officer or employee of the Employer, nor attorneys or other persons
doing independent professional work who are retained by the Employer.
1.5 EMPLOYER. "Employer" shall mean KeyCorp and all of its wholly owned
subsidiaries, each with respect to its own Employees.
1.6 FINAL AVERAGE SALARY. "Final Average Salary" shall mean the average
of the annual Salary of a Participant for the highest three (3) calendar years
out of the last five (5) calendar years preceding the Participant's termination
of employment; if the Participant has less than three (3) years of employment,
the average shall be for all of the Participant's years of employment. If the
Participant is not compensated for all or a part of a year in such period
because of an absence, the number of complete months in which the Participant
received no compensation during such year shall be disregarded in determining
Final Average Salary.
1.7 INCENTIVE COMPENSATION. "Incentive Compensation" shall mean amounts
payable to a Participant under the KeyCorp Executive Incentive Compensation
Plan.
PAGE 2 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 3
1.8 PARTICIPANT. "Participant" shall mean an Employee entitled to
participate in this Plan in accordance with Article II hereof.
1.9 PENSION PLAN. "Pension Plan" shall mean the KeyCorp Pension Plan as
amended from time to time.
1.10 PLAN. "Plan" shall mean the KeyCorp Supplemental Retirement Benefit
Plan for Key Executives as contained herein or as amended from time to time.
1.11 PLAN YEAR. "Plan Year" shall mean the calendar year.
1.12 SALARY. "Salary" shall mean the base salary and Incentive
Compensation of an Employee exclusive of bonuses, overtime pay and other extra
compensation. For this purpose, the basic salary of an Employee shall include:
(a) Amounts that are the subject of a deferred compensation
agreement between the Employee and the Employer;
(b) Amounts that are the subject of a Salary Reduction Agreement
within the meaning of the Keycorp Profit Sharing Plus Plan; and
(c) Amounts that are the subject of a salary reduction arrangement
between the Employee and the Employer in accordance with Internal Revenue
Code Section 125.
1.13 SERVICE. "Service" shall mean the same period of time as constitutes
Service for that Participant under the Pension Plan.
PAGE 3 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 4
ARTICLE II
PARTICIPATION
2.1 GENERAL RULE.
(a) PARTICIPATION PRIOR TO JANUARY 1, 1988. Each Employee who was a
Participant as of December 31, 1987 shall continue to be a Participant
provided that he continues to meet the requirement for eligibility.
(b) PARTICIPATION SUBSEQUENT TO DECEMBER 31, 1987. Except as may be
provided in an applicable Appendix to the Plan, any other Employee shall
become a participant on the January 1 coincident with or next following his
designation by the Board as being eligible for benefits under the Plan.
2.2 REEMPLOYMENT OF PARTICIPANT. A Participant who has terminated his
employment and subsequently is reemployed shall become a Participant immediately
upon his reemployment provided that the Board again designates him for
participation in the Plan.
2.3 PROSPECTIVE CHANGES IN PARTICIPATION REQUIREMENTS. The Employer, in
its sole discretion, reserves the right to alter the requirements for
participation in Section 2.1 at any time and from time to time; provided,
however, that any such change shall not cause any Employee who became a Plan
Participant hereunder prior to the effective date of such change to become
ineligible hereunder by virtue of such change.
PAGE 4 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 5
2.4 VESTING. A Participant shall be one hundred percent (100%) vested in
benefits under this Plan upon completion of five (5) years of Credited Service.
ARTICLE III
RETIREMENT CONDITIONS
3.1 NORMAL RETIREMENT. Except as may be provided in an applicable
Appendix to the Plan, the Normal Retirement Date of a Participant shall be the
earliest of:
(a) The first day of the month coinciding with or next following
the date he attains the age of sixty-five (65); or
(b) The first day of the month coinciding with or next following
the date that the Participant both attains the age of sixty-two (62) and
completes fifteen (15) years of Credited Service.
3.2 DELAYED RETIREMENT DATE. Participant may continue in the employment
of the Employer beyond his Normal Retirement Date, but, to the extent permitted
by applicable law, he may continue in the employment of the Employer beyond his
seventieth (70th) birthday only if agreed to by the Employer. To the extent
permitted by applicable law, a Participant continuing in employment beyond his
seventieth (70th) birthday shall retire from the employment of the Employer on
the first day of the month coinciding with or next following the end of the last
approved period of employment.
PAGE 5 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 6
3.3 EARLY RETIREMENT DATE. A Participant may retire from employment of
the Employer prior to his Normal Retirement Date, on the first day of any month
coinciding with or following the date on which he has either attained the age of
sixty (60), or both attained the age of fifty (50) and completed at least
fifteen (15) years of Credited Service.
ARTICLE IV
RETIREMENT ALLOWANCES
4.1 NORMAL RETIREMENT ALLOWANCE. A Participant shall, upon retirement at
his Normal Retirement Date, receive a monthly retirement allowance which shall
commence on such retirement date and shall be payable in the form and over such
duration as elected by the Participant. The amount of each such retirement
allowance shall be equal to (a) plus (b) minus (c) as follows:
(a) One-twelfth (1412) of seventy-five percent (75%) of his Final
Average Salary reduced by TWO (2) PERCENTAGE POINTS FOR THE NUMBER OF YEARS
BY WHICH THE PARTICIPANT'S TOTAL YEARS OF CREDITED SERVICE AT HIS NORMAL
RETIREMENT DATE IS LESS THAN TWENTY-FIVE (25) years (rounded down to the
nearest whole year), multiplied by a fraction, the numerator of which is
the Participant's years of Credited Service earned prior to January 1,
1988, and the denominator of which is the Participant's total years of
Credited Service at his Normal Retirement Date.
PAGE 6 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 7
(b) One-twelfth (1/12) of sixty-five percent (65%) of his Final
Average Salary reduced by two and six-tenths (2.6) percentage points for
the number of years by which the Participant's total years of Credited
Service at his Normal Retirement Date is less than twenty-five (25) years
(rounded down to nearest whole year), multiplied by a fraction, the
numerator of which is the Participant's years of Credited Service earned
after December 31, 1987, and the denominator of which is the Participant's
total Years of Credited Service at his Normal Retirement Date.
(c) The sum of:
(i) His monthly retirement benefit under the Pension Plan
determined at his Normal Retirement Date; and
(ii) His monthly Primary Social Security Benefit as defined in
the Pension Plan.
4.2 DELAYED RETIREMENT ALLOWANCE. Upon retirement after his Normal
Retirement Date, a Participant shall receive a monthly allowance which shall
commence on the first day of the month coincident with or next following the
date of such retirement and shall be payable in the form and over such duration
as elected by the Participant pursuant to Section 4.5. The amount of each such
monthly retirement allowance shall be computed in the same manner as the Normal
Retirement Allowance except that Final Average Salary and Credited Service will
be determined as of the Delayed Retirement Date.
PAGE 7 SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 8
4.3 EARLY RETIREMENT ALLOWANCE. Upon retirement at his Early Retirement
Date, a Participant shall receive a monthly retirement allowance, which shall
commence on the first day of any month coinciding with or preceding his Normal
Retirement Date and shall be payable in the form and over such duration as
elected by the Participant pursuant to Section 4.5. The amount of each such
monthly retirement allowance shall be equal to the product of items (a), (b) and
(c) below:
(a) A monthly retirement allowance determined in the same manner as
for retirement at his Normal Retirement Date except that:
(i) Credited Service shall be determined as if the
Participant had in fact continued in active employment until his
Normal Retirement Date; and
(ii) Final Average Salary shall be determined as of the date
of his actual retirement.
(b) The ratio that the Participant's Credited Service to the date
of his actual retirement bears to the Credited Service that he would have
had if he had continued in employment until his Normal Retirement Date. For
this purpose, the Normal Retirement Date of a Participant shall be the
earliest date on which the Participant could have retired under Section
3.1.
(c) Actuarial reduction factors which take into account the
commencement of benefits prior to a Participant's Normal Retirement Date.
Such actuarial
PAGE 8 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 9
reduction factors shall be the same factors as are then applicable under
the Pension Plan with respect to the commencement of benefits before a
Participant's Normal Retirement Date under the Pension Plan.
4.4 VESTED TERMINATION ALLOWANCE. A vested Participant, who terminates
before his Early Retirement Date, shall receive a monthly retirement allowance,
which shall commence on the first day of the month coinciding with or next
following his sixty-fifth (65th) birthday and shall be payable in the form and
over such duration as elected by the Participant pursuant to Section 4.5. The
amount of each such monthly retirement allowance shall be equal to the product
of items (a) and (b) below:
(a) A monthly retirement allowance determined in the same manner as
for retirement at his Normal Retirement Date except that:
(i) Credited Service shall be determined as if the
Participant had in fact continued in active employment until his
sixty-fifth (65th) birthday; and
(ii) Final Average Salary shall be determined as of the date
of his actual termination.
(b) The ratio that the Participant's Credited Service to the date
of his actual termination bears to the Credited Service that he would have
had if he had continued in employment until his sixty-fifth (65th)
birthday.
4.5 OPTIONAL METHODS OF RETIREMENT PAYMENTS. The benefits hereunder shall
be paid in accordance with the optional
PAGE 9 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 10
method of retirement payment that has been elected by the Participant at the
time of initial Plan participation. The Participant may elect one of the
following payment forms:
(a) Joint and fifty percent (50%) survivor benefit.
(b) Joint and one hundred percent (100%) survivor benefit.
(c) Ten (10) year certain and life.
(d) Fifteen (15) year certain and life.
(e) Single life annuity.
The same actuarial reduction factors and method of calculating actuarial
equivalence under the KeyCorp Pension Plan (1989 Restatement) shall be
applicable under this Plan. Any such optional method of retirement payment shall
be the actuarial equivalent of the actual dollar amount of lifetime retirement
allowance otherwise payable from this Plan after adjustment for the benefit
payable from the KeyCorp Pension Plan (1989 Restatement) and the Primary Social
Security Benefit.
4.6 SPECIAL RULES WITH REGARD TO CALCULATION OF RETIREMENT ALLOWANCES.
The following special rules shall be applicable with regard to the calculation
of retirement allowances under the Plan:
(a) A Participant's monthly retirement benefit under the Pension
Plan shall mean the benefit to which the Participant is or, upon proper
application, would be, entitled under the Pension Plan. For this purpose,
the benefit to which the Participant would be entitled under the Pension
Plan is the benefit which he could receive if he elected to
PAGE 10 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 11
commence payments at the earliest time available under the Pension Plan,
notwithstanding when he actually elects to have benefits commence.
(b) The Participant's Primary Social Security Benefit shall mean
the Primary Social Security Benefit payable, if proper application were
made, when the Participant retires under this Plan.
If a Participant is not eligible for such Primary Social Security Benefit
upon his retirement under this Plan, and upon proper application would not be so
entitled, then no Primary Social Security Benefit shall be taken into account
under Section 4.1 until the earliest date at which he is eligible to receive
such benefits if proper application were made. In such an event, the Primary
Social Security Benefit to which such Participant is or, upon proper
application, would be entitled at such earliest date shall be taken into account
under Section 4.1 in calculating his benefits under this Plan from and after
such date. Once such Primary Social Security Benefits are taken into account
under Section 4.1, any subsequent change in the Participant's Primary Social
Security Benefits (whether such change is the result of applying a
cost-of-living increase, or recomputing the benefit based upon more recent
compensation or otherwise) shall be disregarded.
(c) If a Participant is not a participant in the Pension Plan, his
benefit will be determined without
PAGE 11 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 12
reference to the amount of his benefit under the Pension Plan specified in
Section 4.1; provided, however, that if such Participant is a participant
in a defined benefit pension plan qualified under Internal Revenue Code
Section 401(a), maintained by the Employer or any subsidiary thereof, other
than the Pension Plan, then the benefit payable to such Participant under
such other plan, determined in accordance with subsection (a) above, shall
be applied in lieu of the amount of his benefit under the Pension Plan
specified in Section 4.1.
(d) If a Participant is entitled to receive a benefit from the
Pension Plan and also from another defined benefit pension plan qualified
under Internal Revenue Code Section 401(a), maintained by the Employer or
any subsidiary thereof, then the amount payable from such other plan,
determined in accordance with subsection (a) above, shall be added to the
amount of his benefit under the Pension Plan taken into account in
accordance with Section 4.1.
(e) Specific exceptions to the provisions of the Plan related to
the calculation of Retirement Allowances shall be governed by the
Appendices which are incorporated as part of this Plan.
PAGE 12 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 13
ARTICLE V
DEATH BENEFITS
5.1 DEATH PRIOR TO RETIREMENT.
(a) If a Participant dies in active employment and prior to
becoming eligible for either an Early Retirement Allowance or a Normal
Retirement Allowance hereunder, no death benefit shall be payable from this
Plan.
(b) If a Participant dies in active employment but after becoming
eligible for either an Early Retirement Allowance or a Normal Retirement
Allowance, and is survived by his spouse, a monthly retirement allowance
shall be paid to his surviving spouse commencing on the first day of the
month coincident with or next following his date of death and continuing on
the first day of each month thereafter during his spouse's lifetime. Each
such monthly retirement allowance shall equal seventy-five percent (75%) of
the monthly retirement allowance to which the Participant would have been
entitled had he retired on his date of death.
For the purpose of calculating this death benefit only, the
following special rules apply with respect to the calculation of the
Primary Social Security Benefit which the Participant would have been
entitled to receive:
(i) If both the Participant had attained his sixty-second
(62nd) birthday and his spouse had attained her sixtieth (60th)
birthday on the Participant's date of death, then the Primary
Social
PAGE 13 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 14
Security Benefit to which the Participant would have been entitled
had he retired on his date of death instead of dying and then
commenced receiving Social Security benefits will be applied.
(ii) In all other cases, the Primary Social Security Benefit
shall be deemed to be zero.
5.2 DEATH AFTER COMMENCEMENT OF RETIREMENT ALLOWANCE. Except as provided
in Section 4.5, all rights to any benefits under the Plan will cease upon the
death of any Participant for whom retirement allowances have commenced.
ARTICLE VI
DISABILITY BENEFITS
6.1 TOTAL AND PERMANENT DISABILITY DEFINED. Total and permanent
disability shall mean such disability as, after the expiration of the waiting
period provided by law, will entitle the Participant to receive disability
benefit payments in accordance with Title II of the United States Social
Security Act.
6.2 TERMINATION PRIOR TO TEN (10) YEARS OF CREDITED SERVICE. A
Participant who terminates his employment with the Employer because of total and
permanent disability and who has completed less than ten (10) years of Credited
Service at such time shall not thereby be entitled to any benefits from the
Plan.
PAGE 14 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 15
6.3 TERMINATION AFTER TEN (10) YEARS OF CREDITED SERVICE. A Participant
who terminates his employment with the Employer because of total and permanent
disability and who has completed ten (10) or more years of Credited Service
shall be subject to whichever of the following subsections shall be. applicable:
(a) If he shall (after the applicable statutory waiting period) be
continuously disabled and entitled to Social Security disability benefits
until his attainment of age sixty-five (65), then he shall receive a
monthly retirement allowance from this Plan commencing upon the first day
of the month coincident with or next following the attainment of his
sixty-fifth (65th) birthday and payable on the first day of each month
thereafter for his remaining lifetime. Such monthly retirement allowance
shall be determined in the same manner as for retirement at his Normal
Retirement Date, except that:
(i) Credited Service shall be determined as if the
Participant had in fact continued in active employment until his
sixty-fifth (65th) birthday, and
(ii) Final Average Salary shall be determined as of the date
of his actual termination of employment due to disability.
(b) If he shall (after the applicable statutory waiting period) not
be continually disabled and entitled to Social Security disability benefits
until his attainment of age sixty-five (65), he shall not be entitled to a
PAGE 15 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 16
disability benefit from this Plan, but shall be subject to the provisions
of Section 6.4 hereof.
6.4 RECOVERY FROM DISABILITY PRIOR TO NORMAL RETIREMENT DATE. If a
Participant who became totally and permanently disabled thereafter recovers from
such disability prior to attaining age sixty-five (65) (as evidenced solely by
the fact that he is no longer eligible for Social security disability benefits),
then his benefits from this Plan shall be determined as follows:
(a) If he returns to employment with the Employer upon such
recovery, then he shall not be entitled to any disability benefits in
accordance with this Article VI. For the purpose of determining his
entitlement to, and amount of, benefits under any other provision of this
Plan, however, his period of Credited Service and Service shall include the
period during which he was totally and permanently disabled.
(b) If he fails to return to employment with the Employer upon such
recovery, then he shall not be entitled to any disability benefits in
accordance with this Article VI. This shall not, however, deprive him of
the benefits, if any, to which he is otherwise entitled under this Plan
based upon his age, Credited Service, Service and Final Average Salary, as
of his termination of employment due to disability.
PAGE 16 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 17
ARTICLE VII
ADMINISTRATION
7.1 CONTRIBUTIONS BY PARTICIPANTS. No contributions by Participants shall
be required or permitted under this Plan.
7.2 CONTRIBUTIONS BY EMPLOYER.
(a) This Plan is intended to be an unfunded plan maintained
primarily to provide deferred compensation benefits for a select group of
management or highly compensated employees.
(b) The benefits provided by this Plan shall not be prefunded and a
trust fund shall not be established to fund such benefits. The Employer
will make each benefit payment directly to the Plan Participant when due
and the Employer recognizes a general creditor claim against the Employer
with respect to each benefit payment as and when due.
7.3 DESIGNATION AND DUTIES OF ADMINISTRATOR. The Board shall designate
the administrator of this Plan who shall administer this Plan and who shall
serve until the Board designates another administrator. All decisions of such
administrator with respect to the administration of this Plan shall be final and
binding upon the Employer, the Participants and all other parties hereto.
7.4 AMENDMENT. The Board shall have the right at any time, and from time
to time, to amend, in whole or in part, any or all of the provisions of this
Plan. However, no such amendment shall reduce or eliminate any benefit to which
the
PAGE 17 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 18
Participant would then be entitled to receive (based upon his age, Credited
Service, Service and Final Average Salary as of the date of such amendment) as
of the date of such amendment.
7.5 PLAN TERMINATION. The Board shall have the right at any time to
terminate this Plan. However, no such termination shall reduce or eliminate any
benefit to which the Participant would then be entitled to receive (based upon
his age, Credited Service, Service and Final Average Salary as of the date of
such termination) as of the date of such termination.
ARTICLE VIII
CLAIMS PROCEDURES
8.1 CLAIM. The Committee shall establish rules and procedures to be
followed by Participants and Beneficiaries in (a) filing claims for benefits,
and (b) for furnishing and verifying proofs necessary to establish the right to
benefits in accordance with the Plan, consistent with the remainder of this
Article. Such rules and procedures shall require that claims and proofs be made
in writing and directed to the Committee.
8.2 REVIEW OF CLAIM. The Committee shall review all claims for benefits.
Upon receipt by the Committee of such a claim, it shall determine all facts
which are necessary to establish the right of the claimant to benefits under the
provisions of the Plan and the amount thereof as herein provided within ninety
(90) days of receipt of such claim. If prior to the expiration of the initial
ninety (90) day period, the
PAGE 18 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 19
Committee determines additional time is needed to come to a determination on the
claim, the Committee shall provide written notice to the Participant,
Beneficiary or other claimant of the need for the extension, not to exceed a
total of one hundred eighty (180) days from the date the application was
received.
8.3 NOTICE OF DENIAL OF CLAIM. In the event that any Participant,
Beneficiary or other claimant claims to be entitled to a benefit under the Plan,
and the Committee determines that such claim should be denied in whole or in
part, the Committee shall, in writing, notify such claimant that the claim has
been denied, in whole or in part, setting forth the specific reasons for such
denial. Such notification shall be written in a manner reasonably expected to be
understood by such claimant and shall refer to the specific sections of the Plan
relied on, shall describe any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such material or
information is necessary, and where appropriate, shall include an explanation of
how the claimant can obtain reconsideration of such denial.
8.4 RECONSIDERATION OF DENIED CLAIM.
(a) Within sixty (60) days after receipt of the notice of the
denial of a claim, such claimant or duly authorized representative may
request, by mailing or delivery of such written notice to the Committee, a
reconsideration by the Committee of the decision denying the claim. If the
claimant or duly authorized representative fails to
PAGE 19 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 20
request such a reconsideration within such sixty (60) day period, it shall
be conclusively determined for all purposes of this Plan that the denial of
such claim by the Committee is correct. If such claimant or duly authorized
representative requests a reconsideration within such sixty (60) day
period, the claimant or duly authorized representative shall have thirty
(30) days after filing a request for reconsideration to submit additional
written material in support of the claim, review pertinent documents, and
submit issues and comments in writing.
(b) After such reconsideration request, the Committee shall
determine within sixty (60) days of receipt of the claimant's request for
reconsideration whether such denial of the claim was correct and shall
notify such claimant in writing of its determination. The written notice of
decision shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant,
as well as specific references to the pertinent Plan provisions on which
the decision is based. In the event of special circumstances determined by
the Committee, the time for the Committee to make a decision may be
extended by an additional sixty (60) days upon written notice to the
claimant prior to the commencement of the extension. If such determination
is favorable to the claimant, it shall be binding and conclusive. If such
determination is adverse to such claimant, it shall be
PAGE 20 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 21
binding and conclusive unless the claimant or duly authorized
representative notifies the Committee within ninety (90) days after the
mailing or delivery to the claimant by the Committee of its determination
that claimant intends to institute legal proceedings challenging the
determination of the Committee and actually institutes such legal
proceedings within one hundred eighty (180) days after such mailing or
delivery.
8.5 EMPLOYER TO SUPPLY INFORMATION. To enable the Committee to perform
its functions, the Employer shall supply full and timely information to the
Committee of all matters relating to the retirement, death or other cause for
termination of service of all Participants, and such other pertinent facts as
the Committee may require.
ARTICLE IX
MISCELLANEOUS
9.1 HEADINGS AND SUBHEADINGS. The headings and subheadings in the Plan
have been inserted for convenience of reference only and are to be ignored in
any construction of the provisions hereof.
9.2 GENDER AND NUMBER. Whenever any words are used herein in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and whenever any words
are used herein in
PAGE 21 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 22
the singular form they shall be construed as though they were also used in
plural form in all cases where they would so apply.
9.3 CONSTRUCTION OF PLAN. This Plan shall be construed according to the
laws of the State of New York and all provisions hereof shall be administered
according to the laws of such State.
9.4 EMPLOYEE'S RIGHTS. Neither the establishment of this Plan, nor any
modification thereof, nor the payment of any benefits, shall be construed as
giving to an Employee or other person, any legal or equitable right against the
Employer, or any officer or Employee thereof, except as herein provided. Under
no circumstances shall the terms of employment of an Employee be modified or in
any way affected hereby.
9.5 VESTED INTEREST. No Plan Participant or other Employee shall have a
vested interest with respect to this Plan except as specifically provided
herein.
9.6 RECEIPT OR RELEASE. Any payment to an Employee, contingent annuitant,
beneficiary, or to their legal representatives, in accordance with the
provisions of the Plan, shall to the extent thereof be in full satisfaction of
all claims hereunder against the Employer, who may require such Employee,
contingent annuitant, beneficiary or legal representative, as a condition
precedent to such payment, to execute a receipt and release therefor in such
form as shall be determined by the Employer.
9.7 SPENDTHRIFT CLAUSE. Except insofar as may be contrary to any
applicable law, no payment of any benefit under the
PAGE 22 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 23
Plan shall be assignable and no such payment or contribution shall be subject to
the claims of any creditor.
9.8 FACILITY OF PAYMENTS. If any Employee, contingent annuitant or
beneficiary is a minor or is, in the judgment of the administrator, otherwise
legally incapable of personally receiving and giving a valid receipt for any
payment due him under the Plan, the administrator may, unless and until claim
shall have been made by a duly appointed guardian or legal representative of
such person, make such payment or any part thereof to such person's spouse,
child, parent, brother or sister, or other person deemed by the administrator to
have incurred expense for or assumed responsibility for the expenses of such
person. Any payment so made shall be in complete discharge of any liability
under the Plan for such payment.
9.9 DELEGATION OF AUTHORITY BY THE EMPLOYER. Whenever the Employer, under
the terms of this Agreement, is permitted or required to do or perform any act
or matter or thing, it shall be done and performed by any officer thereunto duly
authorized by its Board of Directors.
PAGE 23 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 24
IN WITNESS WHEREOF, KEYCORP has caused its corporate seal to be affixed
hereto and these presents to be executed by its duly authorized corporate
officers, this 16th day of August, 1990, to be effective as of September 1,
1990.
(Seal) KEYCORP
ATTEST
/s/ Robert W. Bouchard By /s/ Victor J. Riley, Jr.
- ------------------------------- -------------------------------
Secretary Chairman, President and
Chief Executive Officer
PAGE 24 - SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 25
APPENDIX A
Special Provisions Applicable to Employees of Howe & Rusling, Inc.
1. PARTICIPATION (PLAN REFERENCE: SECTION 2.1).
The following Employees of Howe & Rusling, Inc. shall become Participants
as of the date on which Howe & Rusling, Inc. became a wholly owned
subsidiary of Key Advisory Services, Inc.:
Thomas G. Rusling
Jack L. Anderson
Robert B. Wolf
2. SERVICE AND CREDITED SERVICE (PLAN REFERENCE: SECTION I).
For the purpose of determining the benefit payable to any Participant
listed in Section 1 above, the Service and Credited Service of such a
Participant shall be determined as if the Employer of each such Participant
had been an Employer under the Pension Plan throughout the period that the
Participant was in the employ of such Employer.
<PAGE> 26
APPENDIX B
Special Provisions Applicable to Listed Employees.
1. PARTICIPATION (PLAN REFERENCE: SECTION 2.01).
The following Employees shall be Participants in the Plan, notwithstanding
the provisions of Section 2.01.
Kevin I. Sullivan (IN PAY STATUS)
Carl N. Wenger
2. CREDITED SERVICE (PLAN REFERENCE: SECTION I).
The Credited Service of a Participant whose name is listed in Section 1
above, who satisfies the requirements of Section 2.01, and who retires in
accordance with the terms of Article III, shall be equal to the sum of (1)
the Credited Service of such Participant under the Pension Plan plus (2)
the period of years and months set forth opposite his name in this
Section 2.
Name Additional Credited Service
----------------- ---------------------------
Kevin I. Sullivan 8 years, 6 months
Carl N. Wenger 9 years, 11 months
3. CALCULATION OF RETIREMENT ALLOWANCES (PLAN REFERENCE: SECTION 4.02).
(a) For the purpose of determining the benefit payable hereunder to any
Participant listed in Section 1 above but does not satisfy the
requirements of Section 2 above, shall be equal to the difference
between (1) the benefit that would be payable to such Participant
under the Pension Plan if there were added to his Credited Service
under the Pension Plan the period of years and months set forth
opposite his name in Section 2 above and (2) the benefit payable to
such Participant under the Pension Plan.
(b) The benefits payable hereunder to a Participant whose name is listed
in Section 1 above shall be reduced by the amount of any supplemental
benefit payable to such Participant by any previous employer of such
Participant that is intended to take into account the period of years
and months set forth in Section 1 above opposite the name of such
Participant.
<PAGE> 27
APPENDIX C
Special Provisions Applicable to Employees of Key Pacific Bancorporation and Its
Subsidiaries.
1. PARTICIPATION (PLAN REFERENCE: SECTION 2.1).
The following Employees of Key Pacific Bancorporation, or its Subsidiaries,
shall become Participants, or shall remain Participants, as the case may
be, as of January 1, 1987:
James J. Atkinson
Stephen K. Foster
2. SERVICE AND CREDITED SERVICE (PLAN REFERENCE: SECTION I).
For the purpose of determining the benefit payable to any Participant
listed in Section 1 above, the Service and Credited Service of such a
Participant shall be determined as if the Employer of each such Participant
had been an Employer under the Pension Plan throughout the period that the
Participant was in the employ of such Employer.
<PAGE> 28
APPENDIX D
Special Provisions Applicable to Employees of National Commercial Bank and Trust
Company.
1. NORMAL RETIREMENT (PLAN REFERENCE: SECTION 3.1).
The Normal Retirement Date of Participants who were members of the
Retirement System of the National Commercial Bank and Trust Company on
January 1, 1951, shall be the first day of the month coinciding with or
next following the date that the Participant attains the age of sixty (60).
<PAGE> 29
KEYCORP
Certificate of the Resolution
Adopted by the
Board of Directors
1. The Board of Directors of KeyCorp ("Board") has adopted the KeyCorp
Supplemental Retirement Benefit Plan for Key Executives ("Plan") and the
Board has the right to amend the Plan.
2. The Pension and Profit Sharing Committee, after due consideration,
recommends two amendments of the Plan.
Upon motion made and duly seconded, it was
RESOLVED that the Board of Directors of KeyCorp approve amendments
recommended by the Pension and Profit Sharing Committee to the KeyCorp
Supplemental Retirement Benefit Plan for Key Executives, each to be
effective as of July 1, 1990.
1. Amend the first clause of section 1.6, FINAL AVERAGE
SALARY, to provide that Final Average Salary of a Participant during
any three years of the five consecutive years preceding the
Participant's termination of employment which results in the highest
such average.
2. A participant shall be one-hundred percent (100%) vested
in benefits under this Plan upon completion of five (5) years of
credited service.
I, ROBERT W. BOUCHARD, Secretary of KeyCorp, do hereby certify that the
foregoing is a correct and complete copy of the resolution of the Board of
Directors of KeyCorp duly adopted by a majority vote of all the members thereof
at a meeting held on August 16, 1990, and that said resolution has not been
rescinded and is still in full force and effect.
WITNESS, my hand this 27th day of August, 1990.
/s/ Robert W. Bouchard
-------------------------
Robert W. Bouchard
Secretary, KeyCorp
(Seal)
<PAGE> 30
AMENDMENT TO THE
KEYCORP
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
WHEREAS, KeyCorp has established the KeyCorp Supplemental Retirement
Benefit Plan (the "Plan"), and
WHEREAS, the Board of Directors of KeyCorp has authorized its Compensation
Committee to permit amendments to the Plan, and
WHEREAS, the Compensation Committee of the Board of Directors of KeyCorp
has authorized the execution of this Amendment,
NOW, THEREFORE, pursuant to such action of the Compensation Committee, the
Plan is hereby amended as follows:
1. Article I shall be amended to add the following two (2) new
definitions immediately prior to Section 1.1:
1.0(a) "AVERAGE INTEREST CREDIT" shall mean the average of the
Interest Credits (as defined in the Pension Plan) for the three
(3) consecutive calendar years ending with the year of
termination.
1.0(b) "AVERAGE TREASURY RATE" shall mean the average of the Treasury
Rates (as defined in the Pension Plan) for the three (3)
consecutive calendar years ending with the year of termination.
2. Section 1.2 shall be amended to delete the term Pension Plan in its
entirety and to substitute therefore the "KeyCorp Pension Plan (1989
Restatement)."
3. Section 1.7 is amended to delete in its entirety and to substitute
therefore the following:
"INCENTIVE COMPENSATION AWARD" shall mean an Incentive Compensation
Award granted to a Plan Participant under the KeyCorp Short-Term
Incentive Compensation Plan and/or KeyCorp Management Incentive
Compensation Plan. For purposes of this Section 1.7 hereof, an
Incentive Compensation Award shall be deemed to be for the year in
which the Incentive Compensation Award is earned (without regard to
the actual time of payment), provided, however, that in no event shall
more than one Incentive Compensation Award be included in determining
a Participant's Salary for any applicable year.
4. Section 1.9 shall be amended to add the words "Cash Balance"
immediately following the term KeyCorp and before the term Pension
Plan, provided,
1
<PAGE> 31
however, that for purposes of determining a Participant's monthly
Primary Social Security Benefit the term "Pension Plan" shall
reference the KeyCorp Pension Plan (1986 Restatement) and further, for
purposes of determining the actuarial reduction factors and method of
calculating actuarial equivalence the term "Pension Plan" shall
reference the KeyCorp Pension Plan (1989 Restatement).
5. Section 1.12 shall be amended to include the word "Award" immediately
following the term "Incentive Compensation" appearing in the second
line of Section 1.12.
6. Section 2.1 shall be amended to include the following new sentence at
the end of such Section:
Effective December 31, 1994, all new participation to the Plan shall
cease, and only those individuals designated by the Employer as a
Participant prior to December 31, 1994 shall continue to participate
in the Plan.
7. Section 4.2 shall be amended to delete it in its entirety and to
substitute therefore the following:
Upon retirement after his Normal Retirement Date, a Participant shall
receive a monthly allowance which shall commence on the first day of
the month coincident with or next following the date of such
retirement and shall be payable in the form and over such duration as
elected by the Participant pursuant to Section 4.5. The amount of each
such monthly retirement allowance shall be computed in the same manner
as the Normal Retirement Allowance except that Final Average Salary
will be determined as of the Delayed Retirement Date. A Participant
shall not accrue additional Credited Service beyond his Normal
Retirement Date, unless the Participant has less than twenty-five (25)
years of Credited Service; in which case such Participant shall
continue to accrue Credited Service (up to a total of twenty-five (25)
years), for purposes or reducing or eliminating the short service
reductions of Section 4.1(a) and (b). Credited Service accrued after a
Participant's Normal Retirement Date shall not be used in the
multiplier fractions of Section 4.1(a) and (b).
8. Section 4.3 shall be amended to add the following new paragraph at the
end of such Section:
Notwithstanding the foregoing, in calculating a Participant's Early
Retirement Allowance under the terms of this Section 4.3, the
Participant's monthly retirement allowance at his or her Normal
Retirement Date for purposes of this Section 4.3 hereof shall be the
Participant's monthly retirement allowance under the Pension Plan as
of the Participant's Normal Retirement Date. In calculating this
Normal Retirement Date benefit, if the Participant is not eligible
for, or chooses not to elect his or her monthly retirement allowance
under the provisions
2
<PAGE> 32
of Section 6.5(b) of the Pension Plan, such Participant's Pension Plan
benefit as of his or her termination date shall be increased for
purposes of this Plan with an imputed Average Interest Credit to
reflect the Participant's benefit at his or her Normal Retirement Date
and shall be converted to the form of a Single Life Annuity option
using the Average Treasury Rate and the GATT Mortality Table.
9. Section 4.5 is amended to delete it in its entirety and to substitute
the following:
4.5 (a) IMMEDIATE PAYMENT UPON NORMAL RETIREMENT DATE OF
PARTICIPANT. Subject to the provisions of Section 4.4 hereof, a
Participant meeting the age and service eligibility requirements
entitling a Participant to a Normal Retirement Allowance, shall
receive an immediate distribution of his or her Normal Retirement
Allowance upon the Participant's retirement or termination of
employment in the form of a single life annuity, unless the
Participant elects in writing a minimum of thirty days prior to his or
her retirement or termination date to receive payment of his or her
Normal Retirement Allowance under a different form of payment. The
forms of payment from which a Participant may elect shall be identical
to those forms of payment specified in the Pension Plan, provided,
however, that the lump sum payment option available under the Pension
Plan shall not be available under this Plan. Such method of payment,
once elected by the Participant, shall be irrevocable.
The same actuarial reduction factors and method of calculating
actuarial equivalence under the former KeyCorp Pension Plan (1989
Restatement) shall be applicable under this Plan. Any such optional
method of retirement payment shall be the actuarial equivalent of the
actual dollar amount of lifetime retirement allowance otherwise
payable from this Plan after adjustment for the benefit payable from
the Pension Plan and the Primary Social Security Benefit.
(b) DEFERRED BENEFIT PAYMENT. A Participant who retires
or terminates his or her employment with an Employer after meeting the
age and service requirements for an Early Retirement Allowance, may
elect to defer receipt of his or her Plan benefit until a date
specified by the Participant, provided, (1) the Participant notifies
the Employer in writing of his or her deferral election a minimum of
one year prior to the Participant's retirement or termination of
employment, (2) the Participant specifies the future date on which
such Plan benefit is to be distributed and (3) the Participant
commences distribution of his or her Plan benefit no later than the
first day of the month immediately following the Participant's
sixty-fifth (65th) birthday. The election to defer, once made by the
Participant, shall be irrevocable.
Notwithstanding the foregoing, in the case of an
"enforceable emergency", upon written application by the Participant
to the Employer, the Employer in its sole discretion, may accelerate
the distribution of the Participant's Plan benefit. For purposes of
this Section 4.5, the term "unforeseeable
3
<PAGE> 33
emergency" shall mean an unanticipated emergency that is caused by an
event beyond the control of the Participant that would result in
severe financial hardship to the Participant if such premature
distribution were not permitted.
10. The amendments set forth in Paragraphs 1, 3, 4, 5, 6, 7, 8, and 9
hereof shall be effective as of the first day of January 1995.
11. The amendments set forth in Paragraph 2 hereof shall be effective as
of the first day of January 1994.
12. Except as specifically amended, the Plan shall remain in full force
and effect.
IN WITNESS WHEREOF, KeyCorp has caused this Amendment to the Plan to be
executed by its duly authorized officer to be effective as of the first day of
January 1995.
KEYCORP
By: /s/ Steven Bulloch
------------------------------
Title: Assistant Secretary
4
<PAGE> 34
THE SECOND AMENDMENT TO THE KEYCORP
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
WHEREAS, KeyCorp has established the KeyCorp Supplemental Retirement
Benefit Plan ("Plan"), and
WHEREAS, the Board of Directors of KeyCorp has authorized its Compensation
Committee to approve amendments to the Plan, and
WHEREAS, the Compensation Committee of the Board of Directors of KeyCorp
has authorized the execution of this Second Amendment.
NOW THEREFORE, pursuant to such action of the Compensation Committee, the
Plan is amended as follows:
1. Section 5.1(a) is amended to delete it in its entirety and to
substitute therefore the following:
"(a) If a Participant dies in active employment after completion of
five or more years of Credited Service and is survived by a
surviving spouse, a monthly retirement allowance shall be paid
to the Participant's spouse commencing on the first day of the
month coincident with or next following the Participant's date
of death. Each such monthly retirement allowance shall equal 50
percent of the monthly retirement allowance to which the
Participant would have been entitled had the Participant
retired as of the Participant's Normal Retirement Date. Such
death benefit shall be paid in the form of a single life
annuity and shall be subject to distribution any time after the
Participant's earliest retirement date.
For purposes of calculating the death benefit contained within
this Section 5.1(a) only, the following shall apply:
(i) The Participant's Primary Social Security Benefit shall
be calculated as if the Participant had retired as of
his Normal Retirement Date,
(ii) The Participant's Pension Plan benefit shall be
calculated under the provisions of Article IV of the
Pension Plan as if the Participant had died on his
Normal Retirement Date, with such Pension Plan benefit
being increased for purposes of this Section 5.1(a) with
an imputed Average Interest Credit to reflect the
Participant's Normal Retirement Date
<PAGE> 35
monthly retirement benefit converted to a single life
annuity option using the Average Treasury Rate and Gatt
Mortality Tables.
(iii) The monthly retirement allowance paid to the
Participant's spouse upon the Participant's death shall
be reduced if paid prior to the Participant's Normal
Retirement Date using those actuarial factors as are
applicable under the KeyCorp Pension Plan (1989
Restatement)."
2. Section 6.2 shall be amended to delete it in its entirety and to
substitute therefore the following:
"6.2 TERMINATION PRIOR TO FIVE (5) YEARS OF CREDIT SERVICE. A
Participant who terminates his employment with the Employer because
of total and permanent disability and who has completed less than
five (5) years of Credited Service at such time shall not be
entitled to any benefits from the Plan."
3. The first paragraph of Section 6.3 shall be amended to delete it in
its entirety and to substitute therefore the following:
"6.3" TERMINATION AFTER FIVE (5) YEARS OF CREDITED SERVICE. A
Participant who terminates his employment with the Employer because
of total and permanent disability and who has completed five (5) or
more years of Credited Service shall be subject to whichever of the
following subsections shall be applicable:
(a) If he shall (after the applicable statutory waiting period) be
continuously disabled and entitled to Social Security disability
benefits until his attainment of age sixty-five (65), then he
shall receive a monthly retirement allowance from this Plan
commencing upon the first day of the month coincident with or
next following the attainment of his sixty-fifth (65th) birthday
and payable on the first day of each month thereafter for his
remaining lifetime. Such monthly retirement allowance shall be
determined in the same manner as for retirement at his Normal
Retirement Date, except that:
(i) Credited Service shall be determined as if the Participant
had in fact continued in active employment until his
sixty-fifth (65th) birthday, and
<PAGE> 36
(ii) Final Average Salary shall be determined as of the date of
his actual termination of employment due to disability.
(b) If he shall (after the applicable statutory waiting period) not
be continually disabled and entitled to Social Security
disability benefits until his attainment of age sixty-five (65),
he shall not be entitled to a disability benefit from this Plan,
but shall be subject to the provisions of Section 6.4 hereof."
IN WITNESS WHEREOF, KEYCORP has caused this Amendment to the Plan to be
executed by its duly authorized officer as of this first day of August, 1996.
KEYCORP
By: /s/ Steven Bulloch
---------------------------
Title: Assistant Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.31
<SEQUENCE>5
<DESCRIPTION>EXHIBIT 10.31
<TEXT>
<PAGE> 1
EXHIBIT 10.31
KEYCORP
EXCESS 401(K) SAVINGS PLAN
The KeyCorp Excess 401(k) Savings Plan ("Plan") is hereby amended and
restated in its entirety to be effective January 1, 1998. The Plan as amended
and restated is intended to provide certain key employees of KeyCorp with a Plan
benefit that is generally equal to the benefit that the Participant would have
been eligible to receive under the KeyCorp 401(k) Savings Plan but for the
contribution limits imposed by Section 402(g) of the Internal Revenue Code of
1986, as amended (Code) and the compensation limits imposed by Section
401(a)(17) of the Code. It is the intention of KeyCorp, and it is the
understanding of those Participants covered under the Plan that the Plan is
unfunded for tax purposes and for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
ARTICLE I
DEFINITIONS
1.1 MEANING OF DEFINITIONS. For the purposes hereof, the following words
and phrases shall have the meanings hereinafter set forth, unless a different
meaning is plainly required by the context:
(a) "401(k) SAVINGS PLAN" shall mean the KeyCorp 401(k) Savings
Plan, as shall be amended from time to time.
(b) "BENEFICIARY" shall mean the same person, persons or entity as
designated by the Participant under the 401(k) Savings Plan to receive any
Plan benefits payable after a Participant's death.
(c) "CHANGE OF CONTROL" shall be deemed to have occurred if under
any rabbi trust arrangement maintained by the Corporation, the Corporation
is required under the terms of such arrangement to fund such rabbi trust to
secure the payment of any Participants' Plan benefits payable hereunder
because a "Change of Control" as defined in such rabbi trust has occurred
after January 1, 1997.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, together with all regulations promulgated
thereunder. Reference to a section of the Code includes such section and
any comparable section or sections of any future legislation that amends,
supplements, or supersedes such section.
(e) "COMPENSATION" of a Participant for any Plan Year or any
partial Plan Year in which the Participant incurs a Severance From Service
Date shall mean the entire amount of compensation paid to such Participant
during such period by reason of his or her employment with an Employer, as
reported for federal income tax purposes, plus that compensation which
would have been paid except for (1) the timing of an Employer's payroll
processing operations, (2) the provisions of the 401(k) Savings Plan, or
(3) the provisions of the KeyCorp Flexible Benefits Plan, provided,
however, that the term shall not include:
<PAGE> 2
(i) any amount attributable to the Employee's receipt of stock
appreciation rights and the amount of any gain to the
Employee upon the exercise of a stock option;
(ii) any amount attributable to the Employee's receipt of
non-cash remuneration which is included in the Employee's
income for federal income tax purposes;
(iii) any amount attributable to the Employee's receipt of moving
expenses and any relocation bonus paid to the Employee
during the Plan Year;
(iv) any amount attributable to any severance paid by an Employer
or the Corporation to the Employee;
(v) any amount attributable to fringe benefits (cash and
non-cash), regardless of whether any or all such items are
includible in such Participant's gross income for federal
tax purposes;
(vi) any amount attributable to any bonus or payment made as an
inducement for the Employee to accept employment with an
Employer;
(vii) any amount attributable to compensation of any type
including bonus or incentive compensation payments paid on
or after the Employee's Severance From Service Date; or
(viii) any amount attributable to compensation deferred by the
Participant.
In determining a Participant's Compensation under the provisions of
this Section 1.1(e), for those Plan Participants who participate in a line
of business incentive plan, only that Compensation up to a maximum amount
of $500,000 minus the amount of the Participant's Compensation utilized in
computing his or her 401(k) Savings Plan benefit in accordance with Section
401(a)(17) of the Code shall be utilized in calculating the Participant's
Participant Deferrals under this Plan.
(f) "CORPORATE CONTRIBUTIONS" shall mean the amount an Employer has
agreed to credit on a bookkeeping basis to the Participant's Plan Account
in accordance with the provisions of Article IV of the Plan.
(g) "CORPORATION STOCK FUND" shall mean the investment account
established under the Plan for bookkeeping purposes under which a
Participant may elect to have his or her Participant Deferrals credited and
which mirrors the Corporation Stock Fund established in accordance with and
pursuant to Article VIII of the 401(k) Savings Plan, as shall be amended
from time to time. Participant Deferrals to the Corporation Stock Fund
shall be credited based on a bookkeeping allocation of KeyCorp Common
Shares (both whole and fractional rounded to the nearest one-hundredth of a
share) which shall be equal to the amount of Participant Deferrals invested
by the Participant in the Corporation Stock Fund. The Corporation Stock
Fund shall also reflect on a bookkeeping basis all dividends, gains, and
losses attributable to such Common Shares. All Corporate Contributions and
all Participant Deferrals credited to the Corporation Stock Fund, shall be
based on the New York Stock Exchange's closing price for such
<PAGE> 3
Common Shares as of the day such Participant Deferrals are credited to the
Participants' Plan Account.
(h) "CORPORATION" shall mean KeyCorp, an Ohio Corporation, its
corporate successors, and any corporation or corporations into or with
which it may be merged or consolidated.
(i) "DEFERRAL COMMENCEMENT DATE" shall mean the first pay period
coinciding with or immediately following the date on which the Participant
reaches his or her maximum contribution limit under Section 402(g) of the
Code and/or the Participant's maximum compensation limit under Section
401(a)(17) of the Code which effectively terminates the Participant's
deferral of Compensation under the 401(k) Savings Plan.
(j) "DEFERRAL ELECTION" shall mean the commitment made by the
Participant to defer up to 6% of his or her Compensation on a per pay basis
under the Plan, commencing as of the Participant's Deferral Commencement
Date; a Participant's Deferral Election shall be made in such manner and at
such time as the Corporation shall direct.
(k) "DEFERRAL PERIOD" shall mean each Plan year, provided, however,
that a Participant's initial Deferral Period shall be from his or her first
day of participation in the Plan through the last day of the applicable
Plan year.
(l) "EMPLOYEE" shall mean a common law employee who is employed by
an Employer; provided, however, the term "Employee" shall not include any
person who at the time services are performed is not classified as a common
law employee by the Employer even though such person may for federal income
tax purposes, federal employment tax purposes, or any other purpose be
reclassified by the Employer as a common law employee retroactive to when
such services were performed by reason of administrative, judicial,
regulatory or other governmental action.
(m) "EMPLOYER" shall mean the Corporation and any of its
subsidiaries, unless specifically excluded as an Employer for Plan purposes
by written action of an officer of the Corporation. An Employer's
participation shall be subject to all conditions and requirements made by
the Corporation, and each Employer shall be deemed to have appointed the
Plan Administrator as its exclusive agent under the Plan as long as it
continues as a subsidiary.
(n) "INVESTMENT FUNDS" shall mean those investment accounts
established under the Plan for bookkeeping purposes in which a Participant
may elect to have his or her Participant Deferrals credited and which
mirror the investment funds established in accordance with and pursuant to
Article VIII of the 401(k) Savings Plan as shall be amended from time to
time. Participant Deferrals invested for bookkeeping purposes in the
Investment Funds shall be credited on a bookkeeping basis with the same
earnings, gains, and losses as experienced by the 401(k)Savings Plan's
investment funds.
<PAGE> 4
(o) "MATCHING EMPLOYER CONTRIBUTIONS" shall mean the amount which
an Employer has agreed to contribute to the Plan in accordance with the
provisions of Article IV of the Plan.
(p) "PARTICIPANT" shall mean an Employee who meets the eligibility
requirements set forth in Section 2.1 and becomes a Plan Participant
pursuant to Section 2.2 of the Plan.
(q) "PARTICIPANT DEFERRALS" shall mean the Participant's elective
deferral of Compensation under this Plan.
(r) "PLAN" shall mean the KeyCorp Excess 401(k) Savings Plan, with
all amendments hereafter made.
(s) "PLAN ACCOUNT" shall mean those bookkeeping accounts esta-
blished by the Corporation for each Plan Participant, which shall reflect
all Participant Deferrals and Corporate Contributions with all earnings,
gains, and losses attributable thereto, if such Participant Deferrals and
Corporate Contributions had been invested pursuant to Article V of the Plan
in the various Plan Investment Funds. Plan Accounts shall not constitute
separate Plan funds or Plan assets. Neither the maintenance of, nor the
crediting of amounts on a bookkeeping basis to such Plan Accounts shall be
treated as (i) the allocation of any Corporation assets to, or a
segregation of any Corporation assets in any such Plan Accounts, or (ii) as
otherwise creating a right in any person or Participant to receive specific
assets of the Corporation. Benefits under the Plan shall be paid from the
general assets of the Corporation.
(t) "PROFIT SHARING CONTRIBUTIONS" shall mean those discretionary
contributions which an Employer may contribute to the Plan pursuant to
Article IV of the Plan.
(u) "VALUATION DATE" shall mean each "business day" or "business
days" designated by the Plan Administrator on which Investment Funds will
be valued for bookkeeping purposes.
(v) "RETIREMENT" shall mean the termination of employment of a
Participant under circumstances in which the Participant begins to receive
an Early Retirement or Normal Retirement Date benefit under the KeyCorp
Cash Balance Pension Plan or, which pursuant to a written employment
agreement with the Corporation, the Participant is expressly treated as if
he or she had retired for purposes of the Plan or other deferred
compensation arrangement of the Corporation.
(w) "TERMINATION" shall mean the voluntary or involuntary and
permanent termination of a Participant's employment from his or her
Employer and any other Employer, whether by resignation or otherwise, but
shall not include the Participant's Retirement or termination as a result
of Disability.
1.2 PRONOUNS: The masculine pronoun wherever used herein includes the
feminine in any case so requiring, and the singular may include the plural.
<PAGE> 5
1.3 ADDITIONAL REFERENCE: All other words and phrases used herein shall
have the meaning given them in the 401(k) Savings Plan, unless a different
meaning is clearly required by the context.
ARTICLE II
EMPLOYEE PARTICIPATION
2.1 EMPLOYEE ELIGIBILITY. An Employee shall be eligible to participate in
the Plan, provided (1) the Employee is a participant in the 401(k) Savings Plan,
(2) the Employee's elective deferrals of compensation under the 401(k) Savings
Plan reach the deferral limitations prescribed by Section 402(g) of the Code,
and/or the compensation limitations prescribed by Section 401(a)(17) of the
Code, and (3) the Corporation selects such Employee to participate in the Plan.
2.2 NOTIFICATION OF NEW PARTICIPANTS. The Corporation shall notify an
Employee of his or her eligibility to participate in the Plan; the Employee's
election to defer Compensation under the Plan shall be made at such time and in
such a manner as the Corporation shall direct.
2.3 EFFECT AND DURATION. Upon becoming a Participant, an Employee shall
be entitled to the benefits and shall be bound by all terms and conditions of
the Plan. If the Corporation determines that a Participant's performance is no
longer at a level that deserves to be rewarded through participation in the
Plan, but does not terminate the Participant's employment with an Employer, the
Participant's Plan participation shall terminate at the end of the Deferral
Period and no new Participant Deferrals thereafter may be made by the
Participant.
2.4 AUTHORIZED LEAVE OF ABSENCE. A Participant on an authorized leave of
absence who is not receiving Compensation during such leave period shall
continue as a Plan Participant during such leave, provided, however, that no
Corporate Contributions shall be credited to the Participant's Plan Account on
behalf of the Participant during such leave period. Upon the Participant's
return to active employment with an Employer, the Participant's Participant
Deferrals shall automatically resume in accordance with the Participant's
Deferral Election as in effect prior to the Participant's leave period unless
otherwise modified by the Participant.
ARTICLE III
PARTICIPANT DEFERRALS
3.1 PARTICIPANT DEFERRALS. Upon meeting the eligibility criteria
contained within Section 2.1 hereof, a Participant may defer not less than one
percent nor more than six percent of his or her Compensation under the Plan.
Such Participant Deferrals shall commence with the first payment of Compensation
to the Participant coinciding with (1) the date on which the Participant's
elective deferral of Compensation under the 401(k) Savings Plan reaches the
maximum deferral limitations prescribed under Section 402(g) of the Code, or (2)
the date on which the Participant's elective deferral of Compensation under the
401(k) Savings Plan reaches the maximum compensation limits prescribed under
Section 401(a)(17) of the Code. Participant Deferrals shall be credited on a
bookkeeping basis to the Participant's Plan Account as of each applicable pay
period in which the Participant makes Participant Deferrals under the Plan.
<PAGE> 6
ARTICLE IV
CORPORATE CONTRIBUTIONS
4.1 MATCHING EMPLOYER CONTRIBUTIONS. Matching Employer Contributions
shall be credited on a bookkeeping basis to the Participant's Plan Account as of
each pay period in proportion to the respective amount of the Participant's
Participant Deferrals deferred under the Plan for such pay period. Credited
Matching Employer Contribution shall equal 100% of those Participant Deferrals
deferred under the Plan for such pay period.
4.2 PROFIT SHARING CONTRIBUTIONS. Profit Sharing Contributions, if any,
shall be credited to Participant's Plan Account at such time and in such manner
as the Corporation directs.
ARTICLE V
INVESTMENTS
5.1 PLAN ACCOUNT. All Participant Deferrals and Corporate Contributions
shall be credited on a bookkeeping basis to a Plan Account established in the
Participant's name. Separate sub-accounts may be established to reflect
Participant's investment elections on a bookkeeping basis, with all earnings,
gains, or losses attributable to such elections.
5.2 INVESTMENT OF PARTICIPANT DEFERRALS. Each Participant shall direct
the manner in which his or her Participant Deferrals are to be invested for
bookkeeping purposes under the Plan. All Participant Deferrals may be invested
for bookkeeping purposes in the Plan's Corporation Stock Fund or any one or more
of the Plan Investment Funds in such amount as the Participant shall select
provided that such election amounts are expressed in five percent increments.
Participants may modify their investment elections at such times and in such
manner as permitted by the Corporation.
5.3 INVESTMENT OF CORPORATE CONTRIBUTIONS. All Corporate Contributions
credited to the Participant's Plan Account shall be invested for bookkeeping
purposes in the Corporation Stock Fund. Corporate Contributions are not subject
to Participant investment directives.
5.4 VESTING IN CORPORATE CONTRIBUTIONS. A Participant shall become vested
in those Corporate Contributions credited on a bookkeeping basis to the
Participant's Plan Account upon the Participant's (1) completion of three years
of vested service, (2) Disability, or (3) death. For purposes of this Section
5.4 hereof, the term "vested service" shall be calculated based on the
Participant's employment commencement date through the Participant's Termination
or Retirement date (which ever shall first occur), and shall be based on
consecutive twelve-month periods during which time the Participant is employed
by an Employer.
5.5 VALUATION OF PLAN ACCOUNTS. As of each Valuation Date, the Plan
Administrator shall verify the amount of Participant Deferrals, Corporate
Contributions, dividends, earnings, and losses, if any, to be credited to the
Participant's Plan Account in accordance with the provisions of the Plan. The
reasonable and equitable decision of the Plan Administrator as to the value of
the Participant's Plan Account shall be conclusive and binding upon all
Participants and the Beneficiary of each deceased Participant having any
interest, direct or indirect in the Participant's Plan Account. The value of the
Participant's Plan Account on any day not a Valuation Date, shall be the value
on the last preceding Valuation Date.
<PAGE> 7
5.6 CORPORATE ASSETS. All Participant Deferrals, Corporate Contributions,
dividends, and all earnings and losses credited to a Participant's Plan Account
remain the assets and property of the Corporation, which shall be subject to
distribution to the Participant only in accordance with Articles VI and VII of
the Plan. All payments hereunder shall be in the form of cash and KeyCorp Common
Shares and shall be made from the general assets of the Corporation, and
Participants and Beneficiaries shall have the status of general unsecured
creditors of the Corporation. Nothing contained in the Plan shall create, or be
construed as creating a trust of any kind or any other fiduciary relationship
between the Participant, the Corporation, or any other person. It is the
intention of the Corporation and the Participant that the Plan be unfunded for
tax purposes and for purposes of Title I of the Employee Retirement Income
Security Act of 1974, as amended.
5.7 NO PRESENT INTEREST. Subject to any federal statute to the contrary,
no right or benefit under the Plan and no right or interest in each
Participant's Plan Account shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance, or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right or benefit under
the Plan, or Participant's Plan Account shall be void. No right, interest, or
benefit under the Plan or Participant's Plan Account shall be liable for or
subject to the debts, contracts, liabilities, or torts of the Participant or
Beneficiary. If the Participant or Beneficiary becomes bankrupt or attempts to
alienate, sell, assign, pledge, encumber, or charge any right under the Plan or
Participant's Plan Account, such attempt shall be void and unenforceable.
5.8 EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary
contained in the Plan, the termination of the Plan or the termination of the
401(k) Savings Plan shall terminate the liability of the Corporation to make
further Corporate Contributions to the Plan.
ARTICLE VI
DISTRIBUTION OF PLAN BENEFITS
6.1 DISTRIBUTION OPTIONS. Subject to the provisions of Section 6.3 and
Section 6.4 hereof, a Participant shall elect, as reflected in the Participant's
Distribution Election Agreement, to receive a distribution of his or her vested
Plan Account balance from the Plan's Investment Funds (other than from the
Corporation Stock Account) under the following payment options:
(a) a single lump sum distribution, or
(b) a series of monthly installment distributions over a period of 60,
120,or 180 months.
Distributions of Participant Deferrals from the Plan's Investment Funds
other than the Corporation Stock Fund shall be made in cash.
6.2 DISTRIBUTION OPTIONS FROM THE CORPORATION STOCK ACCOUNT. Subject to
the provisions of Section 6.3 and Section 6.4 of the Plan, a Participant shall
elect, as reflected in the Participant's Distribution Election Agreement, to
receive a distribution of his or her vested Plan Account balance from the Plan's
Corporation Stock Account under the following payment options:
(a) a single lump sum distribution, or
(b) a series of annual installment distributions over a period of 5, 10,
or 15 years.
<PAGE> 8
Distributions of Participant Deferrals and vested Corporate Contributions
from the Plan's Corporation Stock Fund made or commenced prior to January 1,
1999 shall be made in cash; distributions from the Corporation Stock Fund made
or commenced on or after January 1, 1999 shall be made in KeyCorp Common Shares;
provided, however, that in the event that the Corporation enters into a
transaction intended to qualify as a pooling of interests for accounting
purposes prior to January 1, 1999, all distributions from the Corporation Stock
Fund shall continue to be made in cash.
6.3 DISTRIBUTIONS FOLLOWING TERMINATION, RETIREMENT OR DISABILITY.
(a) Upon a Participant's Termination, the Participant's vested Plan
Account balance shall be distributed to the Participant in a single
lump sum payment.
(b) Upon a Participant's Retirement, or Disability, the Participant's
vested Plan Account balance shall be distributed to the Participant
in accordance with the distribution elections contained within the
Participant's Distribution Election Agreement; provided, however,
that if the Participant has failed to complete a Distribution
Election Agreement, then the Participant's vested Plan Account
balance shall be distributed as a single lump sum payment.
Notwithstanding the foregoing provisions of this Section 6.3,
however, in the event of the Participant's Retirement and thereafter
within twelve months of such Retirement, without the prior written
approval of the Corporation, the Participant provides services in any
capacity to a financial services organization, or other competitor of
the Corporation or any of its subsidiaries, such Participant's
distribution election as contained within the Participant's
Distribution Election Agreement shall be null and void, and the
Participant shall receive an immediate lump sum distribution of his
or her vested Plan Account balance.
6.4 TIMING OF DISTRIBUTIONS. The Participant's vested Plan Account
shall be valued as of the Valuation Date immediately preceding his or her
Termination, Retirement or Disability (the "valuation date").
(a) LUMP SUM DISTRIBUTION. If a Participant has elected to receive a lump
sum distribution of his or her vested Plan Account upon his or her
Termination, Retirement or Disability date, such lump sum
distribution shall be made as soon as reasonably practicable
immediately following the Participant's Termination, Retirement or
Disability date.
(b) INSTALLMENT DISTRIBUTION. If a Participant has elected to receive an
installment distribution of his or her Plan Account upon his or her
Retirement or Disability, such installment distribution shall
commence as soon as reasonably practicable following the
Participant's Retirement or Disability date.
(i) The Participant's vested unpaid Plan Account balance invested
for bookkeeping purposes in the Plan's Investment Funds (other than
Corporation Stock Fund) shall be reflected in a distribution sub-
account, which shall be credited with all earnings, gains and losses
on such Investment Funds during the Participant's installment
distribution period.
(ii) The Participant's vested unpaid Plan Account balance invested
for bookkeeping purposes in the Plan's Corporation Stock Fund shall
be reflected as a number of whole and fractional Common Shares in a
distribution sub-account and shall be credited with dividends on a
bookkeeping basis which shall be reinvested in the Plan's Corporation
<PAGE> 9
Stock Fund throughout the installment distribution period; all such reinvested
dividends shall be paid to the Participant in Common Shares in conjunction with
the Participant's final installment payment under the Plan.
6.5 DISTRIBUTION OF SMALL ACCOUNTS. Notwithstanding the provisions of
Sections 6.1, 6.2, 6.3, and 6.4 hereof, if the value of a Participant's vested
Account balance as of the Valuation Date immediately preceding the Participant's
Retirement or Disability date is under $50,000, such balance shall be
distributed to the Participant as a single lump sum distribution as soon as
reasonably practicable following such Retirement or Disability date.
6.6 FACILITY OF PAYMENT. If it is found that any individual to whom an
amount is payable hereunder is incapable of attending to his or her financial
affairs because of any mental or physical condition, including the infirmities
of advanced age, such amount (unless prior claim therefor shall have been made
by a duly qualified guardian or other legal representative) may, in the
discretion of the Corporation, be paid to another person for the use or benefit
of the individual found incapable of attending to his or her financial affairs
or in satisfaction of legal obligations incurred by or on behalf of such
individual. Any such payment shall be charged to the Participant's Plan Account
from which any such payment would otherwise have been paid to the individual
found incapable of attending to his or her financial affairs, and shall be a
complete discharge of any liability therefor under the Plan.
ARTICLE VII
BENEFICIARY DESIGNATION
7.1 BENEFICIARY DESIGNATION. Subject to Section 7.3 hereof, the
Participant shall have the right, at any time, to designate one or more persons
or an entity as Beneficiary (both primary as well as secondary) to whom benefits
under this Plan shall be paid in the event of Participant's death prior to
complete distribution of the Participant's Plan Account. Each Beneficiary
designation shall be in a written form prescribed by the Corporation and shall
be effective only when filed with the Corporation during the Participant's
lifetime.
7.2 CHANGING BENEFICIARY. Subject to Section 7.3, any Beneficiary
designation may be changed by a Participant without the consent of the
previously named Beneficiary by the filing of a new designation with the
Corporation. The filing of a new designation shall cancel all designations
previously filed.
7.3 NO BENEFICIARY DESIGNATION. If any Participant fails to designate a
Beneficiary in the manner provided above, if the designation is void, or if the
Beneficiary (including all contingent Beneficiaries) designated by a deceased
Participant dies before the Participant or before complete distribution of the
Participant's benefits, the Participant's Beneficiary shall be the person in the
first of the following classes in which there is a survivor:
(a) The Participant's spouse;
(b) The Participant's children in equal shares, except that if any
of the children predeceases the Participant but leaves issue
surviving, then such issue shall take, by right of
representation the share the parent would have taken if
living:
<PAGE> 10
(c) The Participant's estate.
7.4 DISTRIBUTION UPON DEATH. If a Participant dies after the distribution
of his or her vested interest under the Plan has commenced, the remaining
portion of the Participant's entire interest under the Plan, if any, shall be
distributed to the Participant's Beneficiary under the method of distribution
being used as of the Participant's date of death. If the Participant dies before
the distribution of the Participant's Plan Account has commenced, the
Participant's entire interest under the Plan shall be valued as of the Valuation
Date immediately preceding the Participant's date of death, and shall be
distributed to his or her Beneficiary in a lump sum payment as soon as
reasonably practicable following the Participant's date of death.
ARTICLE VIII
ADMINISTRATION
8.1 ADMINISTRATION. The Corporation, which shall be the "Administrator"
of the Plan for purposes of ERISA and the "Plan Administrator" for purposes of
the Code, shall be responsible for the general administration of the Plan, for
carrying out the provisions hereof, and for making payments hereunder. The
Corporation shall have the sole and absolute discretionary authority and power
to carry out the provisions of the Plan, including, but not limited to, the
authority and power (a) to determine all questions relating to the eligibility
for and the amount of any benefit to be paid under the Plan, (b) to determine
all questions pertaining to claims for benefits and procedures for claim review,
(c) to resolve all other questions arising under the Plan, including any
questions of construction and/or interpretation, and (d) to take such further
action as the Corporation shall deem necessary or advisable in the
administration of the Plan. All findings, decisions, and determinations of any
kind made by the Plan Administrator shall not be disturbed unless the Plan
Administrator has acted in an arbitrary and capricious manner. Subject to the
requirements of law, the Plan Administrator shall be the sole judge of the
standard of proof required in any claim for benefits and in any determination of
eligibility for a benefit. All decisions of the Plan Administrator shall be
final and binding on all parties. The Plan Administrator may employ such
attorneys, investment counsel, agents, and accountants as it may deem necessary
or advisable to assist it in carrying out its duties hereunder. The actions
taken and the decisions made by the Plan Administrator hereunder shall be final
and binding upon all interested parties subject, however, to the provisions of
Section 8.2. The Plan Year, for purposes of Plan administration, shall be the
calendar year.
8.2 CLAIMS REVIEW PROCEDURE. Whenever the Plan Administrator decides for
whatever reason to deny, whether in whole or in part, a claim for benefits under
this Plan filed by any person (herein referred to as the "Claimant"), the Plan
Administrator shall transmit a written notice of its decision to the Claimant,
which notice shall be written in a manner calculated to be understood by the
Claimant and shall contain a statement of the specific reasons for the denial of
the claim and a statement advising the Claimant that, within 60 days of the date
on which he or she receives such notice, he or she may obtain review of the
decision of the Plan Administrator in accordance with the procedures hereinafter
set forth. Within such 60-day period, the Claimant or his or her authorized
representative may request that the claim denial be reviewed by filing with the
Plan Administrator a written request therefor, which request shall contain the
following information:
(a) the date on which the request was filed with the Plan Administrator;
provided, however, that the date on which the request for review was
in fact filed with the Plan
<PAGE> 11
Administrator shall control in the event that the date of the actual
filing is later than the date stated by the Claimant pursuant to this
paragraph (a);
(b) the specific portions of the denial of his or her claim which the
Claimant requests the Plan Administrator to review;
(c) a statement by the Claimant setting forth the basis upon which he or
she believes the Plan Administrator should reverse its previous
denial of the claim and accept the claim as made; and
(d) any written material which the Claimant desires the Plan
Administrator to examine in its consideration of his or her position
as stated pursuant to paragraph (b) above.
In accordance with this Section, if the claimant requests a review of the
Plan Administrator's decision, such review shall be made by the Plan
Administrator, who shall, within sixty (60) days after receipt of the request
form, review and render a written decision on the claim containing the specific
reasons for the decision including reference to Plan provisions upon which the
decision is based. All findings, decisions, and determinations of any kind made
by the Plan Administrator shall not be modified unless the Plan Administrator
has acted in an arbitrary and capricious manner. Subject to the requirements of
law, the Plan Administrator shall be the sole judge of the standard of proof
required in any claim for benefits, and any determination of eligibility for a
benefit. All decisions of the Plan Administrator shall be binding on the
claimant and upon all other Persons. If the Participant or Beneficiary shall not
file written notice with the Plan Administrator at the times set forth above,
such individual shall have waived all benefits under the Plan other than as
already provided, if any, under the Plan.
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 RESERVATION OF RIGHTS. The Corporation reserves the right to
terminate the Plan at any time by action of the Board of Directors of the
Corporation, or any duly authorized committee thereof, and to modify or amend
the Plan, in whole or in part, at any time and for any reason, subject to the
following:
(a) PRESERVATION OF ACCOUNT BALANCE. No termination, amendment, or
modification of the Plan shall reduce (i) the amount of Participant
Deferrals and Corporate Contributions, and (ii) all earnings and
gains on such Participant Deferrals and Corporate Contributions that
have accrued up to the effective date of the termination, amendment,
or modification.
(b) CHANGES IN EARNINGS RATE. No amendment or modification of the Plan
shall reduce or modify the method of accruing earnings, gains, and
losses under the Plan's Investment Funds that differ from the method
of accruing earnings, gains, and losses under the 401(k) Savings
Plan's investment funds until the close of the applicable Deferral
Period in which such amendment or modification is made.
<PAGE> 12
ARTICLE X
CHANGE OF CONTROL
10.1 CHANGE OF CONTROL. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change of Control as defined in accordance with
Section 1.1 of the Plan, no amendment or modification of this Plan may be made
at any time on or after such Change of Control (1) to reduce or modify a
Participant's Pre-Change of Control Account Balance, (2) to reduce or modify the
Corporation Stock Fund's method of calculating all earnings, gains, and/or
losses on a Participant's Pre-Change of Control Account Balance, (3) to reduce
or modify any other Investment Funds' method of calculating all earnings, gains,
and/or losses on a Participant's Pre-Change of Control Account Balance, or (4)
to reduce or modify the Participant's Participant Deferrals and/or Corporate
Contributions to be credited to a Participant's Plan Account for the applicable
Deferral Period. For purposes of this Section 10.1, the term "Pre-Change of
Control Account Balance" shall mean, with regard to any Plan Participant, the
aggregate amount of such Participant's Participant Deferrals and Corporate
Contributions with all earnings, gains, and losses thereon which are credited to
the Participant's Plan Account through the close of the calendar year in which
such Change of Control occurs.
10.2 COMMON STOCK CONVERSION. In the event of a Change of Control in which
the common shares of the Corporation are converted into or exchanged for
securities, cash and/or other property as a result of any capital reorganization
or reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with or into another corporation or entity, or the
sale of all or substantially all of its assets to another corporation or entity,
the Corporation shall cause the Corporation Stock Fund to reflect on a
bookkeeping basis the securities, cash and other property that would have been
received in such reorganization, reclassification, consolidation, merger or sale
on an equivalent amount of common shares equal to the balance in the Corporation
Stock Fund and, from and after such reorganization, reclassification,
consolidation, merger or sale, the Corporation Stock Fund shall reflect on a
bookkeeping basis all dividends, interest, earnings and losses attributable to
such securities, cash, and other property.
10.3 DISTRIBUTION PROVISIONS. In the event of a Change of Control, the
provisions of Section 6.3 of the Plan which limit a Participant's ability to
provide services to a financial services organization, business, or company upon
the Participant's Retirement, shall become null and void, and such Participant's
distribution elections as contained within the Participant's Agreement shall
control the method and timing of the Participant's distribution of his or her
Plan Account balances.
10.4 AMENDMENT IN THE EVENT OF A CHANGE OF CONTROL. On or after a Change
of Control, the provisions of Article II, Article IV, Article V, Article VI,
Article VII, Article VIII, Article IX and Article X may not be amended or
modified as such Sections and Articles apply with regard to the Participants'
Pre-Change of Control Account Balances.
<PAGE> 13
ARTICLE XI
SECURITIES LAWS COMPLIANCE
11.1 RESTRICTIONS IMPOSED ON TRANSACTIONS INVOLVING THE CORPORATION STOCK
FUND. Notwithstanding any contrary provision in this Plan, the Corporation may,
in its discretion, but in a uniform, non-discriminatory manner, delay, suspend
or otherwise limit any investment in or withdrawal from the Corporation Stock
Fund for such time and to the extent the Corporation, on advice of legal
counsel, determines is necessary or desirable to avoid violating any applicable
state or federal securities laws, rules or regulations.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 UNFUNDED PLAN. This Plan is an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301, and 401
of ERISA, and therefore is exempt from the provisions of Parts 2, 3, and 4 of
Title I of ERISA.
12.2 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be
construed as a commitment or agreement upon the part of any Employee hereunder
to continue his or her employment with an Employer, and nothing herein contained
shall be construed as a commitment on the part of any Employer to continue the
employment, rate of compensation or terms and conditions of employment of any
Employee hereunder for any period. All Participants shall remain subject to
discharge to the same extent as if the Plan had never been put into effect.
12.3 BENEFITS. Nothing in the Plan shall be construed to confer any right
or claim upon any person, firm, or corporation other than the Participants,
former Participants, and Beneficiaries.
12.4 ABSENCE OF LIABILITY. No member of the Board of Directors of the
Corporation or a subsidiary or committee authorized by the Board of Directors,
or any officer of the Corporation or a subsidiary or officer of a subsidiary
shall be liable for any act or action hereunder, whether of commission or
omission, taken by any other member, or by any officer, agent, or Employee,
except in circumstances involving bad faith or willful misconduct, for anything
done or omitted to be done.
12.5 EXPENSES. The expenses of administration of the Plan shall be paid by
the Corporation.
12.6 PRECEDENT. Except as otherwise specifically agreed to by the
Corporation in writing, no action taken in accordance with the Plan by the
Corporation shall be construed or relied upon as a precedent for similar action
under similar circumstances.
12.7 WITHHOLDING. The Corporation shall withhold any tax which the
Corporation in its discretion deems necessary to be withheld from any payment to
any Participant, former Participant, or Beneficiary hereunder, by reason of any
present or future law.
12.8 VALIDITY OF PLAN. The validity of the Plan shall be determined and
the Plan shall be construed and interpreted in accordance with the provisions of
ERISA, the Code, and, to the extent
<PAGE> 14
applicable, the laws of the State of Ohio. The invalidity or illegality of any
provision of the Plan shall not affect the validity or legality of any other
part thereof.
12.9 PARTIES BOUND. The Plan shall be binding upon the Employers,
Participants, former Participants, and Beneficiaries hereunder, and, as the case
may be, the heirs, executors, administrators, successors, and assigns of each of
them.
12.10 HEADINGS. All headings used in the Plan are for convenience of
reference only and are not part of the substance of the Plan.
12.11 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each
Participant, former Participant, or Beneficiary any documents, reports, returns,
statements, or other information that it reasonably deems necessary to perform
its duties imposed hereunder or otherwise imposed by law.
12.12 TRUST FUND. At its discretion, the Corporation may establish one or
more trusts, with such trustees as the Corporation may approve, for the purpose
of providing for the payment of benefits owed under the Plan. Although such a
trust may be irrevocable, in the event of insolvency or bankruptcy of the
Corporation, such assets will be subject to the claims of the Corporation's
general creditors. To the extent any benefits provided under the Plan are paid
from any such trust, the Employer shall have no further obligation to pay them.
If not paid from the trust, such benefits shall remain the obligation of the
Employer.
12.13 VALIDITY. In case any provision of this Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if such
illegal and invalid provision had never been inserted herein.
12.14 NOTICE. Any notice required or permitted under the Plan shall be
deemed sufficiently provided if such notice is in writing and hand delivered or
sent by registered or certified mail. Such notice shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark or on the receipt for registration or certification. Mailed notice
to the Corporation shall be directed to the Corporation's address, attention:
KeyCorp Compensation and Benefits Department. Mailed notice to a Participant or
Beneficiary shall be directed to the individual's last known address in the
Employer's records
12.15 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of each Employer and its successors and assigns. The term successors as
used herein shall include any corporate or other business entity which shall,
whether by merger, consolidation, purchase or otherwise, acquire all or
substantially all of the business and assets of an Employer.
KEYCORP
By: /s/ Thomas E. Helfrich
-----------------------------------
Thomas E. Helfrich
Title: Executive Vice President
--------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.34
<SEQUENCE>6
<DESCRIPTION>EXHIBIT 10.34
<TEXT>
<PAGE> 1
EXHIBIT 10.34
KEYCORP
EXCESS CASH BALANCE PENSION PLAN
ARTICLE I
THE PLAN
The KeyCorp Excess Cash Balance Pension Plan ("Plan") originally
established effective January 1, 1995, is hereby amended and restated in its
entirety effective January 1, 1998. The Plan as amended and restated is intended
to provide certain key Employees of KeyCorp with a Plan benefit that is
generally equal to the benefit that the Participant would have been eligible to
receive under the KeyCorp Cash Balance Pension Plan but for the limitations
imposed by Section 401(a)(17) and Section 415 of the Internal Revenue Code of
1986, as amended. It is the intention of the Plan and it is the understanding of
those Participants covered under the Plan that the Plan is unfunded for tax
purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended.
ARTICLE II
DEFINITIONS
2.1 MEANINGS OF DEFINITIONS. As used herein, the following words and phrases
shall have the meanings hereinafter set forth, unless a different meaning is
plainly required by the context:
(a) "BENEFICIARY" shall mean the Participant's surviving spouse who is
entitled to receive any Plan benefits in the event the Participant dies before
his or her Excess Pension Benefit shall have been distributed to him or her in
full.
(b) "CREDITED SERVICE" shall be calculated by measuring the period of
service commencing on the Participant's Employment Commencement Date and
Re-Employment Commencement Date, if applicable, and ending on the Participant's
Severance from Service Date, and shall be computed based on each full month
during which time the Employee is employed by an Employer.
(c) "COMPENSATION" of a Participant for any Plan Year or any partial Plan
Year in which the Participant incurs a Severance From Service Date shall mean
the entire amount of compensation paid to such Participant during such period by
reason of his employment as an Employee, as reported for federal income tax
purposes, or which would have been paid except for (1) the timing of an
Employer's payroll processing operations, (2) the Participant's written election
to defer the receipt of compensation during the Plan Year, (3) the provisions of
the KeyCorp 401(k) Savings Plan, or (4) the provisions of the KeyCorp Flexible
Benefits Plan provided, however, the term shall not include:
(i) any amount attributable to the Participant's exercise of stock
appreciation rights and the amount of any gain to the
Participant upon the exercise of stock options;
(ii) any amount attributable to the Participant's receipt of
non-cash remuneration whether or not it is included in the
Participant's income for federal income tax purposes;
<PAGE> 2
(iii) any amount attributable to the Participant's receipt of moving
expenses and any relocation bonus paid to the Participant
during the Plan Year;
(iv) any amount attributable to any severance paid by an Employer
or the Corporation to the Participant;
(v) any amount attributable to fringe benefits (cash and
non-cash),
(vi) any amount attributable to any bonus or payment made as an
inducement for the Participant to accept employment with an
Employer,
(vii) any amount attributable to salary deferrals paid to the
Participant during the Plan Year, which have been previously
included as Compensation under the Plan during the Plan Year
or any prior Plan Year,
(viii) any amount paid to the Participant during the Plan Year which
is attributable to interest earned on Compensation deferred
under a plan of an Employer or the Corporation; and
(ix) any amount paid for any period after the Participant's
Termination or Retirement date; and
In determining a Participant's Compensation under the provisions of this
Section 2.1(c), for those Plan Participants who participate in a line of
business incentive plan (other than the KeyCorp Annual Incentive Plan, the
KeyCorp Long Term Incentive Plan and/or the KeyCorp Staff Incentive Plan),
compensation up to a Plan maximum of $500,000 minus the amount of the
Participant's compensation utilized in computing his or her Pension Plan benefit
in accordance with Section 401(a)(17) of the Code shall be utilized in
calculating the Participant's benefit under the Plan.
In the case of a Disabled Participant, such Participant's Compensation for
each year while Disabled shall equal an amount which shall reflect the
Participant's Compensation for the calendar year preceding the date of the
Participant's Disability.
(d) "CORPORATION" shall mean KeyCorp, an Ohio corporation, its corporate
successors, and any corporation or corporations into or with which it may be
merged or consolidated.
(e) "EMPLOYEE" shall mean a common law employee who is employed by an
Employer; provided, however, the term "Employee" shall not include any person
who at the time services are performed is not classified as a common law
employee by the Employer even though such person may for federal income tax
purposes, federal employment tax purposes, or any other purpose be reclassified
by the Employer as a common law employee retroactive to when such services were
performed by reason of administrative, judicial, regulatory or other
governmental action.
(f) "EMPLOYER" shall mean KeyCorp and all of its subsidiaries or
affiliates unless specifically excluded as an Employer for Plan purposes by
written action by an officer of the Corporation. An Employer's participation
shall be subject to any and all conditions and requirements made by the
Corporation as the Plan Administrator, and each Employer shall be deemed to have
appointed the Plan Administrator as its exclusive agent under the Plan.
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<PAGE> 3
(g) "EXCESS PENSION BENEFIT" shall mean the vested pension benefit
payable pursuant to the terms of this Plan to a Participant meeting the
eligibility requirements of Section 3.1 of the Plan.
(h) "INTEREST CREDIT" shall mean the rate at which a Participant's
Opening Account Balance as provided for under Section 3.3 of the Plan is
periodically increased on a bookkeeping basis. The Interest Credit allocated to
a Participant's Opening Account Balance shall be determined based on one-quarter
of the effective annual calendar-year interest rate equal to the average
(rounded to the nearest one-hundredth of one percent) 5-year United States
Treasury Bill rate in effect each month during the twelve (12) month period
ending on October 31 or the last business day in October of the preceding
calendar year. The procedures to determine such Interest Credit shall be
determined by the Pension Trust Oversight Committee, and the Pension Trust
Oversight Committee in its sole and exclusive discretion may modify the Interest
Credit to be allocated under the Plan.
(i) "PARTICIPANT" shall mean an Employee who is a participant in the
Pension Plan and who is selected by the Corporation to become a Participant in
the Plan, and whose participation in the Plan has not been terminated by the
Corporation.
(j) "PENSION PLAN" shall mean the KeyCorp Cash Balance Pension Plan as
the same shall be in effect on the date of a Participant's Retirement, death,
Disability or other termination of employment.
(k) "RETIREMENT" shall mean the termination of employment of a
Participant under circumstances in which the Participant begins to receive an
Early Retirement or Normal Retirement Date benefit under the KeyCorp Cash
Balance Pension Plan.
(l) "SUPPLEMENTAL RETIREMENT PLAN" shall mean the KeyCorp Supplemental
Retirement Plan (formerly known as the Society Corporation Supplemental
Retirement Plan), the KeyCorp Supplemental Retirement Benefit Plan, and the
KeyCorp Supplemental Retirement Benefit Plan for Key Executives, with all
amendments, modifications, and supplements which may be made thereto.
(m) "TERMINATION" shall mean the voluntary or involuntary and permanent
termination of a Participant's employment from his or her Employer and any other
Employer, whether by resignation or otherwise.
All other capitalized and undefined terms used herein shall have the
meanings given them in the Pension Plan, unless a different meaning is plainly
required by the context.
The masculine gender includes the feminine, and singular references include
the plural, unless the context clearly requires otherwise.
ARTICLE III
EXCESS PENSION BENEFIT
3.1 ELIGIBILITY. Subject to the provisions of Article V hereof, a Participant
shall be eligible for an Excess Pension Benefit hereunder if the Participant (i)
retires on or after age 65 with five or more years of Credited Service, (ii)
terminates employment with an Employer on or after age 55 with ten or more years
of Credited Service, (iii) terminates his active employment with an Employer
upon becoming Disabled after completing five or more years of Credited Service
and disability benefits have ceased
3
<PAGE> 4
under the KeyCorp Long-Term Disability Plan due to the Participant's election of
an Early or Normal Retirement under the Pension Plan, or (iv) dies after
completing five years of Credited Service, and has a Beneficiary who is eligible
for a benefit under the Pension Plan.
3.2 AMOUNT OF EXCESS PENSION BENEFIT. The Excess Pension Benefit payable to a
Participant shall be in such amount as is required, when added to the Accrued
Benefit payable in lump sum form to the Participant under the Pension Plan as of
the Participant's Retirement or Termination date, to produce a lump sum cash
aggregate benefit equal to the benefit which would have been payable under the
Pension Plan formula in lump sum form to the Participant if the limitations of
Section 401(a)(17) of the Code and the limitations of Section 415 of the Code
had not been in effect. For purposes of this Section 3.2 hereof, the term
"Pension Plan formula" means the method of calculating a Participant's pension
benefit as reflected in Article IV of the Pension Plan, and shall not include
any Predecessor Plan Grandfathered Benefits formula.
3.3 OPENING ACCOUNT BALANCE.
(1) Effective January 1, 1995, all "Employees" (other than "Grandfathered
Employees") as defined in the Society Corporation Supplemental Retirement
Plan, as amended and restated as the KeyCorp Supplemental Retirement Plan
("Supplemental Retirement Plan") whose Supplemental Retirement Plan benefit
was valued as of January 1, 1995 in the form of a lump sum cash benefit and
thereafter the value of which was transferred to the Plan pursuant to the
provisions of Article IX of the Supplemental Retirement Plan, shall have
the value of such lump sum cash benefit reflected in a bookkeeping opening
account balance ("Opening Account Balance") established for such
Participant. Such Opening Account Balance shall be credited with Interest
Credit as of the last day of each calendar quarter, based on the value of
the Participant's Opening Account Balance as of the first day of the
applicable quarter. A Participant's entitlement to such Opening Account
Balance shall be governed by the eligibility provisions of Section 3.1 of
this Plan, and the value of the Opening Account Balance shall be added to
and become a part of such Participant's Excess Pension Benefit, if any,
which shall be payable in accordance with the terms of this Plan.
(2) Effective January 1, 1995, all participants in the Ameritrust
Corporation Excess Benefit Plan and all participants in the Ameritrust
Corporation Deferred Compensation Plan (augmented retirement benefit)
(hereinafter collectively referred to as "Ameritrust Plan"), whose
Ameritrust Plan benefit was valued as of January 1, 1995, in the form of a
lump sum cash benefit and thereafter the value of which was transferred to
this Plan shall have the value of such lump sum cash benefit reflected in a
bookkeeping opening account balance ("Opening Account Balance") established
for such Participant. Such Opening Account Balance shall be credited with
Interest Credit as of the last day of each calendar quarter, based on the
value of the Participant's Opening Account Balance as of the first day of
the applicable quarter. A Participant shall be fully vested in such Opening
Account Balance, and the value of the Opening Account Balance shall be
added to and become a part of such Participant's Excess Pension Benefit, if
any, which shall be payable in accordance with the terms of this Plan. If
the Participant fails to meet eligibility requirements of Section 3.1
entitling Participant to an Excess Pension Benefit accruing under this Plan
on and after January 1, 1995, the Participant shall nonetheless receive, at
his or her Termination date, the Participant's vested Opening Account
Balance valued as of the Participant's Termination date, which shall be
paid pursuant to the benefit distribution (payment) options contained in
Article IV of this Plan.
4
<PAGE> 5
ARTICLE IV
PAYMENT OF EXCESS PENSION BENEFIT
4.1 IMMEDIATE PAYMENT UPON TERMINATION OR RETIREMENT OF PARTICIPANT. Subject to
the provisions of Section 4.2 hereof, a Participant meeting the age and service
eligibility requirements of Section 3.1 shall receive an immediate distribution
of his or her Excess Pension Benefit upon the Participant's Retirement or
Termination date. Such Excess Pension Benefit shall be paid as a lump sum
payment, unless the Participant elects in writing, a minimum of one year prior
to his or her Retirement or Termination date to receive his or her distribution
under a different form of payment. The forms of payment from which a Participant
may elect shall be identical to those forms of payment provided under the
Pension Plan.
The Excess Pension Benefit payable to a Participant in a form other
than a lump sum payment shall be the actuarial equivalent to such lump sum cash
payment. In making this determination as provided for in this Article IV, the
Corporation shall rely upon calculations made by independent actuaries for the
Pension Plan, who shall apply the actuarial assumptions and interest rate then
in use under the Pension Plan for converting to the form of payment elected by
the Participant.
4.2 PAYMENT UPON DEATH OF PARTICIPANT.
(a) Upon the death of a Participant who has met the service
requirement of Section 3.1, but who has not yet commenced distribution of his or
her Excess Pension Benefit, there shall be paid to the Participant's Beneficiary
the Excess Pension Benefit which the Participant would have been entitled to
receive had the Participant retired on his or her date of death and commenced
distribution of his or her Excess Pension Benefit. Such Excess Pension Benefit
shall be paid in the form of a lump sum cash payment.
(b) In the event of a Participant's death after the Participant has
commenced distribution of his or her Excess Pension Benefit, there shall be paid
to the Participant's Beneficiary only those survivor benefits provided under the
form of benefit payment elected by the Participant.
ARTICLE V
ELECTION BETWEEN PLAN BENEFITS
5.1 PARTICIPANT'S ELECTION BETWEEN PLAN BENEFITS. A Participant who meets the
eligibility requirements for an Excess Pension Benefit who is also a participant
in and meets the eligibility requirements for a benefit under the KeyCorp
Executive Supplemental Pension Plan, shall be required prior to the
Participant's Retirement or Termination date to elect a benefit from either the
Plan or from the KeyCorp Executive Supplemental Pension Plan. A Participant's
failure to elect between Plan benefits prior to the Participant's Retirement or
Termination date shall result in an automatic default election by the
Participant of an Excess Pension Benefit under the Plan (and shall extinguish
all rights to a benefit under the KeyCorp Executive Supplemental Pension Plan).
Such Excess Pension Benefit shall be paid to the Participant as of his or her
Retirement or Termination date in the form of a lump sum cash payment.
5.2 BENEFICIARY ELECTION BETWEEN PLAN BENEFITS. If a Participant dies after
having met the eligibility requirements for an Excess Pension Benefit and the
Participant at the time of his or her death
5
<PAGE> 6
is also a Participant in the KeyCorp Executive Supplemental Pension Plan and
eligible for a benefit under the KeyCorp Executive Supplemental Pension Plan,
the Participant's Beneficiary shall be required to elect a death benefit from
either the Plan or from the KeyCorp Executive Supplemental Pension Plan, but in
no event may the Participant's Beneficiary elect a benefit under both the Plan
and the KeyCorp Executive Supplemental Pension Plan. The terms of each
respective Plan shall control the form of payment which may be elected by the
Participant's Beneficiary.
A Beneficiary's failure to elect between Plan benefits within 120 days from
the date of the Participant's death shall result in an automatic default
election by the Beneficiary of an Excess Pension Benefit under the Plan to be
paid to the Beneficiary in a cash lump sum payment.
ARTICLE VI
ADMINISTRATION
6.1 ADMINISTRATION. The Corporation, which shall be the "Administrator" of the
Plan for purposes of ERISA and the "Plan Administrator" for purposes of the
Code, shall be responsible for the general administration of the Plan, for
carrying out the provisions hereof, and for making payments hereunder. The
Corporation shall have the sole and absolute discretionary authority and power
to carry out the provisions of the Plan, including, but not limited to, the
authority and power (a) to determine all questions relating to the eligibility
for and the amount of any benefit to be paid under the Plan, (b) to determine
all questions pertaining to claims for benefits and procedures for claim review,
(c) to resolve all other questions arising under the Plan, including any
questions of construction and/or interpretation, and (d) to take such further
action as the Corporation deems necessary or advisable in the administration of
the Plan. All findings, decisions and determinations of any kind made by the
Plan Administrator shall not be disturbed unless the Plan Administrator has
acted in an arbitrary and capricious manner. Subject to the requirements of law,
the Plan Administrator shall be the sole judge of the standard of proof required
in any claim for benefits and in any determination of eligibility for a benefit.
All decisions of the Plan Administrator shall be final and binding on all
parties. The Plan Administrator may employ such attorneys, investment counsel,
agents, and accountants as it may deem necessary or advisable to assist it in
carrying out its duties hereunder. The actions taken and the decisions made by
the Plan Administrator hereunder shall be final and binding upon all interested
parties subject, however, to the provisions of Section 6.2. The Plan Year, for
purposes of Plan administration, shall be the calendar year.
6.2 CLAIMS REVIEW PROCEDURE. Whenever the Plan Administrator decides for
whatever reason to deny, whether in whole or in part, a claim for benefits under
the Plan filed by any person (herein referred to as the "Claimant"), the Plan
Administrator shall transmit a written notice of its decision to the Claimant,
which notice shall be written in a manner calculated to be understood by the
Claimant and shall contain a statement of the specific reasons for the denial of
the claim and a statement advising the Claimant that, within 60 days of the date
on which the Claimant receives such notice, Claimant may obtain review of the
decision of the Plan Administrator in accordance with the procedures hereinafter
set forth. Within such 60-day period, the Claimant or Claimant's authorized
representative may request that the claim denial be reviewed by filing with the
Plan Administrator a written request therefore, which request shall contain the
following information:
(i) the date on which the request was filed with the Plan Administrator;
provided, however, that the date on which the request for review was
in fact filed with the Plan Administrator shall control in the event
that the date of the actual filing is later than the date stated by
the Claimant pursuant to this paragraph (i);
6
<PAGE> 7
(ii) the specific portions of the denial of the Claimant's claim which the
Claimant requests the Plan Administrator to review;
(iii) a statement by the Claimant setting forth the basis upon which
Claimant believes the Plan Administrator should reverse its previous
denial of the Claimant's claim and accept the Claimant's claim as
made;
(iv) any written material which the Claimant desires the Plan
Administrator to examine in its consideration of the Claimant's
position as stated pursuant to paragraph (iii) above.
In accordance with this Section, if the Claimant requests a review of the
Plan Administrator's decision, such review shall be made by the Plan
Administrator, which shall, within sixty (60) days after receipt of the request
form, review and render a written decision on the claim containing the specific
reasons for the decision including reference to Plan provisions upon which the
decision is based. All findings, decisions, and determinations of any kind made
by the Plan Administrator shall not be modified unless the Plan Administrator
has acted in an arbitrary and capricious manner. Subject to the requirements of
law, the Plan Administrator shall be the sole judge of the standard of proof
required in any claim for benefits, and any determination of eligibility for a
benefit. All decisions of the Plan Administrator shall be binding on the
Claimant and upon all other Persons. If the Participant or Beneficiary shall not
file written notice with the Plan Administrator at the times set forth above,
such individual shall have waived all benefits under the Plan other than as
already provided, if any, under the Plan.
ARTICLE VII
CORPORATE ASSETS
All benefits paid under the Plan shall be payable solely out of the general
assets of the Corporation. The Corporation shall have no obligation to establish
a trust or fund to fund its obligation to pay benefits under the Plan or to
insure any benefits under the Plan and nothing contained in the Plan shall
create or be construed as creating a trust of any kind or any other fiduciary
relationship between the Participant, the Corporation or any other person. It is
the intention of the Corporation and the Participant that the Plan be unfunded
for tax purposes and for purposes of Title I of the Employee Retirement Income
Security Act of 1974, as amended. The Corporation may, in its sole discretion,
combine the payment due and owing under the Plan with one or more other payments
owing to the Participant or the Participant's Beneficiary under any other plan,
contract, or otherwise (other than any payment due under the Pension Plan) in
one check, direct deposit, wire transfer, or other means of payment.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 TERMINATION OR AMENDMENT. The Corporation reserves the right to amend or
terminate the Plan at any time by action of its Board of Directors, or any duly
authorized Committee thereof; provided, however, that no such action shall
adversely affect any Participant who has met the age and service requirements of
Section 3.1 or any Participant or Participant's Beneficiary who is receiving or
who is eligible to receive an Excess Pension Benefit hereunder, unless an
equivalent benefit is provided under another plan maintained by an Employer.
7
<PAGE> 8
8.2 EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary
contained in the Plan, the termination of the Plan shall terminate the liability
of the Corporation and all Employers to provide for future benefits under the
Plan.
ARTICLE IX
MISCELLANEOUS
9.1 INTEREST OF PARTICIPANT. The obligation of the Employer and of the
Corporation to provide a Participant or the Participant's Beneficiary with an
Excess Pension Benefit under the Plan merely constitutes the unsecured promise
of the Employer and the Corporation to make payments as provided herein and no
person shall have any interest in, or a lien or prior claim on any property of
the Employer or Corporation.
9.2 BENEFITS. Nothing in the Plan shall be construed to confer any right or
claim upon any person, firm, or corporation other than the Participant and the
Participant's Beneficiary who may become entitled to an Excess Pension Benefit
under the Plan.
9.3 NO PRESENT INTEREST. Subject to any federal statute to the contrary, no
right or benefit under the Plan and no right or interest in each Participant's
Plan benefit shall be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge any right or benefit under the Plan, or
Participant's Plan Account shall be void. No right, interest, or benefit under
the Plan or Participant's Plan benefit shall be liable for or subject to the
debts, contracts, liabilities, or torts of the Participant or Beneficiary. If
the Participant or Beneficiary becomes bankrupt or attempts to alienate, sell,
assign, pledge, encumber, or charge any right under the Plan or Participant's
Plan benefit, such attempt shall be void and unenforceable.
9.4 UNFUNDED PLAN. This Plan is an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301, and 401
of ERISA, and therefore is exempt from the provisions of Parts 2, 3, and 4 of
Title I of ERISA.
9.5 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be construed
as a commitment or agreement upon the part of any Employee hereunder to continue
his or her employment with an Employer, and nothing herein contained shall be
construed as a commitment on the part of any Employer to continue the
employment, rate of compensation or terms and conditions of employment of any
Employee hereunder for any period. All Participants shall remain subject to
discharge to the same extent as if the Plan had never been put into effect.
9.6 ABSENCE OF LIABILITY. No member of the Board of Directors of the
Corporation or a subsidiary or committee authorized by the Board of Directors,
or any officer of the Corporation or a subsidiary shall be liable for any act or
action hereunder, whether of commission or omission, taken by any other member,
or by any officer, agent, or Employee, except in circumstances involving bad
faith or willful misconduct for anything done or omitted to be done.
9.7 EXPENSES. The expenses of administration of the Plan shall be paid by the
Corporation.
8
<PAGE> 9
9.8 PRECEDENT. Except as otherwise specifically agreed to by the Corporation in
writing, no action taken in accordance with the Plan by the Corporation shall be
construed or relied upon as a precedent for similar action under similar
circumstances.
9.9 WITHHOLDING. The Corporation shall withhold any tax which the Corporation
in its discretion deems necessary to be withheld from any payment to any
Participant, former Participant, or Beneficiary hereunder, by reason of any
present or future law.
9.10 VALIDITY OF PLAN. The validity of the Plan shall be determined and the Plan
shall be construed and interpreted in accordance with the provisions of ERISA,
the Code, and, to the extent applicable, the laws of the State of Ohio. The
invalidity or illegality of any provision of the Plan shall not affect the
validity or legality of any other part thereof.
9.11 PARTIES BOUND. The Plan shall be binding upon the Employers, Participants,
former Participants, and Beneficiaries hereunder, and, as the case may be, the
heirs, executors, administrators, successors, and assigns of each of them.
9.12 HEADINGS. All headings used in the Plan are for convenience of reference
only and are not part of the substance of the Plan.
9.13 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each
Participant, former Participant, or Beneficiary any documents, reports, returns,
statements, or other information that it reasonably deems necessary to perform
its duties imposed hereunder or otherwise imposed by law.
9.14 TRUST FUND. At its discretion, the Corporation may establish one or more
trusts, with such trustees as the Corporation may approve, for the purpose of
providing for the payment of benefits owed under the Plan. Although such a trust
may be irrevocable, in the event of insolvency or bankruptcy of the Corporation,
such assets will be subject to the claims of the Corporation's general
creditors. To the extent any benefits provided under the Plan are paid from any
such trust, the Employer shall have no further obligation to pay them. If not
paid from the trust, such benefits shall remain the obligation of the Employer.
9.15 NOTICE. Any notice required or permitted under the Plan shall be deemed
sufficiently provided if such notice is in writing and hand delivered or sent by
registered or certified mail. Such notice shall be deemed given as of the date
of delivery or, if delivery is made by mail, as of the date shown on the
postmark or on the receipt for registration or certification. Mailed notice to
the Corporation shall be directed to the Corporation's address, attention:
KeyCorp Compensation and Benefits Department. Mailed notice to a Participant or
Beneficiary shall be directed to the individual's last known address in the
Employer's records
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<PAGE> 10
9.16 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit
of each Employer and its successors and assigns. The term successors as used
herein shall include any corporate or other business entity which shall, whether
by merger, consolidation, purchase or otherwise, acquire all or substantially
all of the business and assets of an Employer.
Executed at Cleveland, Ohio, to be effective as of the first day of
January, 1998.
KEYCORP
By: /s/ Thomas Helfrich
---------------------------------------
Thomas Helfrich
Title: Executive Vice President
------------------------------------
10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.38
<SEQUENCE>7
<DESCRIPTION>EXHIBIT 10.38
<TEXT>
<PAGE> 1
EXHIBIT 10.38
KEYCORP
DEFERRED COMPENSATION PLAN
ARTICLE I
The KeyCorp Deferred Compensation Plan ("Plan") as originally established
effective January 1, 1997 is hereby amended and restated in its entirety to be
effective as of April 1, 1998. The Plan, as established and as amended, is
intended to provide certain key Employees of KeyCorp with the opportunity to
defer their receipt of compensation to the Plan as a means of providing current
tax planning opportunities for such Employees. It is the intention of KeyCorp,
and it is the understanding of those Participants covered under the Plan, that
the Plan is unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
ARTICLE II
DEFINITIONS
-----------
2.1 MEANING OF DEFINITIONS. For the purposes of this Plan, the following
words and phrases shall have the meanings hereinafter set forth, unless a
different meaning is clearly required by the context:
(a) "BENEFICIARY" shall mean the person, persons or entity entitled
under Article VII to receive any Plan benefits payable after a
Participant's death.
(b) "BOARD" shall mean the Board of Directors of KeyCorp, the Board's
Compensation and Organization Committee, or any other committee
designated by the Board or subcommittee designated by the Board's
Compensation and Organization Committee.
(c) "CHANGE OF CONTROL" shall be deemed to have occurred if under any
rabbi trust arrangement maintained by the Corporation, the
Corporation is required under the terms of such arrangement to fund
such rabbi trust to secure the payment of any Participants' Plan
benefits payable hereunder because a "Change of Control" as defined
in such rabbi trust has occurred after January 1, 1997.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, together with all regulations promulgated thereunder.
Reference to a section of the Code shall include such section and
any comparable section or sections of any future legislation that
amends, supplements, or supersedes such section.
(e) "COMMON STOCK ACCOUNT" shall mean the investment account established
under the Plan for bookkeeping purposes in which a Participant may
elect to have his or her Participant Deferrals credited. Participant
Deferrals to the Common Stock Account shall be credited based on a
bookkeeping allocation of KeyCorp Common Shares (both whole and
fractional rounded to the nearest one-hundredth of a share) which
shall be equal to the amount of Participant Deferrals invested by
the Participant in the Common Stock Account. The Common Stock
Account shall also reflect on a bookkeeping basis all
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<PAGE> 2
dividends, gains, and losses attributable to such Common Shares. All
Corporate Contributions and all Participant Deferrals credited to
the Common Stock Account, shall be based on the New York Stock
Exchange's closing price for such Common Shares as of the day such
Participant Deferrals are credited to the Participants' Plan
Accounts.
(f) "COMPENSATION" of a Participant for any Plan Year or any partial
Plan Year shall mean the entire amount of base salary paid to such
Participant during such period by reason of his or her employment
with an Employer, including any base salary which would have been
paid except for (1) the Participant's written deferral of such
Compensation to this Plan during the Plan Year, (2) the
Participant's deferral of such Compensation to the KeyCorp 401(k)
Savings Plan and the KeyCorp Excess 401(k) Savings Plan, and/or (3)
the Participant's participation in the KeyCorp Flexible Benefits
Plan.
(g) "CORPORATE CONTRIBUTIONS" shall mean the amount which an Employer
has agreed to contribute on a bookkeeping basis to the Participant's
Plan Account in accordance with the provisions of Article V of the
Plan.
(h) "CORPORATION" shall mean KeyCorp, an Ohio corporation, its corporate
successors, and any corporation or corporations into or with which
it may be merged or consolidated.
(i) "DEFERRAL PERIOD" shall mean each Plan Year, provided however, that
a Participant's initial Deferral Period shall be from his or her
first day of participation in the Plan through the last day of the
applicable Plan Year.
(j) "DETERMINATION DATE" shall mean the last day of each calendar month.
(k) "DISABILITY" shall mean (1) the physical or mental disability of a
permanent nature which prevents a Participant from performing the
duties such Participant was employed to perform for his or her
Employer when such disability commenced, (2) qualifies for
disability benefits under the federal Social Security Act within 30
months following the Participant's disability, and (3) qualifies the
Participant for disability coverage under the KeyCorp Long Term
Disability Plan.
(l) "EARLY RETIREMENT" shall mean the Participant's retirement from
employment with an Employer on or after the Participant's attainment
of age 55 and completion of a minimum of ten years of Vesting
Service, but prior to the Participant's Normal Retirement Date.
(m) "EMPLOYEE" shall mean a common law employee who is employed by an
Employer.
(n) "EMPLOYER" shall mean the Corporation and any of its subsidiaries,
unless specifically excluded as an Employer for Plan purposes by
written action of an officer of the Corporation. An Employer's
participation shall be subject to all conditions and requirements
made by the Corporation, and each Employer shall be deemed to have
appointed the Plan Administrator as its exclusive agent under the
Plan as long as it continues as an Employer.
(o) "FINANCIAL HARDSHIP" shall mean a financial hardship to the
Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the
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<PAGE> 3
Participant, the loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant.
(p) "HARDSHIP WITHDRAWAL COMMITTEE" shall mean the Committee established
by the Corporation to review Hardship Withdrawal requests of Plan
Participants to determine whether a Financial Hardship entitles the
Participant to a distribution of Participant Deferrals in accordance
with the provisions of Section 6.1(b) of Article VI of the Plan.
(q) "INCENTIVE COMPENSATION" shall mean the incentive compensation
awarded to a Participant under the KeyCorp Annual Incentive Plan
and/or the KeyCorp Long Term Incentive Plan.
(r) "INCENTIVE COMPENSATION DEFERRALS" shall mean a percentage or whole
dollar amount of any Incentive Compensation payable to a Participant
during the applicable Plan Year, which the Participant has elected
in accordance with his or her Participation Agreement to defer under
this Plan.
(s) "INTEREST BEARING ACCOUNT" shall mean the investment account
established under the Plan for bookkeeping purposes in which a
Participant may elect to have his or her Participant Deferrals
credited. Participant Deferrals invested for bookkeeping purposes in
the Interest Bearing Account shall be credited with earnings as of
each Determination Date which shall be based on the effective annual
yield of the average of Moody's Average Corporate Bond Yield Index
for the previous calendar month increased by 50 basis points. In the
event that Moody's Investor Services Inc. ceases to publish such
Index (or any successor publisher thereto) the Board, in its sole
and absolute discretion, shall select a substantially similar index
to be used in crediting earnings under the Interest Bearing Account.
(t) "INVESTMENT ACCOUNTS" shall collectively mean those investment
accounts established under the Plan for bookkeeping purposes in
which a Participant may elect to have his or her Participant
Deferrals credited. Investment Accounts shall include the Plan's (1)
Interest Bearing Account, (2) Common Stock Account, and (3)
Investment Funds.
(u) "INVESTMENT FUNDS" shall mean those investment accounts established
under the Plan for bookkeeping purposes in which a Participant may
elect to have his or her Participant Deferrals credited and which
mirror the investment funds established in accordance with and
pursuant to Article VIII of the KeyCorp 401(k) Savings Plan
("Savings Plan") as shall be amended from time to time, provided,
however, that the Savings Plan's Corporation Stock Fund, for Plan
purposes, shall be excluded from the definition of Investment Funds.
Participant Deferrals invested for bookkeeping purposes in the
Investment Funds shall be credited on a bookkeeping basis with those
earnings, gains, and losses experienced by the Savings Plan's
investment funds.
(v) "NORMAL RETIREMENT" shall mean the Participant's retirement under
the KeyCorp Cash Balance Pension Plan on or after the Participant's
Normal Retirement Date.
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<PAGE> 4
(w) "PARTICIPANT" shall mean an Employee who meets the eligibility
requirements set forth in Section 3.1(a) and becomes a Plan
Participant pursuant to Section 3.1(b) or Section 3.1(c) of the
Plan.
(x) "PARTICIPATION AGREEMENT" shall mean the executed agreement
submitted by the Participant to the Corporation prior to the
beginning of a Deferral Period, which contains, in pertinent part,
the Participant's deferral commitment for such Deferral Period, the
Participant's investment instructions, and the distribution option
for such Participant Deferrals.
(y) "PARTICIPANT DEFERRALS" shall mean those Incentive Compensation
Deferrals and Salary Deferrals the Participant has elected to defer
under this Plan for each applicable Deferral Period.
(z) "PLAN" shall mean the KeyCorp Deferred Compensation Plan with all
amendments hereafter made.
(aa) "PLAN ACCOUNT" shall mean those bookkeeping accounts established by
the Corporation for each Plan Participant, which shall reflect all
Prior Plan Awards, Corporate Contributions, and Participant
Deferrals invested for bookkeeping purposes in the Plan's Investment
Accounts with all earnings, dividends, gains, and losses thereon.
Plan Accounts shall not constitute separate Plan funds or separate
Plan assets. Neither the maintenance of, nor the crediting of
amounts to such Plan Accounts shall be treated (i) as the allocation
of any Corporation assets to, or a segregation of any Corporation
assets in any such Plan Accounts, or (ii) as otherwise creating a
right in any person or Participant to receive specific assets of the
Corporation. Benefits under the Plan shall be paid from the general
assets of the Corporation.
(bb) "PLAN YEAR" shall mean the calendar year.
(cc) "PRIOR PLAN AWARDS" shall mean those incentive compensation awards
and any salary deferred under the KeyCorp Executive Deferred
Compensation Plan, those incentive compensation awards deferred
under the KeyCorp Long Term Cash Incentive Compensation Plan, the
KeyCorp Management Incentive Compensation Plan, and/or the KeyCorp
Short Term Incentive Compensation Plan prior to January 1, 1997 (as
transferred to the Plan effective January 1, 1997) and those
incentive compensation awards, bonuses and salary deferred under the
Ameritrust Deferred Compensation Plan ("Ameritrust Plan") which have
been credited at the Retirement Rate (as provided under Section
4.3(a)(i) of the Ameritrust Plan) as of April 1, 1998 and
transferred to the Plan effective April 1, 1998.
(dd) "RETIREMENT" shall mean the termination of a Participant's
employment under circumstances in which the Participant begins to
receive an Early Retirement or Normal Retirement Date benefit under
the KeyCorp Cash Balance Pension Plan.
(ee) "SALARY DEFERRALS" shall mean the percentage or whole dollar amount
of a Participant's annual Compensation which the Participant has
elected pursuant to his or her Participation Agreement to defer to
this Plan.
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<PAGE> 5
(ff) "TERMINATION" shall mean the voluntary or involuntary and permanent
termination of a Participant's employment from his or her Employer
and any other Employer, whether by resignation or otherwise, but
shall not include the Participant's Retirement or termination as a
result of Disability.
(gg) "TERMINATION UNDER LIMITED CIRCUMSTANCES" shall mean a Participant's
termination of employment from the Employer (i) within two years
after a Change of Control under circumstances in which the
Participant is entitled to severance benefits or salary continuation
or similar benefits under a Change of Control agreement, employment
agreement, or severance or separation pay plan, (ii) Normal
Retirement, (iii) Early Retirement with the approval of the
Compensation and Organization Committee in its sole discretion, (iv)
due to Disability or death, or (v) as otherwise expressly approved
by the Compensation and Organization Committee, in its sole
discretion.
2.2 ADDITIONAL REFERENCE. All other words and phrases used herein shall
have the meaning given them in the KeyCorp Cash Balance Pension Plan, unless a
different meaning is clearly required by the context.
2.3 PRONOUNS. The masculine pronoun wherever used herein includes the
feminine in any case so requiring, and the singular may include the plural.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 ELIGIBILITY AND PARTICIPATION.
(a) ELIGIBILITY. An Employee shall be eligible to participate in the
Plan if (1) the Employee is a Participant in the KeyCorp Annual
Incentive Plan, and/or the KeyCorp Long Term Incentive Plan, and (2)
the Corporation selects such Employee to participate in the Plan.
(b) PARTICIPATION. An Employee meeting the eligibility criteria of
Section 3.1(a) may elect to participate in the Plan with respect to
any Deferral Period by submitting a Participation Agreement to the
Corporation prior to the beginning of the applicable Deferral Period
or such other deadline as established by the Corporation.
(c) MID-YEAR PARTICIPATION. When an Employee first becomes eligible to
participate in the Plan during a Deferral Period, a Participation
Agreement shall be submitted to the Corporation within thirty (30)
days after the Corporation notifies the Employee of his or her Plan
eligibility. Such Participation Agreement will be effective when
received by the Corporation.
3.2 DEFERRAL LIMITATIONS. The following Participant Deferral limitations
shall apply for each Deferral Period:
(a) SALARY DEFERRALS. A Participant whose Compensation equals or exceeds
$160,000 as of January 1 of the applicable Plan Year may defer no
less than one hundred twenty-five
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<PAGE> 6
dollars ($125) on a per-pay basis and no more than 50% of the
Participant's Compensation on a per-pay basis during the applicable
Deferral Period.
(b) INCENTIVE COMPENSATION DEFERRALS. A Participant may defer no less
than three thousand dollars ($3,000) and no more than 100% of any
Incentive Compensation which becomes payable to the Participant
during the applicable Deferral Period.
3.3 COMMITMENT LIMITED BY TERMINATION, RETIREMENT, DISABILITY OR DEATH.
As of the Participant's Termination date, Retirement date, date of Disability or
date of death, all Participant Deferrals under the Plan shall conclude.
3.4 MODIFICATION OF DEFERRAL COMMITMENT. Except as provided in Section
6.1(b) below, a Participant's deferral commitment as evidenced by his or her
Participation Agreement for the applicable Deferral Period, shall be
irrevocable.
3.5 CHANGE IN EMPLOYMENT STATUS. If the Corporation determines that a
Participant's performance is no longer at a level that deserves to be rewarded
through participation in the Plan, but does not terminate the Participant's
employment with the Employer, the Participant's existing Participation Agreement
shall terminate at the end of the Deferral Period, and no new Participation
Agreement may be made by such Participant.
3.6 PRIOR PLAN AWARDS. Effective January 1, 1997, all Employees'
incentive compensation deferred under the KeyCorp Long Term Cash Incentive
Compensation Plan, the KeyCorp Short Term Incentive Compensation Plan and/or the
KeyCorp Management Incentive Compensation Plan and all salary deferrals and
incentive compensation deferred under the KeyCorp Executive Deferred
Compensation Plan shall be transferred for bookkeeping purposes to this Plan and
shall be reflected in Plan Accounts established in the Employees' name.
Effective April 1, 1998 all Employees' incentive compensation, bonuses and
salary deferrals deferred under the Ameritrust Deferred Compensation Plan shall
be transferred for bookkeeping purposes to this Plan and shall be reflected in
Plan Accounts established in the Employee's name. Such Employees shall be given
the opportunity to elect to invest such Prior Plan Awards in the Plan's
Investment Accounts, and may modify their investment elections at such times and
in such manner as the Corporation shall direct. Employees with Prior Plan Awards
which for bookkeeping purposes are maintained under this Plan shall not
otherwise participate in the Plan unless such Employee has met the eligibility
requirements set forth in Section 3.1(a) and has become a Plan Participant
pursuant to Section 3.1(b) or Section 3.1(c) of the Plan.
ARTICLE IV
PARTICIPANT DEFERRALS
---------------------
4.1 PLAN ACCOUNT. All Prior Plan Awards, Participant Deferrals and
Corporate Contributions shall be credited on a bookkeeping basis to a Plan
Account established in the Participant's name. Separate sub-accounts may be
established to reflect the Participant's investment elections, with all
earnings, gains or losses attributable to such elections.
4.2 INVESTMENT OF PARTICIPANT DEFERRALS. Subject to the provisions of
Section 4.3 hereof, each Participant shall direct the manner in which his or her
Participant Deferrals are to be invested for bookkeeping purposes under the
Plan. All Participant Deferrals may be invested for bookkeeping purposes in any
one or more of the Plan's Investment Accounts, in such amount as the Participant
shall
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<PAGE> 7
select, provided that such election amounts are expressed in five percent
increments. Subject to the provisions of Section 4.4 hereof, Participants may
modify their investment elections at such times and in such manner as permitted
by the Corporation.
4.3 COMPLIANCE WITH CORPORATION'S STOCK OWNERSHIP GUIDELINES.
Notwithstanding the foregoing provisions of Section 4.2 hereof, Participants who
have not met the ownership requirements of the Corporation's stock ownership
guidelines shall be required to defer all Participant Deferrals into the Common
Stock Account until such time as the Corporation stock ownership guidelines have
been met.
4.4 INVESTMENT OF PARTICIPANT DEFERRALS INVESTED IN THE COMMON STOCK
ACCOUNT. The Participant's election to have his or her Participant Deferrals
invested on a bookkeeping basis in the Common Stock Account shall be
irrevocable; Participant Deferrals invested in the Common Stock Account shall
not be subject to investment direction by the Participant.
4.5 CREDITING OF PARTICIPANT DEFERRALS; WITHHOLDING. Participant Salary
Deferrals shall be credited to the Participant's Plan Account as of each pay
period during the applicable Deferral Period. Participant Incentive Compensation
Deferrals shall be credited to the Participant's Plan Account as of the date the
Incentive Compensation would have been payable to the Participant but for the
Participant's election to defer such Incentive Compensation to this Plan. The
withholding of taxes with respect to Participant Deferrals as required by state,
federal or local law shall be withheld from the Participant's Compensation to
the maximum extent possible; any taxes remaining due shall reduce the amount of
Participant Deferrals credited to the Participant's Plan Account.
ARTICLE V
CORPORATE CONTRIBUTIONS
-----------------------
5.1 CREDITING OF CORPORATION CONTRIBUTIONS. Effective January 1, 1999,
Corporate Contributions shall be credited on a bookkeeping basis to the
Participant's Plan Account in proportion to the respective amount of the
Participant's Participant Deferrals made to the Plan during such applicable
Deferral Period. Participant Deferrals invested on a bookkeeping basis in the
Plan's Interest Bearing Fund and/or Investment Funds shall be credited with
Corporate Contributions equal to 6% of such Participant's Participant Deferrals;
Participant Deferrals invested on a bookkeeping basis in the Plan's Common Stock
Account shall be credited with Corporate Contributions equal to 10% of such
Participant's Participant Deferrals. Effective January 1, 1998 Corporate
Contributions (equal to 6% or 10%, as the case may be) shall also be credited on
behalf of those Participants whose Participant Deferrals become mandated under
the requirements of Section 162(m) of the Code.
5.2 INVESTMENT OF CORPORATE CONTRIBUTIONS. All Corporate Contributions
credited to the Participant's Plan Account shall be invested for bookkeeping
purposes in the Plan's Common Stock Account. Corporate Contributions are not
subject to Participant investment directions.
5.3 VESTING IN CORPORATE CONTRIBUTIONS. A Participant shall become
vested in those Corporate Contributions credited on a bookkeeping basis to the
Participant's Plan Account upon the Participant's (1) completion of three years
of vested service, (2) Disability, or (3) death. For purposes of this Section
5.3 hereof, the term "vested service" shall be determined from the Participant's
employment commencement date through the Participant's Termination, Retirement,
or Disability date (whichever shall first occur), and shall be calculated based
on consecutive twelve-month periods during which time the Participant is
employed by an Employer.
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<PAGE> 8
5.4 FORFEITURE OF CORPORATE CONTRIBUTIONS. Notwithstanding the
provisions of Sections 5.1 or 5.3 hereof, if the Participant terminates his or
her employment with the Corporation for any reason other than Normal Retirement
or Termination Under Limited Circumstances, the Participant shall forfeit 4% out
of the 10% of those Corporate Contributions (so that the remaining Corporate
Contribution will be 6%) allocated on Participant Deferrals which the
Participant has elected to irrevocably defer into the Common Stock Account. All
earnings on those 4% of Corporate Contributions forfeited shall also be
forfeited.
5.5 DETERMINATION OF AMOUNT. The Plan Administrator shall verify the
amount of Participant Deferrals, Corporate Contributions, dividends, and
earnings, if any, to be credited to each Participant's Plan Account in
accordance with the provisions of the Plan. The reasonable and equitable
decision of the Plan Administrator as to the value of each Investment Account
shall be conclusive and binding upon all Participants and the Beneficiary of
each deceased Participant having any interest, direct or indirect in the
Participant's Plan Account. The value of an Investment Account on any day not a
Determination Date, shall be the value on the last preceding Determination Date.
As soon as reasonably practicable after the close of the Plan Year, the
Corporation shall send to each Participant an itemized accounting statement
which shall reflect the Participant's Plan Account balance.
5.6 CORPORATE ASSETS. All Participant Deferrals, Corporate
Contributions, dividends, earnings and any other gains and losses credited to a
Participant's Plan Account remain the assets and property of the Corporation,
which shall be subject to distribution to the Participant only in accordance
with Articles VI, IX and X of the Plan. Payments made under the Plan shall be in
the form of cash and shares and shall be made from the general assets of the
Corporation, and Participants and Beneficiaries shall have the status of general
unsecured creditors of the Corporation. Nothing contained in the Plan shall
create, or be construed as creating a trust of any kind or any other fiduciary
relationship between the Participant, the Corporation, or any other person. It
is the intention of the Corporation and the Participant that the Plan be
unfunded for tax purposes and for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended.
5.7 NO PRESENT INTEREST. Subject to any federal statute to the contrary,
no right or benefit under the Plan and no right or interest in each
Participant's Plan Account shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance, or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right or benefit under
the Plan, or Participant's Plan Account shall be void. No right, interest, or
benefit under the Plan or Participant's Plan Account shall be liable for or
subject to the debts, contracts, liabilities, or torts of the Participant or
Beneficiary. If the Participant or Beneficiary becomes bankrupt or attempts to
alienate, sell, assign, pledge, encumber, or charge any right under the Plan or
Participant's Plan Account, such attempt shall be void and unenforceable.
5.8 EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary
contained in the Plan, the termination of the Plan shall terminate the liability
of the Corporation and all Employers to make further Corporate Contributions to
the Plan.
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<PAGE> 9
ARTICLE VI
DISTRIBUTION OF PLAN BENEFITS
-----------------------------
6.1 DISTRIBUTIONS PRIOR TO TERMINATION OR RETIREMENT. A Participant's
vested Plan benefit may be distributed to the Participant prior to the
Participant's Termination or Retirement under the following circumstances:
(a) EARLY DISTRIBUTION. If a Participant makes Participant Deferrals in
conjunction with the provisions of Section 162(m) of the Code, such
Participant Deferrals shall be distributed to the Participant on the
date specified in the Participant's Participation Agreement, which
may provide (subject to the distribution limitations contained in
Section 6.6 hereof) for a distribution date sooner than the
Participant's Termination or Retirement date. Such distribution
shall be limited to those applicable Participant Deferrals deferred
in accordance with the provisions of Section 162(m) of the Code,
with all earnings and gains thereon.
(b) HARDSHIP WITHDRAWAL. Upon a finding that a Participant has suffered
a Financial Hardship, the Corporation by and through the Hardship
Withdrawal Committee may, in its sole and absolute discretion,
permit the Participant to obtain a Hardship Withdrawal from his or
her vested Plan Account. The amount of such a Hardship Withdrawal
shall be limited to the amount reasonably necessary to meet the
Participant's immediate needs resulting from the Financial Hardship.
If a Hardship Withdrawal is permitted in accordance with the
requirements of this Section 6.1(b) hereof, or if a Hardship
Withdrawal is permitted under the KeyCorp 401(k) Savings Plan,
Participant Deferrals under this Plan shall cease for a 12-month
period.
(c) FORM OF PAYMENT AND TIME. Distributions made to a Participant
pursuant to Section 6.1(a) or 6.1(b) hereof shall be paid in a lump
sum amount. Distributions made under this Section 6.1 shall be made
as soon as reasonably practicable following (i) the distribution
date permitted under the provisions of Section 6.1(a), or (ii) the
date on which the Hardship Withdrawal Committee approves the
Participant's Hardship Withdrawal request under the provisions of
Section 6.1(b).
6.2 DISTRIBUTION OPTIONS FOR INTEREST BEARING ACCOUNT AND/OR INVESTMENT
FUNDS. Subject to the provisions of Section 6.4 and Section 6.5 hereof, a
Participant shall elect, as reflected in the Participant's Participation
Agreement, to receive a distribution of his or her vested Plan Account balance
from the Plan's Interest Bearing Account and /or Investment Funds under the
following payment options:
(a) a single lump sum distribution, or
(b) a series of monthly installment distributions over a period of 60,
120, or 180 months.
Distributions of Participant Deferrals from the Plan's Interest Bearing
Account and/or Investment Funds shall be made in cash.
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<PAGE> 10
6.3 DISTRIBUTION OPTIONS FOR COMMON STOCK ACCOUNT. Subject to the
provisions of Section 6.4 and Section 6.5 of the Plan, a Participant shall
elect, as reflected in the Participant's Participation Agreement, to receive a
distribution of his or her vested Plan Account balance from the Plan's Common
Stock Account under the following payment options:
(a) a single lump sum distribution, or
(b) a series of annual installment distributions over a period of 5, 10,
or 15 years.
Distributions of Participant Deferrals and vested Corporate Contributions
from the Plan's Common Stock Account made or commenced prior to January 1, 1999
shall be made in cash; distributions from the Common Stock Account made or
commenced on or after January 1, 1999 shall be made in KeyCorp Common Shares;
provided, however, that in the event that the Corporation enters into a
transaction intended to qualify as a pooling of interests for accounting
purposes prior to January 1, 1999, all distributions from the Common Stock
Account shall continue to be made in cash.
6.4 DISTRIBUTIONS FOLLOWING TERMINATION, RETIREMENT OR DISABILITY. Upon
a Participant's Termination, Retirement, or Disability, the Participant's vested
Plan Account balance shall be distributed to the Participant in accordance with
the distribution elections contained within the Participant's Participation
Agreement for each applicable Deferral Period. Notwithstanding the foregoing
provisions of this Section 6.4, however, in the event the Participant
voluntarily terminates his or her employment with an Employer and within twelve
months of such Termination, Retirement, or Disability date provides services in
any capacity to a financial services organization, or other competitor of the
Corporation or any of its subsidiaries, such Participant's distribution
elections as contained within the Participant's Participation Agreements shall
be null and void, and the Participant shall receive an immediate lump sum
distribution of his or her vested Plan Account balance.
6.5 DISTRIBUTION OF ACCOUNT BALANCE. The Participant's vested Plan
Account shall be valued as of the Determination Date immediately preceding his
or her Termination, Retirement or Disability (the "valuation date").
(a) LUMP SUM DISTRIBUTIONS. If a Participant has elected to receive a
lump sum distribution of all or any portion of his or her vested
Plan Account, such lump sum distribution shall be made as soon as
reasonably practicable following the Participant's Termination,
Retirement or Disability date.
(b) INSTALLMENT DISTRIBUTIONS. If a Participant has elected to receive
an installment distribution of all or any portion of his or her Plan
Account, such installment distribution shall commence as soon as
reasonably practicable following the Participant's Termination,
Retirement or Disability date.
(i) The Participant's vested unpaid Plan Account balance invested
for bookkeeping purposes in the Plan's Interest Bearing Account and
Investment Funds shall be reflected in a distribution sub-account,
which shall be credited with interest based on a 36 month average
(as of the valuation date) of the monthly earnings credited under
the Interest Bearing Account for the Participant's installment
distribution period.
(ii) The Participant's vested unpaid Plan Account balance invested
for bookkeeping purposes in the Plan's Common Stock Account shall be
reflected as a number of whole
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.39
<SEQUENCE>8
<DESCRIPTION>EXHIBIT 10.39
<TEXT>
<PAGE> 1
Exhibit 10.39
MCDONALD & COMPANY INVESTMENTS, INC.
STOCK OPTION PLAN
McDonald & Company Investments, Inc. hereinafter called the "Company,"
hereby adopts a stock option plan for eligible employees of the Company and its
subsidiary corporations pursuant to the following terms and provisions.
1. PURPOSE OF THE PLAN. The purpose of this plan, hereinafter called
the "Plan," is to provide additional incentive to such key employees of the
Company and its subsidiary corporations as may be designated for participation
herein by encouraging them to acquire a new or an additional share ownership in
the Company, thus increasing their proprietary interest in the Company's
business and providing them with an increased personal interest in the Company's
continued success and progress. These objectives will be promoted through the
grant of options to acquire shares of the Company's common stock pursuant to the
terms of the Plan. It is intended that eligible employees may be granted,
simultaneously or from time to time, "incentive stock options" under Section
422A of the Internal Revenue Code of 1954, as amended, hereinafter called the
"Code", or other stock options under the Plan from qualifying as such options
within the meaning of Section 422A of the Code.
2. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective upon
adoption by the Board of Directors on June 7, 1983, subject to approval by
holders of a majority of the outstanding shares of voting capital stock of the
Company. In the event the Plan is not so approved within twelve (12) months
after the date the Plan is adopted by the Board of Directors, the Plan and any
options granted hereunder shall be null and void. If, however, the Plan is so
approved, subject to the provisions of Section 7, no further shareholder
approval shall be required with respect to the granting of all or any part of
the options pursuant to the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Stock Option Committee of the Board of Directors of the Company or by such other
Committee composed of no fewer than three (3) members of the Board of Directors,
hereinafter called the "Committee." No person shall be appointed to the
Committee who was eligible to receive an option or a stock appreciation right
under the Plan or any other plan of the Company or any of its subsidiary
corporations during the one-year period immediately preceding his appointment of
the Committee.
Subject to the terms and conditions of the Plan, the Committee shall be
authorized:
(a) To select the key employees to whom options may be granted;
1
<PAGE> 2
(b) To determine the number of shares of Common Stock to be covered by any
option;
(c) To determine the time or times when options will be granted;
(d) To determine the time or times when each option may be exercised;
(e) To determine at the time of grant of an option under the Plan whether
and to what extent such option is an incentive stock option entitled
to the benefits of Section 422A of Code;
(f) To determine whether stock appreciation rights shall be made part of
any option grant to any key employee employed by the Company and to
approve such stock appreciation rights made part of any option grant
to any key employee employed by any subsidiary corporation of the
Company pursuant to Section 8 hereof;
(g) To prescribe the form of the option agreements to be granted under the
Plan; and
(h) To establish such other provisions of the option agreements not
contrary to the terms and conditions of the Plan or, where the option
is an incentive stock option, of Section 422A of the Code as the
Committee may deem necessary or desirable.
4. EMPLOYEES ELIGIBLE FOR OPTIONS. Options may be granted from time to
time in the discretion of the Committee only to such key employees of the
Company or of a subsidiary corporation of the Company as may be designated by
the Committee whose initiative and efforts contribute or may be expected to
contribute to the Company's continued growth and future success, including key
employees who may also be members of the Board of Directors or officers, subject
to the restrictions herein contained. Members of the Committee shall not be
eligible to participate in this Plan, or to receive options under it, while
serving on the Committee. The Committee may grant more than one option, with or
without stock appreciation rights, to the same employee. The term "subsidiary
corporation" as used herein means any corporation fifty percent (50%) of the
stock of which is owned or controlled directly or indirectly by the Company. No
option shall be granted to any employee during any period of time when he is on
leave of absence.
5. SHARES SUBJECT TO THE PLAN. The shares to be issued upon the
exercise of options granted under the Plan shall be shares of common stock, par
value $1.00 per share of the Company ("Common Stock"). Either treasury or
authorized and unissued shares of Common Stock, or both, in such amount or
amounts, within the maximum limits of the Plan, as the Board of Directors shall
from time to time determine, may be so issued. All shares of Common stock which
are the subject of any lapsed, expired or terminated options may be made
available for reoffering under the Plan to any eligible employee. In the event a
stock appreciation right is granted in conjunction with an option pursuant to
Section 8 and such stock appreciation right is hereafter exercised in whole or
in part, then such option or the portion thereof to which the duly exercised
stock appreciation right relates shall be deemed to have been exercised. The
shares of
2
<PAGE> 3
Common Stock which otherwise would have been issued upon exercise of such option
may be made available for reoffering under the Plan to any eligible employee.
Subject to the provisions of the next succeeding paragraph of this Section
5, the aggregate number of shares of Common Stock for which options may be
granted under the Plan shall be three hundred thousand (300,000 shares of Common
Stock.
In the event that subsequent to the date of adoption of the Plan by the
Board of Directors the shares of Common Stock should, as a result of a stock
split, stock dividend, combination or exchange of shares, exchange for other
securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or other such change, be increased, or decreased
or hanged into or exchanged for a different number or kind of shares or stock or
other securities of the company or another corporation, then (i) there shall
automatically be substituted for each share of Common Stock subject to an
unexercised option (in whole or in part) granted under the Plan and each share
of Common Stock available for additional grants of options under the Plan the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be changed or for which each such share
of Common Stock shall be exchanged, (ii) the option price per share of Common
Stock or unit of securities shall be increased or decreased proportionately so
that the aggregate purchase price for the securities subject to the option shall
remain the same as immediately prior to such event, and (iii) the Board shall
make such other adjustments to the securities subject to options and the
provisions of the Plan and option agreements as may be appropriate and
equitable. Any such adjustment may provide for the elimination of fractional
shares.
6. OPTION PROVISIONS.
(a) OPTION PRICE. The option price per share of Common Stock which is the
subject of an incentive stock option under the Plan shall be determined by the
Committee at the time of grant but shall not be less than one hundred percent
(100%) of the fair market value of the Company's shares of Common Stock on the
date such an option is granted; provided, however, that if the employee to whom
an option is granted is at the time of the grant of the option an owner as
defined in Section 4259d) of the Code of more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
subsidiary corporation, hereinafter called a "Substantial Shareholder," the
option price per share of Common Stock shall be determined by the Committee from
time to time but shall never be less than one hundred ten percent (110%) of the
fair market value of the Company's shares of Common Stock on the date an option
is granted. The option price per share of Common Stock under each option granted
pursuant to the Plan which is not an incentive stock option shall be determined
by the Committee at the time of grant but shall not be less than fifty percent
(50%) of the fair market value of the Company's shares of Common Stock on the
date such option is granted. Such fair market value shall be determined in
accordance with procedures to be established by the Committee. The day on which
the Committee approves the granting of an option shall be considered the date on
which such option is granted.
(b) PERIOD OF OPTION. The Committee shall determine when each option is to
expire but no
3
<PAGE> 4
option shall be exercisable for a period of more than ten (10) years from the
date upon which the option is granted; provided, however, that not incentive
stock option granted to such option shall be exercisable after the expiration of
five (5) years from the date of grant of the option.
(c) LIMITATION ON EXERCISE AND TRANSFER OF OPTIONS. Only the key employee
to whom the option is granted may exercise the same except where a guardian or
other legal representative has been duly appointed for such employee, and except
as otherwise provided in the case of such employee's death. No option granted
hereunder shall be transferable otherwise than by the Last Will and Testament of
the employee to whom it is granted or, if the employee dies intestate, by the
applicable laws of descent and distribution. No option granted hereunder may be
pledged or hypothecated, nor shall any such option be subject to execution,
attachment or similar process.
(d) EMPLOYMENT REQUIRED BEFORE EXERCISE OF OPTION. The Committee may, in
its absolute discretion, require that prior to the exercise of all or any part
of any option granted hereunder, the optionee shall have remained in the employ
of the Company or any subsidiary corporation for a specified period after the
date of such option, but always subject to the right of the Company or any such
subsidiary corporation to terminate his employment during such period, or the
Committee may determine to make any option granted hereunder immediately
exercisable. Each option shall be subject to such additional restrictions as to
the time and method of exercise as shall be prescribed by the Committee. Upon
completion of the required period or periods of employment, if any, the option
or the appropriate portion thereof may be exercised in whole or in part from
time to time during the option period, but this right of exercise shall be
limited to whole shares. Options shall be exercised by the optionee giving
written notice to the Company of intention to exercise the same accompanied by
full payment of the purchase price in cash or, with the consent of the
Committee, in whole or in part in shares of Common Stock having fair market
value on the date the option is exercised equal to that portion of the purchase
price for which payment in cash is not made.
(e) TERMINATION OF EMPLOYMENT. If the optionee ceases to be an employee of
the Company or one of its subsidiary corporations, his option shall, unless
extended by the Committee on or before his date of termination of employment,
terminate on the effective date of termination of his employment and neither he
nor any other person shall have any right after such date to exercise all or any
part of his option. If, however, the cessation of employment is due to death,
then the option may be exercised within three (3) months after the optionee's
death by the optionee's estate or the person designated in the optionee's Last
Will and Testament or the whom transferred by the applicable laws of descent and
distribution. Notwithstanding the foregoing, in no event shall any option be
exercisable after the expiration of the option period and not to any greater
extent than the optionee would have been entitled to exercise the option at the
time of his death.
In the event an employee of the Company or one of its subsidiaries is
granted a leave of absence by the Company or such subsidiary to enter military
service or because of sickness, his employment with the Company or such
subsidiary shall not be considered as terminated and he shall be deemed an
employee of the Company or such subsidiary during such leave of absence or any
extension thereof granted by the Company or such subsidiary.
4
<PAGE> 5
(f) SEQUENCE OF EXERCISE OF INCENTIVE STOCK OPTIONS AND REISSUANCE OF
OPTIONS. No incentive stock option granted under the Plan shall be exercisable
by the option holder while any incentive stock option granted hereunder which
was granted before the granting of such option has not been exercised in full or
has not expired by reason of lapse of time. Subject to the foregoing, in the
event of a decline in the market value of the shares of Common Stock, the
Committee shall have the right, with the consent of the optionee, to terminate
an existing option for the purpose of reissuing it as a new option at a lower
option price.
(g) LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS. The aggregate fair
market value, determined as of the date an incentive stock option is granted, of
the shares of Common Stock for which any employee may be granted incentive stock
option sin any calendar year shall not exceed the sum of (i) One Hundred
Thousand Dollars ($100,000) plus (ii) the sum of any "unused limit carryover" to
such year as determined under Section 422A(c) (4) of the Code.
7. AMENDMENTS TO PLAN. The Committee is authorized to interpret the
Plan and from time to time adopt any rules and regulations for carrying out the
Plan that it may deem advisable. Subject to the approval of the Board of
Directors of the Company, the Committee may at any time amend, modify, suspend
or terminate the Plan. In no event, however, without the approval of
shareholders, shall any action of the Committee or the Board of Directors result
in:
(a) Amending, modifying or altering the eligibility requirements provided
in Section 4 hereof;
(b) Increasing or decreasing, except as provided in Section 5 hereof, the
maximum number of shares as to which options may be granted;
(c) Decreasing the minimum option price per share at which options may be
granted under the Plan as provided in Section 6(a) hereof;
(d) Extending either the maximum period during which an option is
exercisable as provided in Section 6(b) hereof or the date on which
the Plan shall terminate as provided in Section 11 hereof;
(e) Changing the requirements relating to the Committee; or
(f) Making any other change which would cause any options granted under
the Plan as incentive stock options not to qualify as such options
within the meaning of Section 422A of the Code;
except to conform the Plan and the option agreements to changes in the Code or
governing law.
8. STOCK APPRECIATION RIGHTS. A key employee may be awarded, either at the
time of grant or subsequently, the right to elect alternative payment in lieu of
exercising all or a portion of
5
<PAGE> 6
the options granted to him. Stock appreciation rights must be specifically
granted upon such terms and conditions as specified by the Committee, if such
subsidiary corporation is the employer of the key employee. No optionee shall
be entitled to such rights solely as a result of the grant of an option to him.
Such right, if granted, may be exercised by said option holder either with
respect to all or a portion of the option to which it applies. Stock
appreciation rights are exercisable only during the periods beginning on the
third business day following the release of a summary statement of the Company's
quarterly or annual sales and earnings and ending on the twelfth business day
following said date. The stock appreciation right shall provide that an option
holder shall have the excess, if any, of the fair market value of the shares of
Common Stock covered by the option, determined as of the date of exercise of
value is determined for purposes of the granting of options, over the option
price. Such amount shall be payable by either the Company or the subsidiary
corporation, whichever such corporation is the employer of the key employee, in
one or more of the following manners, as shall be determined by the Committee,
if the Company is the employer of the key employee, or by the subsidiary
corporation subject to the Committee's approval, if such subsidiary corporation
is the employer of the key employee:
(a) cash;
(b) fully-paid shares of Common Stock having a fair market value
equal to such amount; or
(c) a combination of cash and shares of Common Stock.
In no event may any person exercise any stock appreciation rights
granted hereunder unless (i) such person is then permitted to exercise the
option or the portion thereof with respect to which such stock appreciation
rights relate, and (ii) the fair market value of the shares of Common Stock
covered by the option, determined as provided above, exceeds the option price of
such shares of Common Stock. Upon the exercise of any stock appreciation rights,
the option, or that portion thereof to which such stock appreciation rights
relate, shall be cancelled and such person shall surrender such option for
cancellation and reissuance, if appropriate. Stock appreciation rights granted
hereunder shall be made a part of the option or stock appreciation right shall
impose no obligation upon the optionee to exercise such option or right. The
Company's or a subsidiary corporation's obligation to satisfy stock appreciation
rights shall not be funded or secured in any manner.
9. INVESTMENT REPRESENTATION, APPROVALS AND LISTING. The Committee
may, if it deems appropriate, condition its grant of any option hereunder upon
receipt of the following investment representation from the optionee:
"I further agree that any shares of Common Stock of McDonald &
Company Investments, Inc. which I may acquire by virtue of this
option shall be acquired for investment purposes only and not with
a view to distribution or resale; provided, however, that this
restriction shall become inoperative in the event the said shares
of Common Stock subject to option shall be registered under the
Securities Act of 1988, as amended, or in the event there is
presented to McDonald & Company
6
<PAGE> 7
Investments, Inc. an opinion of counsel satisfactory to McDonald &
Company Investments, Inc. to the effect that the offer or sale of
the shares of Common Stock subject to this option may lawfully be
made without registration of the said shares of stock under the
Securities Act of 1933, as amended."
The Company shall not be required to issue any certificate or certificates for
shares of Common Stock upon the exercise of an option or a stock appreciation
right granted under the Plan prior to (i) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable, (ii) the admission of such shares to listing on
any national securities exchange on which the shares of Common Stock may be
listed, (iii) the completion of any registration or other qualification of the
shares of Common Stock under any state or federal law or ruling or regulations
of any governmental body which the Company shall, in its sole discretion,
determine to be necessary or advisable or the determination by the Company, in
its sole discretion, that any registration or other qualification of the shares
of Common Stock is not necessary or advisable and (iv) the obtaining of an
investment representation from the optionee in the form stated above or in such
other form as the Company, in its sole discretion, shall determine to be
adequate.
10. GENERAL PROVISIONS. The form and substance of option
agreements and grants of stock appreciation rights, whether granted at the same
or different times, need not be identical.
Nothing in the Plan or in any option agreement shall confer upon
any employee any right to continue in the employ of the Company or any of its
subsidiary corporations, to be entitled to any remuneration or benefits not set
forth in the Plan or such option, or to interfere with or limit the right of the
Company or any subsidiary corporation to terminate his employment at any time,
with or without cause.
Nothing contained in the Plan or in any option agreement shall be
construed as entitling any optionee to any rights of a shareholder as a result
of the grant of an option until such time as shares of Common Stock are actually
issued to such optionee pursuant to the exercise of an option or stock
appreciation rights.
The Plan may be assumed by the successors and assigns of the
Company.
The liability of the Company under the Plan and any sale made
hereunder is limited to the obligations set forth herein with respect to such
sale and no term or provision of the Plan shall be construed to impose any
liability on the Company in favor of any employee with respect to any loss, cost
or expense which the employee may incur in connection with or arising out of any
transaction in connection with the Plan.
The cash proceeds received by the Company from the issuance of
shares of Common Stock pursuant to the Plan will be used for general corporate
purposes.
The expense of administering the Plan shall be borne by the
Company.
7
<PAGE> 8
The captions and section numbers appearing in the Plan are
inserted only as a matter of convenience. They do not define, limit, construe or
describe the scope or intent of the provisions of the Plan.
11. TERMINATION OF THE PLAN. The Plan shall terminate on June 6,
1993, and thereafter no options shall be granted hereunder. All options
outstanding at the time of termination of the Plan shall continue in full force
and effect according to their terms and the terms and conditions of the Plan.
8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.40
<SEQUENCE>9
<DESCRIPTION>EXHIBIT 10.40
<TEXT>
<PAGE> 1
Exhibit 10.40
MCDONALD & COMPANY
INVESTMENTS, INC.
1995 KEY EMPLOYEES
STOCK OPTION PLAN
<PAGE> 2
McDonald & Company Investments, Inc. hereby adopts a stock option plan for the
benefit of certain persons and subject to the terms and provisions set forth
below.
1. DEFINITIONS. The following terms shall have the meanings set forth
below whenever used in this instrument:
(a) The word "Board" shall mean the Board of Directors
of the Company.
(b) The word "Code" shall mean the United States Internal
Revenue Code (Title 26 of the United States Code).
(c) The word "Committee" shall mean the Compensation
Committee appointed by the Board.
(d) The words "Common Stock" shall mean Common Stock, par
value $1.00 per share, of the Company.
(e) The word "Company" shall mean McDonald & Company
Investments, Inc., a Delaware corporation, and any successor
thereto which shall maintain this Plan.
(f) The word "Disability" shall mean the Optionee's inability,
due to a physical or mental condition, to perform services for
the Company or any Subsidiary substantially consistent with
past practice, as determined by the Committee pursuant to
written certification of such Disability from a physician
acceptable to the Committee.
(g) The words "Key Employee" shall mean any person who is a
high-level executive officer or other valuable managerial
employee of either the Company or any Subsidiary.
(h) The word "Optionee" shall mean any Key Employee to whom a
stock option has been granted pursuant to this Plan.
(i) The word "Plan" shall mean this instrument, McDonald &
Company Investments, Inc. 1995 Key Employees Stock Option
Plan, as it is originally adopted and as it may be amended
hereafter.
(j) The word "Subsidiary" shall mean any corporation at least
50% of the common stock of which is owned directly or
indirectly by the Company.
(k) The words "Substantial Stockholder" shall mean any person
who would otherwise be a Key Employee except that such person
owns more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary. Ownership
shall be determined in accordance with Section 424(d) of the
Code and lawful applicable regulations.
2
<PAGE> 3
2. PURPOSE OF THE PLAN. The purpose of the Plan is to provide Key
Employees of the Company and its Subsidiaries with an additional incentive to
serve and promote the interests of the Company, its stockholders and the
Company's subsidiary corporations as may be designated for participation herein.
The premise of the Plan is that, if such Key Employees increase their
proprietary interest in the Company as they may already hold, then the incentive
of such Key Employees to work toward the Company's continued success will be
commensurately increased. Accordingly, the Company may, from time to time during
the effective period of the Plan, grant to such Key Employees as may be selected
to participate in the Plan options to purchase shares of Common Stock on the
terms and subject to the conditions set forth in the Plan.
3. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective on May
3, 1995, subject to approval by holders of a majority of the outstanding shares
of voting capital stock of the Company present in person or by proxy and
entitled to vote on the adoption of the Plan. In the event the Plan is not so
approved within twelve (12) months after the date the Plan is adopted, the Plan
and any options granted hereunder shall be null and void. If, however, the Plan
is so approved, subject to the provisions of Section 8, no further stockholder
approval shall be required with respect to the granting of any options pursuant
to the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall consist of no fewer than three (3) members, who
shall be designated by the Board. Each member of the Committee shall be a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 or any amendment of or successor to such rule as
may be in effect from time to time. A majority of the Committee shall constitute
a quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by all of the members,
shall be acts of the Committee. Subject to the terms and conditions of the Plan,
the Committee shall have full and final authority in its absolute discretion:
(a) To select the Key Employees to whom options may be granted;
(b) To determine the number of shares of Common Stock subject to
any option;
(c) To determine the time when options will be granted;
(d) To determine the option price of shares of Common Stock
subject to an option;
(e) To determine the time when each option may be exercised;
3
<PAGE> 4
(f) To determine at the time of grant of an option whether and
to what extent such option is an incentive stock option under
Section 422 of the Code;
(g) To determine whether stock appreciation rights shall be made
part of any option grant pursuant to Section 9 hereof, the
method of valuing the stock appreciation rights and whether the
stock appreciation rights may be exercised in lieu of or in
addition to the related option;
(h) To prescribe the form of the option agreements governing the
options which are granted under the Plan and to set the
provisions of such option agreements as the Committee may deem
necessary or desirable provided such provisions are not contrary
to the terms and conditions of either the Plan or, where the
option is an incentive stock option, Section 422 of the Code;
(i) To adopt, amend and rescind such rules and regulations as,
in the Committee's opinion, may be advisable in the
administration of the Plan; and
(j) To construe and interpret the Plan, the rules and
regulations and the instruments evidencing options granted under
the Plan and to make all other determinations deemed necessary
or advisable for the administration of the Plan.
Any decision made or action taken by the Committee in connection with the
administration, interpretation, and implementation of the Plan and of its rules
and regulations, shall, to the extent permitted by law, be conclusive and
binding upon all Optionees under the Plan and upon any person claiming under or
through such an Optionee. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member. No person shall be
appointed to the Committee who was eligible to receive an option or a stock
appreciation right under the Plan or any other plan of the Company or any of its
subsidiary corporations during the one-year period immediately preceding his
appointment to the Committee. If for any reason any member of the Committee
ceases to meet the requirements of Rule 16b-3(c)(2) of the Securities Exchange
Act of 1934, the Board shall appoint new member(s) of the Committee in order to
comply with such requirements.
Notwithstanding anything herein to the contrary, the maximum aggregate
number of shares of Common Stock (i) for which stock options may be granted, and
(ii) with respect to which stock appreciation rights may be granted, to any
particular employee during any calendar year during the term of this Plan is
50,000, subject to adjustment in accordance with Section 6.
4
<PAGE> 5
5. PERSONS ELIGIBLE FOR OPTIONS. Subject to the restrictions herein
contained, options may be granted from time to time in the discretion of the
Committee only to such Key Employees, as designated by the Committee, whose
initiative and efforts contribute or may be expected to contribute to the
continued growth and future success of the Company and/or its Subsidiaries. No
option shall be granted to any Key Employee during any period of time when he is
on leave of absence. The Committee may grant more than one option, with or
without stock appreciation rights, to the same Key Employee. Members of the
Committee shall not be eligible to participate in this Plan, or to receive
options or stock appreciation rights under the Plan, while serving on the
Committee.
6. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 9
concerning payment for stock appreciation rights in shares of Common Stock and
subject to the provisions of the next succeeding paragraph of this Section 6,
the aggregate number of shares of Common Stock for which options may be granted
under the Plan shall be 500,000 shares of Common Stock. Either treasury or
authorized and unissued shares of Common Stock, or both, in such amounts, within
the maximum limits of the Plan, as the Committee shall from time to time
determine, may be issued upon exercise of the options. All shares of Common
Stock which are the subject of any lapsed, expired or terminated options may be
made available for reoffering pursuant to options granted under the Plan to any
Key Employee.
In the event that subsequent to the date of adoption of the Plan by the
Board, the outstanding shares of Common Stock are, as a result of a stock split,
stock dividend, combination or exchange of shares, exchange for other
securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization, spin-off, split-off, split-up or other such
change (including, without limitation, any transaction described in Section
424(a) of the Code) or a special dividend or other distribution to the Company's
stockholders, increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company,
then (i) there shall automatically be substituted for each share of Common Stock
subject to an unexercised option granted under the Plan and each share of Common
Stock available for additional grants of options under the Plan the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock shall be exchanged, (ii) the option price per share of Common Stock
or unit of securities shall be increased or decreased proportionately so that
the aggregate purchase price for the securities subject to the option shall
remain the same as immediately prior to such event, and (iii) the Committee
shall make such other adjustments to the securities subject to options, the
provisions of the Plan, and option agreements as may be appropriate, equitable
and in compliance with the provisions of Section 424(a) of the Code to the
extent applicable and any such adjustment shall be final, binding and conclusive
as to each Optionee. Any such adjustment may, in the discretion of the
Committee, provide for the elimination of fractional shares.
5
<PAGE> 6
7. OPTION PROVISIONS.
(a) Option Price. The option price per share of Common Stock
which is the subject of an incentive stock option under the Plan shall be
determined by the Committee at the time of grant but shall not be less than one
hundred percent (100%) of the fair market value of a share of Common Stock on
the date the option is granted; provided, however, that if a Key Employee to
whom an incentive stock option is granted is at the time of the grant a
Substantial Stockholder, the option price per share of Common Stock shall be
determined by the Committee but shall never be less than one hundred ten percent
(110%) of the fair market value of a share of Common Stock on the date the
option is granted. The option price per share of Common Stock under each option
granted pursuant to the Plan which is not an incentive stock option shall be
determined by the Committee at the time of grant and may be above or below the
fair market value of a share of Common Stock on the date the option is granted.
Such fair market value shall be determined in accordance with procedures to be
established by the Committee. The date on which the Committee approves the
granting of an option shall be deemed for all purposes hereunder the date on
which the option is granted.
(b) Period of Option. The Committee shall determine when each
option is to expire but no option shall be exercisable after ten (10) years have
elapsed from the date upon which the option is granted; provided, however, that
no incentive stock option granted to a person who is a Substantial Stockholder
at the time of the grant of such option shall be exercisable after five (5)
years have elapsed from the date upon which the option is granted.
(c) Limitation on Exercise and Transfer of Option. Except as
otherwise provided in the event of an Optionee's death, only the Optionee may
exercise an option, provided that a guardian or other legal representative who
has been duly appointed for such Optionee may exercise an option on behalf of
the Optionee. No option granted hereunder shall be transferable other than by
the Last Will and Testament of the Optionee or, if the Optionee dies intestate,
by the applicable laws of descent and distribution. No option granted hereunder
may be pledged or hypothecated, nor shall any such option be subject to
execution, attachment or similar process. Unless otherwise determined by the
Committee, (i) no award granted under the Plan may be transferred or assigned by
the Optionee to whom it is granted other than by will, pursuant to the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code, and (ii) an award granted under this Plan may be exercised,
during the Optionee's lifetime, only by the Optionee or by the Optionee's
guardian or legal representative. Notwithstanding the foregoing, no incentive
stock option may be transferred or assigned pursuant to a qualified domestic
relations order or exercised, during the Optionee's lifetime, by the Optionee's
guardian or legal representative.
(d) Conditions Governing Exercise of Option. The Committee
may, in its absolute discretion, either require that, prior to the exercise of
any option granted hereunder, the Optionee shall have been an employee for a
specified period of time after
6
<PAGE> 7
the date such option was granted, or make any option granted hereunder
immediately exercisable. Each option shall be subject to such additional
restrictions or conditions with respect to the right to exercise and the time
and method of exercise as shall be prescribed by the Committee. Upon
satisfaction of any such conditions, the option may be exercised in whole or in
part at any time during the option period, but this right of exercise shall be
limited to whole shares, unless the Committee shall otherwise provide. Options
shall be exercised by the Optionee giving written notice to the Secretary of the
Company at its principal office, by certified mail, return receipt requested, of
the Optionee's exercise of the option and the number of shares with respect to
which the option is being exercised, accompanied by full payment of the purchase
price either in cash or, with the consent of the Committee, in whole or in part
in shares of Common Stock having a fair market value on the date the option is
exercised equal to that portion of the purchase price for which payment in cash
is not made. Such notice shall be deemed delivered when deposited in the mails.
Notwithstanding anything in the foregoing to the contrary, in the event of a
"change in control" the Committee shall have the authority and power: (i) to
cause all outstanding options to be immediately exercisable notwithstanding any
vesting limitation otherwise previously imposed on such options; and (ii) to
accelerate the termination date of all such options . Thereafter, upon such
determination, an Optionee may exercise any and all outstanding options (in
whole or in part), whether or not such options are by their terms fully
exercisable at such time) and the Committee may authorize the acceptance of the
surrender of the right to exercise such option or any portion thereof, but in no
event after the expiration of the term of the option. The term "change in
control" shall include, but not be limited to: (i) the first purchase of shares
pursuant to a tender offer or exchange (other than a tender offer or exchange by
the Company) for all or part of the Company's common stock of any class or any
securities convertible into such common stock; (ii) the receipt by the Company
of a Schedule 13D or other advice indicating that a person is the "beneficial
owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of twenty percent (20%) or more of the Company's Common Stock
calculated as provided in paragraph (d) of said Rule 13d-3; (iii) the date of
approval by shareholders of the Company of an agreement providing for any
consolidation or merger of the Company in which the Company will not be the
continuing or surviving corporation or pursuant to which shares of capital
stock, of any class or any securities convertible into such capital stock, of
the Company would be converted into cash, securities, or other property, other
than a merger of the Company in which the holders of common stock of all classes
of the Company immediately prior to the merger would have the same proportion of
ownership of common stock of the surviving corporation immediately after the
merger; (iv) the date of the approval by shareholders of the Company of any
sale, lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company; (v)
the adoption of any plan or proposal for the liquidation (but not a partial
liquidation) or dissolution of the Company; or (vi) such other event as the
Committee shall, in its sole and absolute discretion, deem to be a "change in
control." The manner of application and interpretation of the foregoing
provisions shall be determined by the Committee in its sole and absolute
discretion.
7
<PAGE> 8
(e) Termination of Employment, Etc. If an Optionee ceases to
be an employee of the Company or a Subsidiary, his option shall, unless
otherwise provided in the option agreement between the Optionee and the Company,
terminate on the date he ceases to be so employed and neither he nor any other
person shall have any rights after the date he ceases to be so employed to
exercise all or any part of the option. An Optionee's employment shall not be
deemed to have terminated while he is on a military, sick or other bona fide
approved leave of absence from the Company or a Subsidiary as such a leave of
absence is described in Section 1.421-7(h) of the Federal Income Tax Regulations
or any lawful successor regulations thereto. If the stock option is an incentive
stock option, no option agreement shall:
(i) permit any Optionee to exercise any incentive stock option
more than three (3) months after the date the Optionee ceased to be
employed by the Company and all Subsidiaries if the reason for the
Optionee's cessation of employment was other than his death or his
Disability; or
(ii) permit any Optionee to exercise any incentive stock
option more than one (1) year after the date the Optionee ceased to be
employed by the Company and all Subsidiaries if the reason for the
Optionee's cessation of employment was the Optionee's Disability; or
(iii) permit any person to exercise any incentive stock
option more than one (1) year after the date the Optionee ceased to be
employed by the Company and all Subsidiaries if either (A) the reason
for the Optionee's cessation of employment was his death or (B) the
Optionee died within three (3) months after ceasing to be employed by
the Company and all Subsidiaries.
If any option is by the terms of the option agreement exercisable following the
Optionee's death, then such option shall be exercisable by the Optionee's
estate, or the person designated in the Optionee's Last Will and Testament, or
the person to whom the option was transferred by the applicable laws of descent
and distribution.
(f) Limitations on Grant of Incentive Stock Options. During
the calendar year in which any incentive stock options granted under the Plan
first become exercisable by any Optionee, the aggregate fair market value of the
shares of Common Stock which are subject to such incentive stock options
(determined as of the date the incentive stock options were granted) shall not
exceed the sum of One Hundred Thousand Dollars ($100,000.00). Options which are
not designated as incentive stock options shall not be subject to the limitation
described in the preceding sentence and shall not be counted when applying such
limitation.
(g) Prohibition of Alternative Options. It is intended that
Key Employees may be granted, simultaneously or from time to time, "incentive
stock options" under Section 422 of the Code, or other stock options, but no Key
Employees shall be granted alternative rights in incentive stock options and
other stock options so as to prevent
8
<PAGE> 9
options granted as incentive stock options under the Plan from qualifying as
such within the meaning of Section 422 of the Code.
(h) Waiver by Committee of Conditions Governing Exercise of
Option. The Committee may, in its discretion, waive any restrictions or
conditions set forth in an option agreement concerning an Optionee's right to
exercise any option and/or the time and method of exercise.
8. AMENDMENTS TO THE PLAN. The Committee is authorized to interpret the
Plan and from time to time adopt any rules and regulations for carrying out the
Plan that it may deem advisable. Subject to the approval of the Board, the
Committee may at any time amend, modify, suspend or terminate the Plan. In no
event, however, without the approval of the Company's stockholders, shall any
action of the Committee or the Board result in:
(a) Amending, modifying or altering the eligibility
requirements provided in Section 5 hereof;
(b) Increasing or decreasing, except as provided in Section 6
hereof, the maximum number of shares for which options may be
granted;
(c) Decreasing the minimum option price per share at which
options may be granted under the Plan, as provided in Section
7(a) hereof;
(d) Extending either the maximum period during which an option
is exercisable as provided in Section 7(b) hereof or the date
on which the Plan shall terminate as provided in Section 12
hereof;
(e) Changing the requirements relating to the Committee;
(f) Making any other change which would cause any option
granted under the Plan as an incentive stock option not to
qualify as an incentive stock option within the meaning of
Section 422 of the Code; or
(g) Making any change which would eliminate the exemption
provided by Rule 16b-3 for this Plan and for securities
awarded under this Plan;
except as necessary to conform the Plan and the option agreements to changes in
the Code or other governing law.
9. STOCK APPRECIATION RIGHTS. The Committee may provide, at the time of
the grant of a stock option and upon such terms and conditions as it deems
appropriate, that an Optionee shall have the right with respect to all or a
portion of the options granted to him to elect to surrender such options in
exchange for the consideration set forth in this Section 9 in lieu of exercising
such options. Alternatively, the Committee may provide, at the time of the grant
of a stock option and upon such terms and conditions as it deems
9
<PAGE> 10
appropriate, that an Optionee shall have the right with respect to all or a
portion of the options granted to him to receive the consideration set forth in
this Section 9 upon exercising such options in addition to any Shares of Common
Stock purchased upon exercise thereof. Stock appreciation rights must be
specifically granted by the Committee; provided, however, no Optionee shall be
entitled to such rights solely as a result of the grant of an option to him.
Stock appreciation rights, if granted, may be exercised either with respect to
all or a portion of the option to which they relate. Stock appreciation rights
shall not be transferable separate from the option with respect to which they
were granted and shall be subject to all of the restrictions on transfer
applicable to the said options. Stock appreciation rights shall be exercisable
only at such times and by such persons as are specified in the option agreement
governing the stock option with respect to which the stock appreciation rights
were granted. A stock appreciation right shall provide that an Optionee shall
have the right to receive a percentage, not greater than One Hundred Percent
(100%), of the excess over the option price, if any, of the fair market value of
the shares of Common Stock covered by the option, as determined by the Committee
as of the date of exercise of the stock appreciation right, in the manner
provided for herein. Such amount shall be payable in one or more of the
following manners, as shall be determined by the Committee;
(a) in cash;
(b) in shares of Common Stock having a fair market value equal
to such amount; or
(c) in a combination of cash and shares of Common Stock.
If payment is made in whole or in part in shares of Common Stock, such payment
shall thereby reduce the number of shares available for the grant of options
under this Plan.
In no event may any Optionee exercise any stock appreciation rights
granted hereunder unless such Optionee is then permitted to exercise the option
or the portion thereof with respect to which such stock appreciation rights
relate. If the option agreement with the Optionee provides that exercise of the
stock appreciation right shall be in lieu of exercise of the option, then (i)
upon the exercise of any stock appreciation rights, the option or that portion
thereof to which the stock appreciation rights relate shall be cancelled, and
(ii) upon the exercise of the option or that portion thereof to which the stock
appreciation rights relate, the stock appreciation rights shall be cancelled,
and the option agreement governing such option shall be deemed amended as
appropriate without any further action by the Committee or the Optionee. If the
option agreement with the Optionee provides that exercise of the stock
appreciation right shall be in addition to exercise of the option, then (i) upon
the exercise of any stock appreciation rights, the option or that portion
thereof to which the stock appreciation rights relate shall be deemed exercised
and (ii) upon the exercise of the option, the stock appreciation rights
corresponding thereto shall be deemed exercised to the extent the option is
exercised. The terms of any stock appreciation rights granted hereunder shall be
incorporated into the option agreement which governs the option with respect to
which the stock appreciation
10
<PAGE> 11
rights are granted, and shall be such terms as the Committee shall prescribe
which are not inconsistent with this Plan. The granting of an option or stock
appreciation right shall impose no obligation upon the Optionee to exercise such
option or right. The Company's obligation to satisfy stock appreciation rights
shall not be funded or secured in any manner.
10. INVESTMENT REPRESENTATION, APPROVALS AND LISTING. The Committee may
condition its grant of any option hereunder upon receipt of an investment
representation from the Optionee which shall be substantially similar to the
following:
"Optionee agrees that any share of Common Stock of McDonald &
Company Investments, Inc. which he may acquire by virtue of the
exercise of this option shall be acquired for investment purposes only
and not with a view to distribution or resale; provided, however, that
this restriction shall become inoperative in the event the Common Stock
of McDonald & Company Investments, Inc. which are subject to this
option shall be registered under the Securities Act of 1933, as
amended, or in the event McDonald & Company Investments, Inc. is
otherwise satisfied that the offer or sale of the Common Stock of
McDonald & Company Investments, Inc. which are subject to this option
may lawfully be made without registration under the Securities Act of
1933, as amended."
The Company shall not be required to issue any certificates for Common Stock
upon the exercise of an option or a stock appreciation right granted under the
Plan prior to (i) obtaining any approval from any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or advisable,
(ii) the admission of such shares to listing on any national securities exchange
on which the Common Stock may be listed, (iii) completion of any registration or
other qualification of the Common Stock under any state or federal law or ruling
or regulations of any governmental body which the Committee shall, in its sole
discretion, determine to be necessary or advisable, or the determination by the
Committee, in its sole discretion, that any registration or other qualification
of the Common Stock is not necessary or advisable, and (iv) obtaining an
investment representation from the Optionee in the form set forth above or in
such other form as the Committee, in its sole discretion, shall determine to be
adequate.
11. GENERAL PROVISIONS.
(a) Option Agreements Need Not Be Identical. The form and
substance of option agreements and grants of stock appreciation rights, whether
granted at the same or different times, need not be identical.
(b) No Right To Be Employed, Etc. Nothing in the Plan or in
any option agreement shall confer upon any Optionee any right to continue in the
employ of the Company or a Subsidiary, or to serve as a member of the Board, or
to be entitled to receive any remuneration or benefits not set forth in the Plan
or such option agreement, or
11
<PAGE> 12
to interfere with or limit either the right of the Company or a Subsidiary to
terminate his employment at any time or the right of the stockholders of the
Company to remove him as a member of the Board with or without cause.
(c) Optionee Does Not Have Rights Of Stockholder. Nothing
contained in the Plan or in any option agreement shall be construed as entitling
any Optionee to any rights of a stockholder as a result of the grant of an
option until such time as shares of Common Stock are actually issued to such
Optionee pursuant to the exercise of an option or stock appreciation right.
(d) Successors In Interest. The Plan shall be binding upon the
successors and assigns of the Company.
(e) No Liability Upon Distribution Of Stock. The liability of
the Company under the Plan and any distribution of Common Stock made hereunder
is limited to the obligations set forth herein with respect to such distribution
and no term or provision of the Plan shall be construed to impose any liability
on the Company or the Committee in favor of any person with respect to any loss,
cost or expense which the person may incur in connection with or arising out of
any transaction in connection with the Plan.
(f) Use Of Proceeds. The cash proceeds received by the
Company from the issuance of shares of Common Stock pursuant to the Plan will be
used for general corporate purposes.
(g) Expenses. The expenses of administering the Plan shall be
borne by the Company.
(h) Captions. The captions and section numbers appearing in
the Plan are inserted only as a matter of convenience. They do not define,
limit, construe or describe the scope or intent of the provisions of the Plan.
(i) Number. The use of the singular or plural herein shall
not be restrictive as to number and shall be interpreted in all cases as the
context may require.
(j) Gender. The use of the feminine, masculine or neuter
pronoun shall not be restrictive as to gender and shall be interpreted in all
cases as the context may require.
12. TERMINATION OF THE PLAN. The Plan shall terminate on May 3, 2005,
and thereafter no options shall be granted under the Plan. All options
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms of the option agreements governing such
options and the terms and conditions of the Plan.
13. GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware and any applicable federal
law.
12
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>10
<DESCRIPTION>EXHIBIT 12
<TEXT>
<PAGE> 1
EXHIBIT 12
KEYCORP
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF EARNINGS
Net income.................................................. $ 996 $ 919 $ 783 $ 825 $ 853
Add: Provision for income taxes............................. 483 426 360 368 430
Less: Extraordinary net gain................................ -- -- -- 36 --
------ ------ ------ ------ ------
Income before income taxes and extraordinary net gain... 1,479 1,345 1,143 1,157 1,283
Fixed charges, excluding interest on deposits............... 1,517 1,085 810 819 513
------ ------ ------ ------ ------
Total earnings for computation, excluding interest on
deposits............................................. 2,996 2,430 1,953 1,976 1,796
Interest on deposits........................................ 1,359 1,462 1,469 1,705 1,325
------ ------ ------ ------ ------
Total earnings for computation, including interest on
deposits............................................. $4,355 $3,892 $3,422 $3,681 $3,121
====== ====== ====== ====== ======
COMPUTATION OF FIXED CHARGES
Net rental expense.......................................... $139 $123 $126 $117 $124
====== ====== ====== ====== ======
Portion of net rental expense deemed representative of
interest.................................................. $ 35 $ 30 $ 42 $ 39 $ 41
Interest on short-term borrowed funds....................... 801 642 492 519 334
Interest on long-term debt.................................. 616 364 273 261 138
Distributions on capital securities......................... 65 49 3 -- --
------ ------ ------ ------ ------
Total fixed charges, excluding interest on deposits..... 1,517 1,085 810 819 513
Interest on deposits........................................ 1,359 1,462 1,469 1,705 1,325
------ ------ ------ ------ ------
Total fixed charges, including interest on deposits..... $2,876 $2,547 $2,279 $2,524 $1,838
====== ====== ====== ====== ======
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Preferred stock dividend requirement on a pre-tax basis..... -- -- $ 12 $ 23 $ 24
Total fixed charges, excluding interest on deposits......... $1,517 $1,085 810 819 513
------ ------ ------ ------ ------
Combined fixed charges and preferred stock dividends,
excluding interest on deposits....................... 1,517 1,085 822 842 537
Interest on deposits........................................ 1,359 1,462 1,469 1,705 1,325
------ ------ ------ ------ ------
Combined fixed charges and preferred stock dividends,
including interest on deposits....................... $2,876 $2,547 $2,291 $2,547 $1,862
====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES
Excluding deposit interest.................................. 1.97X 2.24x 2.41x 2.42x 3.50x
Including deposit interest.................................. 1.51X 1.53x 1.50x 1.46x 1.70x
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Excluding deposit interest.................................. 1.97X 2.24x 2.38x 2.35x 3.34x
Including deposit interest.................................. 1.51X 1.53x 1.49x 1.45x 1.68x
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>11
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE> 1
Exhibit 13
FINANCIAL REVIEW
Financial Highlights 34
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction 35
Performance Overview 37
Cash Basis Financial Data 37
Line of Business Results 38
Results of Operations
Net Interest Income 39
Market Risk Management 43
Noninterest Income 45
Noninterest Expense 47
Income Taxes 49
Financial Condition
Loans 50
Securities 52
Asset Quality 53
Deposits and Other Sources of Funds 55
Liquidity 56
Capital and Dividends 56
Fourth Quarter Results 57
Report of Management 59
Report of Ernst & Young LLP,
Independent Auditors 60
Consolidated Financial Statements 61
Corporate Information 85
[Key Graphic] KEYCORP AND SUBSIDIARIES
<PAGE> 2
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
dollars in millions, except per share amounts 1998 1997
<S> <C> <C>
PER COMMON SHARE
Net income $ 2.25 $ 2.09
Net income assuming dilution 2.23 2.07
Cash dividends .94 .84
Book value at year end 13.63 11.83
Market price at year end 32.00 35.41
Weighted average Common Shares (000) 441,895 439,042
Weighted average Common Shares and
potential Common Shares (000) 447,437 444,544
AT DECEMBER 31,
Loans $ 62,012 $ 53,380
Earning assets 70,240 64,246
Total assets 80,020 73,699
Deposits 42,583 45,073
Total shareholders' equity 6,167 5,181
Common Shares outstanding (000) 452,452 438,064
PERFORMANCE RATIOS
Return on average total assets 1.32% 1.33%
Return on average total equity 17.97 18.89
Efficiency 57.61 57.50
</TABLE>
[BAR CHART] RETURN ON AVERAGE TOTAL EQUITY [BAR CHART] EFFICIENCY RATIO
[BAR CHART] RETURN ON AVERAGE TOTAL ASSETS
34 [Key Graphic] KEYCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Return on Average Total Equity Efficiency Ratio Return on Average Total Assets
- ------------------------------ ---------------- ------------------------------
<S> <C> <C> <C> <C> <C>
1994 18.56% 1994 59.39% 1994 1.36%
1995 17.10 1995 63.03 1995 1.24
1996 15.64 1996 60.84 1996 1.21
1996(1) 17.07 1997 57.50 1996(1) 1.31
1997 18.89 1998 57.61 1997 1.33
1998 17.97 1998 1.32
</TABLE>
(1) Excluding restructuring charge
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
This section of the report, including the highlights summarized below, provides
a discussion and analysis of the financial condition and results of operations
of KeyCorp (the "parent company") and its subsidiaries (collectively referred to
as "Key") for the periods presented. It should be read in conjunction with the
consolidated financial statements and notes thereto, presented on pages 61
through 84.
This report contains forward-looking statements which are subject to numerous
assumptions, risks and uncertainties. Statements pertaining to future periods
are subject to uncertainty because of the possibility of changes in underlying
factors and assumptions. Actual results could differ materially from those
contained in or implied by such forward-looking statements for a variety of
factors including: sharp and/or rapid changes in interest rates; significant
changes in the economy which could materially change anticipated credit quality
trends and the ability to generate loans; failure of the capital markets to
function consistent with customary levels; significant delay in or inability to
execute strategic initiatives designed to grow revenues and/or manage expenses;
consummation of significant business combinations or divestitures; unforeseen
business risks related to Year 2000 computer systems issues; and significant
changes in accounting, tax, or regulatory practices or requirements.
Key's earnings for 1998 reached a record high level for the second consecutive
year. Contributing to this result were strong growth in fee revenue businesses,
continued strong loan growth and stable asset quality. Noninterest income
achieved the highest level in Key's history and accounted for 36% of total
revenue (net interest income plus noninterest income), up from 29% in 1997,
after excluding bank and branch divestiture gains from both years. This growth
was bolstered by Key's October 1998 acquisition of McDonald and Company
Investments, Inc. ("McDonald"), a full-service investment banking and securities
brokerage company. Average outstanding commercial loans rose by 19% in 1998
reflecting seven consecutive quarters in which this portfolio has experienced
annualized growth exceeding 10%. This growth can be attributed in part to Key's
efforts, announced in 1996 as part of a program of initiatives referred to as
First Choice 2000, to make commercial loan origination efforts more productive.
Key's asset quality strength is due in part to its minimal emerging markets
exposure which is confined predominantly to trade finance transactions. That
fact, the absence of hedge fund exposure and a lower nonperforming assets ratio
have contributed to the stability of Key's provision for loan losses and net
charge-off levels.
During 1998, Key continued to evolve as a bank-based financial services company
by broadening the scope of products and services it offers and by continuing to
reallocate its resources to businesses with higher earnings potential. During
the first half of the year, these resources were made available in part through
the sales of 46 full-service banking offices ("KeyCenters"), resulting in gains
of $39 million. These sales marked the completion of the planned divestiture of
KeyCenters announced in November 1996 in conjunction with Key's efforts to
streamline operations and to manage operating expenses more effectively. In
total, 150 KeyCenters were sold in this divestiture program. The decrease in
core deposits associated with these divestitures has resulted in increased
reliance on purchased funds to support Key's earning asset growth, a trade-off
viewed by management as appropriate to obtain greater flexibility in seeking
earnings growth opportunities.
The principal strategic actions taken by Key during 1998 are as follows:
- - During the first quarter, Key entered into a joint venture with NOVA
Information Systems, Inc. ("NOVA"), an Atlanta-based company which provides
transaction processing and electronic payment services to merchant clients
nationwide. This joint venture, in which Key retained a 49% interest in its
proprietary merchant credit card processing business, enables Key to
participate in the same business, but with enhanced growth prospects due to
NOVA's greater presence and ability to focus on the business as a niche
specialty. Key also capitalized on its 1997 acquisition of an 80% interest
in Leasetec Corporation ("Leasetec") by entering into an agreement to form
a joint venture with Compaq Capital Corporation ("Compaq") to provide
customized equipment leasing and financing programs to Compaq's customers
in the United Kingdom, Europe and Asia. This arrangement was just one of
the factors behind the success of Leasetec in originating leases in its
first full year as a Key subsidiary. In 1998, Leasetec outperformed its
originations goal by recording $1.4 billion of leases. This was the primary
reason for the 26% growth in Key's total commercial lease financing
portfolio in 1998.
- - In the second quarter, Key acquired an $805 million marine/recreational
vehicle installment loan portfolio originated through another bank's dealer
distribution network. Key's marine/recreational vehicle portfolio
aggregated $3.3 billion at December 31, 1998, and is one of the largest
such portfolios held by any bank holding company in the United States. Key
also completed its plans to consolidate its bank subsidiaries by merging
KeyBank National Association (New Hampshire) into its lead bank, KeyBank
National Association ("KeyBank N.A.").
- - During the third quarter, Key increased its investment in Leasetec by
purchasing the remaining 20% interest. This action was contemplated in the
original purchase of an 80% interest completed in July 1997 and strengthens
Key's presence as a provider of worldwide lease financing of information
technology and telecommunications equipment.
- - In the fourth quarter, Key completed its acquisition of McDonald. Leveraged
by Key's capabilities in technology, marketing and sales, the McDonald
transaction is expected to strengthen Key's product lines which provide
capital markets, investment banking and asset management expertise to
business and private clients.
Throughout the year, Key also continued its efforts to reconfigure its delivery
systems. In addition to the branch divestitures, Key expanded its automated
teller machine ("ATM") network through the installation of 668 ATMs in ARCO
convenience stores in California, Nevada, Arizona, Washington and Oregon under
the terms of an agreement reached with ARCO Products Company in late 1997.
During 1998, Key repurchased 7,999,400 of its Common Shares. These shares were
repurchased under special authorization of Key's Board of Directors that
provides for the repurchase of up to 60% of the 19,337,159 shares issued in the
October 1998 acquisition of McDonald. Under a separate repurchase program
authorized by the Board in January 1998, Key may repurchase up to an additional
10,000,000 shares in the open market or through negotiated transactions, with no
expiration date for the authority. No shares were repurchased under this program
during 1998.
The preceding items are reviewed in greater detail in the remainder of this
discussion and in the notes to the consolidated financial statements.
[Key Graphic] KEYCORP AND SUBSIDIARIES 35
<PAGE> 4
FIGURE 1 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
COMPOUND
ANNUAL RATE
OF CHANGE
dollars in millions, except per share amounts 1998 1997 1996 1995 1994 1993 (1993-1998)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Interest income $ 5,525 $ 5,262 $ 4,951 $ 5,121 $ 4,490 $ 4,214 5.6%
Interest expense 2,776 2,468 2,234 2,485 1,797 1,535 12.6
Net interest income 2,749 2,794 2,717 2,636 2,693 2,679 .5
Provision for loan losses 297 320 197 100 125 212 7.0
Noninterest income 1,575 1,306 1,087 933 883 1,002 9.5
Noninterest expense 2,548 2,435 2,464 2,312 2,168 2,385 1.3
Income before income taxes
and extraordinary item 1,479 1,345 1,143 1,157 1,283 1,084 6.4
Income before extraordinary item 996 919 783 789 853 710 7.0
Net income 996 919 783 825 853 710 7.0
Net income applicable to Common Shares 996 919 775 809 837 692 7.6
- -------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Income before extraordinary item $ 2.25 $ 2.09 $ 1.69 $ 1.65 $ 1.72 $ 1.44 9.3%
Income before extraordinary item
-- assuming dilution 2.23 2.07 1.67 1.63 1.70 1.43 9.3
Net income 2.25 2.09 1.69 1.73 1.72 1.44 9.3
Net income-- assuming dilution 2.23 2.07 1.67 1.71 1.70 1.43 9.3
Cash dividends .94 .84 .76 .72 .64 .56 10.9
Book value at year end 13.63 11.83 10.92 10.68 9.44 8.76 9.2
Market price at year end 32.00 35.41 25.25 18.13 12.50 14.88 16.6
Dividend payout ratio 41.78% 40.19% 45.10% 41.74% 37.10% 38.75% 1.5
Weighted average Common Shares (000) 441,895 439,042 459,810 469,574 486,134 479,550 (1.6)
Weighted avg. Common Shares and
potential Common Shares (000) 447,437 444,544 464,282 472,882 490,932 483,158 (1.5)
- -------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31,
Loans $ 62,012 $ 53,380 $ 49,235 $ 48,332 $ 46,579 $ 41,396 8.4%
Earning assets 70,240 64,246 59,260 58,762 60,047 54,353 5.3
Total assets 80,020 73,699 67,621 66,339 66,801 59,634 6.1
Deposits 42,583 45,073 45,317 47,282 48,564 46,499 (1.7)
Long-term debt 12,967 7,446 4,213 4,003 3,570 1,764 49.0
Common shareholders' equity 6,167 5,181 4,881 4,993 4,530 4,225 7.9
Total shareholders' equity 6,167 5,181 4,881 5,153 4,690 4,385 7.1
Full-time equivalent employees 25,862 24,595 27,689 29,563 29,211 29,983 --
Full-service banking offices 968 1,015 1,205 1,284 1,272 1,267 --
- -------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.32% 1.33% 1.21% 1.24% 1.36% 1.24% N/A
Return on average common equity 17.97 18.89 15.73 17.35 18.87 17.27 N/A
Return on average total equity 17.97 18.89 15.64 17.10 18.56 16.95 N/A
Efficiency(1) 57.61 57.50 60.84 63.03 59.39 60.50 N/A
Overhead(2) 34.35 39.64 45.46 49.66 46.14 46.85 N/A
Net interest margin (TE) 4.18 4.62 4.78 4.47 4.83 5.31 N/A
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS AT DECEMBER 31,
Equity to assets(3) 8.64% 7.71% 7.96% 7.77% 7.03% 7.37% N/A
Tangible equity to tangible assets(3) 6.88 6.21 6.63 6.25 6.19 6.51 N/A
Tier 1 risk-adjusted capital 7.21 6.65 7.98 7.53 8.48 8.73 N/A
Total risk-adjusted capital 11.69 10.83 13.01 10.85 11.62 12.22 N/A
Leverage 6.95 6.40 6.93 6.20 6.63 6.72 N/A
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The comparability of the information presented above is affected by certain
mergers, acquisitions and divestitures completed by Key in the time periods
presented. For further information concerning these transactions, refer to Note
3, Mergers, Acquisitions and Divestitures, beginning on page 68.
(1) Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities
transactions and gains from bank and branch divestitures).
(2) Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) less noninterest income (excluding
net securities transactions and gains from bank and branch divestitures)
divided by taxable-equivalent net interest income.
(3) Excluding certain capital securities issued in 1996 and 1998 and receiving
Tier 1 capital treatment, these ratios at December 31, 1998, are 7.71% and
5.93%, respectively, at December 31, 1997, are 7.03% and 5.52%,
respectively, and at December 31, 1996, are 7.22% and 5.88%, respectively.
N/A= Not Applicable
TE = Taxable Equivalent
36 [Key Graphic] KEYCORP AND SUBSIDIARIES
<PAGE> 5
PERFORMANCE OVERVIEW
The selected financial data set forth in Figure 1 presents certain information
highlighting the financial performance of Key for each of the last six years.
Each of the items referred to in this performance overview and in Figure 1 is
more fully described in the following discussion or in the notes to the
consolidated financial statements presented on pages 65 through 84. Unless
otherwise indicated, all earnings per share data included in this section and
throughout the remainder of this discussion are presented on a diluted basis.
In 1998, net income was $996 million, or $2.23 per Common Share ($2.25 per
Common Share, after excluding the impact of $8 million of merger and integration
charges recorded in connection with the McDonald transaction and McDonald's
results subsequent to the October 1998 acquisition date). Both net income and
earnings per Common Share were up 8% from 1997 and represented the achievement
of record high levels for the second consecutive year. These results compared
with $919 million, or $2.07 per Common Share, in 1997 and $783 million, or $1.67
per Common Share, in 1996. Key's return on average total equity for 1998 was
17.97%, compared with 18.89% and 15.64% in 1997 and 1996, respectively. Return
on average total assets was 1.32% in 1998, 1.33% in 1997 and 1.21% in 1996.
Having notable impact on 1996 earnings was the restructuring charge of $100
million ($66 million after tax, $.14 per Common Share) recorded late in the
fourth quarter to accelerate Key's transformation to a national bank-based
financial services company. Excluding the restructuring charge and Key's share
of a government-mandated assessment of $17 million ($11 million after tax, $.02
per Common Share) to recapitalize the Savings Association Insurance Fund
("SAIF") recorded in the third quarter, earnings for 1996 were $860 million, or
$1.83 per Common Share. On the same basis, Key's 1996 return on average total
equity was 17.18% and its return on average total assets was 1.33%.
Contributing to the increase in 1998 earnings relative to the prior year were a
$269 million, or 21%, increase in noninterest income (achieved despite a $112
million decrease in gains from bank and branch divestitures) and a $23 million
reduction in the provision for loan losses. These positive factors were
partially offset by a $113 million increase in noninterest expense and a $55
million decline in taxable-equivalent net interest income. The strong growth in
noninterest income, underscored by the fourth quarter 1998 acquisition of
McDonald, reflected particularly strong contributions from trust and asset
management, and investment banking and capital markets activities. The revenues
generated by the latter category more than doubled those earned in 1997.
Included in noninterest expense in 1997 was a $50 million charge recorded in
connection with efforts to vacate and/or dispose of excess real estate resulting
from Key's national banking and related centralization efforts. Excluding this
charge and year-to-date distributions on capital securities (which more closely
resemble dividend or interest payments than overhead expense) of $65 million in
1998 and $49 million in 1997, noninterest expense was up 6% from the prior year.
This increase was largely due to higher personnel costs associated with various
incentive programs, including those related to investment banking and capital
markets activities. The efficiency ratio, which measures the extent to which
recurring revenues are absorbed by operating expenses, was 57.61% in 1998,
compared with 57.50% for 1997 and 60.84% for 1996.
CASH BASIS FINANCIAL DATA
The selected financial data presented in Figure 2 highlights the performance of
Key on a cash basis for each of the three years in the period ended December 31,
1998. The data presented has been adjusted to exclude the amortization of
goodwill and other intangibles that do not qualify for Tier 1 capital treatment,
as well as the related
FIGURE 2 CASH BASIS SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
dollars in millions, except per share amounts 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Noninterest expense $ 2,462 $ 2,358 $ 2,387
Income before income taxes 1,565 1,422 1,217
Net income 1,072 989 850
Net income applicable to Common Shares 1,072 989 842
- --------------------------------------------------------------------------------------
PER COMMON SHARE
Net income $ 2.43 $ 2.25 $ 1.85
Net income-- assuming dilution 2.40 2.22 1.81
Weighted average Common Shares (000) 441,895 439,042 459,810
Weighted average Common Shares and potential
Common Shares (000) 447,437 444,544 464,282
- --------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.45% 1.46% 1.33%
Return on average common equity 24.71 25.78 21.57
Return on average total equity 24.71 25.78 21.15
Efficiency(1) 55.61 55.59 58.92
- --------------------------------------------------------------------------------------
GOODWILL AND NON-QUALIFYING INTANGIBLES
Goodwill average balance $ 1,113 $ 921 $ 855
Non-qualifying intangibles average balance 91 108 132
Goodwill amortization (after tax) 65 58 55
Non-qualifying intangibles amortization (after tax) 11 12 12
- --------------------------------------------------------------------------------------
</TABLE>
The comparability of the information presented above is affected by certain
mergers, acquisitions and divestitures completed by Key in the time periods
presented. For further information concerning these transactions, refer to Note
3, Mergers, Acquisitions and Divestitures, beginning on page 68.
1 Calculated as noninterest expense (excluding certain nonrecurring charges,
the amortization of goodwill and non-qualifying intangibles, and
distributions on capital securities) divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities
transactions and gains from bank and branch divestitures).
[Key Graphic] KEYCORP AND SUBSIDIARIES 37
<PAGE> 6
assets. These non-qualifying intangibles resulted from business combinations
recorded by Key under the purchase method of accounting. Had these business
combinations qualified for accounting under the pooling of interests method, no
intangible assets would have been recorded. Since the amortization of goodwill
and other non-qualifying intangibles does not result in a cash expense, the
economic value to shareholders under either accounting method is essentially the
same. Moreover, such amortization does not impact Key's liquidity and funds
management activities. Cash basis financial data provide an additional basis for
measuring a company's ability to support future growth, pay dividends and
repurchase shares. As defined above and presented in Figure 2, cash basis
financial data have not been adjusted to exclude the impact of other noncash
items such as depreciation, the provision for loan losses, restructuring
charges, etc. This is the only section of this report in which Key's financial
results are discussed on a cash basis.
LINE OF BUSINESS RESULTS
Presented below is a summary of the comparative financial performance of each of
Key's major lines of business for the years ended December 31, 1998 and 1997, as
well as a summary of significant strategic developments that occurred within
those lines during 1998. It should be read in conjunction with Note 4, Line of
Business Results, starting on page 69. This note provides additional information
pertaining to the basis of the financial results discussed and the nature of the
business conducted by each line of business.
Key's net income by line of business for each of the three years in the period
ended December 31, 1998, is shown in Figure 3.
FIGURE 3 NET INCOME BY LINE OF BUSINESS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CHANGE 1998 VS 1997
-------------------
dollars in millions 1998 1997 1996 AMOUNT PERCENT
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Key Corporate Capital $ 261 $ 237 $ 194 $ 24 10.1%
Key Consumer Finance 147 118 188 29 24.6
Key Community Bank 597 593 575 4 .7
Key Capital Partners(1) 32 30 19 2 6.7
- --------------------------------------------------------------------------
Total segments 1,037 978 976 59 6.0
Reconciling items (41) (59) (193) 18 30.5
- --------------------------------------------------------------------------
Total net income $ 996 $ 919 $ 783 $ 77 8.4%
- --------------------------------------------------------------------------
</TABLE>
1 Prior to the assignment of income and expense to the other lines of
business, as described under the Key Capital Partners section, net income
was $135 million in 1998, $87 million in 1997 and $76 million in 1996.
KEY CORPORATE CAPITAL
In 1998, net income for Key Corporate Capital rose to $261 million from $237
million in the prior year. In both of these years this represented approximately
26% of Key's consolidated earnings. The increase in 1998 earnings relative to
the prior year reflected higher net interest income resulting from a 27%
increase in total average loans. This reflected growth in all of Key Corporate
Capital's business units and the full-year impact of the July 1997 acquisition
of an 80% interest in Leasetec, as well as the addition of the remaining 20%
interest acquired at the end of the second quarter of 1998. Also contributing to
the improved earnings performance was a $35 million rise in noninterest income,
led by investment banking and capital markets activities, and trust and asset
management income. There was a $41 million increase in noninterest expense,
attributable primarily to the increased prominence of Leasetec in 1998. Leasetec
added $44 million to Key Corporate Capital's operating costs, while also adding
$66 million to total revenue.
KEY CONSUMER FINANCE
In 1998, Key Consumer Finance generated net income of $147 million, or
approximately 15% of Key's consolidated earnings, up from $118 million, or 13%
in the prior year. Primary factors contributing to the improved financial
performance relative to the prior year were higher levels of net interest income
and noninterest income, coupled with a lower provision for loan losses resulting
from improved credit quality. These positive factors were partially offset by a
higher level of noninterest expense. Net interest income rose $25 million due
primarily to growth in loans which more than offset the impact of lower interest
rate spreads. The growth in loans included a full year's production from
Champion Mortgage Co., Inc. ("Champion"), acquired in August 1997, as well as
the April 1998 acquisition of an $805 million marine/recreational vehicle
installment loan portfolio. Loan growth was moderated by the fourth quarter 1997
securitization and sale of $949 million of prime credit automobile loans with
low returns on equity, and the sale of $365 million of out-of-franchise credit
card receivables during the first and third quarters of 1997. The
securitization, done at a $36 million loss, was undertaken consistent with Key's
goal of divesting assets which do not support its return on equity objective.
Loan securitization income accounted for 23% of total noninterest income in 1998
and approximately 63% of the increase in noninterest income from the prior year.
The Champion acquisition contributed $38 million of a total $94 million increase
in revenue and $17 million of a total $69 million increase in noninterest income
in 1998. The balance of the increase in noninterest income was due primarily to
increased gains from loan sales and growth in various other components of fee
income. The acquisition of Champion also accounted for $49 million of a total
$70 million increase in noninterest expense during 1998. Adding to the level of
Champion's expenses in the current year were costs associated with expanding the
home equity business. Champion is now operating in seven states in which it was
absent or only nominally present at the date of acquisition. Champion's
revenues, unlike its noninterest expenses, have tended to fluctuate directly
with new securitizations.
38 [Key Graphic] KEYCORP AND SUBSIDIARIES
<PAGE> 7
KEY COMMUNITY BANK
In 1998, net income for Key Community Bank totaled $597 million, or
approximately 60% of Key's consolidated earnings, compared with $593 million, or
64%, respectively, for 1997. The slight increase in earnings relative to the
prior year reflected growth in noninterest income and a reduction in the
provision for loan losses, substantially offset by a decline in net interest
income and an increase in noninterest expense. Noninterest income rose $137
million, or 19%, from the prior year due in part to the increased focus on and
diversification of fee income sources. The largest contributors to this growth
were trust and asset management activities, and investment banking and capital
markets income. Also included in 1998 noninterest income were $50 million of
gains recognized in connection with the transaction with NOVA. The decrease in
the provision for loan losses reflected a lower level of net charge-offs. Net
interest income declined by $132 million as a result of lower net interest rate
spreads which more than offset the benefits derived from a $1.7 billion, or 6%,
increase in average loans outstanding. The lower spreads were due to a number of
factors, including the repricing of loan portfolios in a period of competitive
interest rate spread compression, greater reliance placed on higher-cost funding
to support the incremental increase in loan portfolios, and the reduction in
core deposits stemming from branch divestitures. The increase in noninterest
expense, $13 million, was due primarily to higher incentive compensation related
to investment banking, capital markets, and branch-based activities, offset in
part by lower personnel costs resulting from a decrease in the employment base
as part of Key's consolidation and expense control initiatives.
In 1998, strategic developments centered on continued efforts to reconfigure
Key's delivery systems. Specific activities included the sale of 46 branches in
Maine, Idaho, Oregon and Washington; expansion of the ATM delivery network
through the installation of 668 ATMs in ARCO convenience stores in California,
Nevada, Arizona, Washington, and Oregon; the start of the merchant processing
joint venture with NOVA; and the opening of in-store branches in Colorado and
the New England states.
KEY CAPITAL PARTNERS
In 1998, Key Capital Partners ("KCP") recorded net income of $32 million,
compared with $30 million in the prior year. In both 1998 and 1997, this
represented approximately 3% of Key's consolidated earnings. A significant
amount of noninterest income and expense generated by KCP is reported under
either Key Corporate Capital or Key Community Bank. This reflects Key's
management accounting practice of assigning such income and expense to whichever
line of business is principally responsible for maintaining the relationships
with clients who also avail themselves of the products and services offered by
KCP. Prior to the aforementioned assignments, KCP's net income totaled $135
million (representing 14% of Key's consolidated earnings) in 1998 and $87
million (representing 10% of Key's consolidated earnings) in the prior year.
Noninterest income rose $238 million ($129 million after revenue assignments)
from last year. Bolstered by the October 1998 acquisition of McDonald, the
largest contribution to the improvement came from investment banking and capital
markets income, due to higher revenues from dealer and trading activities, as
well as increased gains from the sales of equity capital investments. In
addition, revenues related to trust and asset management activities rose,
reflecting new business, the repricing of certain services and the strength of
the stock and bond markets during most of 1998. The increase in noninterest
income was partially offset by a $148 million ($110 million after expense
assignments) increase in noninterest expense, primarily personnel expense which
tends to rise with the growth in noninterest income due to incentive
compensation arrangements. The terms of the McDonald acquisition are disclosed
in Note 3, Mergers, Acquisitions and Divestitures, beginning on page 68.
RECONCILING ITEMS
The impact on net income from reconciling items shown in Figure 3 is primarily
the result of certain nonrecurring items recorded in connection with Key's
transformation to a national bank-based financial services company and related
centralization efforts, and charges related to unallocated nonearning assets of
corporate support functions. Further information pertaining to the nonrecurring
items is included in Note 4, referred to in the first paragraph of this section,
and elsewhere in this management's discussion.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, which is comprised of interest and loan-related fee income
less interest expense, is the principal source of earnings for Key. Net interest
income is affected by a number of factors including the level, pricing, mix and
maturity of earning assets and interest-bearing liabilities (including
off-balance sheet instruments described in Note 18, Financial Instruments with
Off-Balance Sheet Risk, beginning on page 80), interest rate fluctuations and
asset quality. To facilitate comparisons in the following discussion, net
interest income is presented on a taxable-equivalent basis, which restates
tax-exempt income to an amount that would yield the same after-tax income had
the income been subject to taxation at the statutory Federal income tax rate.
Various components of the balance sheet and their respective yields and rates
which affect interest income and expense are illustrated in Figure 4. The
information presented in Figure 5 provides a summary of the effect on net
interest income of changes in yields/rates and average balances in 1998 and
1997. A more in-depth discussion of changes in earning assets and funding
sources is presented in the Financial Condition section beginning on page 50.
In 1998, net interest income was $2.8 billion, down $55 million, or 2%, from the
prior year. This followed an increase of $71 million, or 3%, in 1997, a year in
which net interest income reached a record high for Key. In 1998, the net
interest margin declined by 44 basis points to 4.18% with more than half of the
decline occurring during the first quarter. This more than offset a 9% increase
in average earning assets (primarily loans) to $66.7 billion. In 1997, the
improvement in net interest income resulted from the 6% growth in average
earning assets that more than offset a 16 basis point decrease in the net
interest margin.
As shown in Figure 4, the net interest margin was 4.18% in 1998, compared with
4.62% for 1997 and 4.78% in 1996. The decrease in the margin in both 1998 and
1997 resulted from a number of factors. Primary among these are competitive
interest rate spread compression, greater reliance placed on higher-cost funding
to support the incremental increase in loan portfolios, the reduction in core
deposits stemming from branch divestitures, and the repricing of core deposits
in a low interest rate environment. Another factor contributing to the
contraction of the margin in 1998 was an increase in short-term investments with
low interest rate spreads associated with various capital markets activities. In
1998, the effects of these factors were pronounced during an unusually (by
historical standards) prolonged period of flatness in the yield curve which
prevailed from the third quarter of 1997. The negative impact of these factors
was partially offset by the issuance of $500 million, $250
[Key Graphic] KEYCORP AND SUBSIDIARIES 39
<PAGE> 8
FIGURE 4 AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
-------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
dollars in millions BALANCE INTEREST RATE BALANCE INTEREST RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans(3,4)
Commercial, financial and agricultural $ 15,413 $ 1,251 8.12% $ 12,911 $ 1,126 8.72%
Real estate-- commercial mortgage 7,080 627 8.86 7,101 663 9.34
Real estate-- construction 2,866 254 8.86 1,945 188 9.67
Commercial lease financing 4,822 359 7.45 3,310 228 6.89
- -------------------------------------------------------------------------------------------------------------------
Total commercial loans 30,181 2,491 8.25 25,267 2,205 8.73
Real estate-- residential 5,440 422 7.76 6,192 524 8.46
Credit card 1,438 212 14.74 1,710 256 14.97
Other consumer 17,163 1,559 9.08 15,597 1,447 9.28
- -------------------------------------------------------------------------------------------------------------------
Total consumer loans 24,041 2,193 9.12 23,499 2,227 9.48
Loans held for sale 3,200 262 8.19 2,649 198 7.47
- -------------------------------------------------------------------------------------------------------------------
Total loans 57,422 4,946 8.61 51,415 4,630 9.02
Taxable investment securities 282 12 4.26 247 12 4.83
Tax-exempt investment securities(3) 801 67 8.36 1,227 97 7.91
- -------------------------------------------------------------------------------------------------------------------
Total investment securities 1,083 79 7.29 1,474 109 7.39
Securities available for sale(3,5) 6,610 450 6.85 7,629 527 6.93
Interest-bearing deposits with banks 28 3 12.92 19 1 5.67
Federal funds sold and securities
purchased under resale agreements 939 44 4.69 497 24 4.83
Trading account assets 596 37 6.21 266 15 5.64
- -------------------------------------------------------------------------------------------------------------------
Total short-term investments 1,563 84 5.37 782 40 5.12
- -------------------------------------------------------------------------------------------------------------------
Total earning assets 66,678 5,559 8.34 61,300 5,306 8.66
Allowance for loan losses (888) (875)
Other assets 9,491 8,525
- -------------------------------------------------------------------------------------------------------------------
$ 75,281 $ 68,950
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market deposit accounts $ 11,650 382 3.28 $ 10,897 333 3.06
Savings deposits 3,225 59 1.83 4,319 94 2.18
NOW accounts 1,215 20 1.65 1,560 32 2.05
Certificates of deposit ($100,000 or more) 3,520 194 5.51 3,376 190 5.63
Other time deposits 12,240 654 5.34 13,273 715 5.39
Deposits in foreign offices 913 50 5.48 1,812 98 5.41
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 32,763 1,359 4.15 35,237 1,462 4.15
Federal funds purchased and securities
sold under repurchase agreements 6,635 342 5.15 6,942 359 5.17
Bank notes and other short-term borrowings 7,975 459 5.76 4,741 283 5.97
Long-term debt(6) 10,296 616 6.00 5,906 364 6.21
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 57,669 2,776 4.81 52,826 2,468 4.67
Noninterest-bearing deposits 8,509 8,536
Other liabilities 2,681 2,074
Capital securities 879 648
Preferred stock -- --
Common shareholders' equity 5,543 4,866
- -------------------------------------------------------------------------------------------------------------------
$ 75,281 $ 68,950
======== ========
Interest rate spread (TE) 3.53 3.99
Net interest income (TE) and net
interest margin (TE) $ 2,783 4.18% $ 2,838 4.62%
======== ===== ======== =====
Taxable-equivalent adjustment(3) $ 34 $ 44
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
1 For 1993, all real estate loans are included in real estate--residential
loans.
2 For 1993, credit card receivables are included in consumer loans.
3 Interest income on tax-exempt securities and loans has been adjusted to a
taxable-equivalent basis using the statutory Federal income tax rate of
35%.
4 For purposes of these computations, nonaccrual loans are included in
average loan balances.
5 Yield is calculated on the basis of amortized cost.
6 Rate calculation excludes ESOP debt.
TE = Taxable Equivalent
N/M = Not Meaningful
40 [Key Graphic] KEYCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------- -------------------------- --------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------------------------------------------------------------------------------------------
<S> <C> <C> <S> <C> <C> <C> <C> <C>
$ 11,970 $ 1,070 8.94% $ 11,252 $ 1,027 9.13% $ 9,762 $ 856 8.77%
7,039 648 9.21 7,115 678 9.53 6,396 553 8.65
1,631 166 10.18 1,416 148 10.45 1,207 107 8.86
2,372 148 6.24 1,876 125 6.66 1,384 94 6.79
---------------------------------------------------------------------------------------------
23,012 2,032 8.83 21,659 1,978 9.13 18,749 1,610 8.59
7,224 593 8.21 9,554 762 7.98 8,699 653 7.51
1,665 243 14.59 1,386 210 15.15 1,361 194 14.25
13,887 1,284 9.25 13,042 1,197 9.18 12,383 1,054 8.51
---------------------------------------------------------------------------------------------
22,776 2,120 9.31 23,982 2,169 9.04 22,443 1,901 8.47
2,428 198 8.15 2,371 201 8.48 2,271 160 7.05
---------------------------------------------------------------------------------------------
48,216 4,350 9.02 48,012 4,348 9.06 43,463 3,671 8.45
246 14 5.69 7,807 521 6.67 7,664 507 6.61
1,425 114 8.00 1,482 126 8.47 1,579 136 8.63
---------------------------------------------------------------------------------------------
1,671 128 7.66 9,289 647 6.96 9,243 643 6.96
7,423 495 6.69 2,103 136 6.40 4,066 228 5.50
24 1 4.17 138 8 5.86 34 2 4.47
463 25 5.40 533 32 5.91 71 3 4.18
48 2 4.17 128 7 6.00 39 2 5.23
---------------------------------------------------------------------------------------------
535 28 5.23 799 47 5.91 144 7 4.53
---------------------------------------------------------------------------------------------
57,845 5,001 8.65 60,203 5,178 8.60 56,916 4,549 7.99
(872) (868) (821)
7,846 7,307 6,466
---------------------------------------------------------------------------------------------
$ 64,819 $ 66,642 $ 62,561
======== ======== ========
$ 10,211 311 3.05 $ 7,161 261 3.64 $ 7,197 197 2.74
5,604 138 2.46 6,506 174 2.68 7,697 205 2.66
2,438 48 1.97 5,444 110 2.02 5,559 106 1.91
3,377 199 5.89 3,677 222 6.03 2,992 146 4.88
13,723 720 5.25 14,466 783 5.41 12,338 544 4.41
996 53 5.32 2,182 155 7.12 3,015 127 4.21
---------------------------------------------------------------------------------------------
36,349 1,469 4.04 39,436 1,705 4.32 38,798 1,325 3.41
5,843 295 5.05 5,623 315 5.60 5,850 243 4.16
3,279 197 6.01 3,362 204 6.05 1,930 91 4.71
4,296 273 6.43 3,895 261 6.84 2,234 138 6.35
---------------------------------------------------------------------------------------------
49,767 2,234 4.49 52,316 2,485 4.75 48,812 1,797 3.69
8,374 8,129 8,046
1,644 1,373 1,104
28 -- --
79 160 160
4,927 4,664 4,439
---------------------------------------------------------------------------------------------
$ 64,819 $ 66,642 $ 62,561
======== ======== ========
4.16 3.85 4.30
$ 2,767 4.78% $ 2,693 4.47% $ 2,752 4.83%
======== ===== ======== ==== ======== =====
$ 50 $ 57 $ 59
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
COMPOUND ANNUAL
RATE OF CHANGE
1993 (1993-1998)
- ----------------------------------------------- -----------------------------------
AVERAGE YIELD/ AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9,120 $ 735 8.06% 11.1% 11.2%
See note(1) See note(1) See note(1) See note(1) See note(1)
See note(1) See note(1) See note(1) See note(1) See note(1)
1,387 109 7.86 28.3 26.9
- --------------------------------------------------------------------------------------------------
10,507 844 8.03 23.5 24.2
17,612 1,478 8.39 (20.9) (22.2)
See note(2) See note(2) See note(2) See note(2) See note(2)
8,993 926 10.30 13.8 11.0
- ----------------------------------------------------------------------------------------------------
26,605 2,404 9.04 (2.0) (1.8)
2,251 151 6.71 7.3 11.7
- ----------------------------------------------------------------------------------------------------
39,363 3,399 8.68 7.8 7.8
7,769 556 7.16 (48.5) (53.6)
1,787 159 8.87 (14.8) (15.9)
- ----------------------------------------------------------------------------------------------------
9,556 715 7.48 (35.3) (35.6)
2,070 141 6.84 26.1 26.1
427 15 3.49 (42.0) (23.2)
166 6 3.61 41.4 49.0
17 1 3.37 103.7 105.9
- ----------------------------------------------------------------------------------------------------
610 22 3.52 20.7 31.0
- ----------------------------------------------------------------------------------------------------
51,599 4,277 8.29 5.3 5.4
(804) 2.0
6,256 8.7
- ----------------------------------------------------------------------------------------------------
$57,051 5.7
=======
$ 7,307 189 2.59 9.8 15.1
7,383 214 2.90 (15.3) (22.7)
5,314 109 2.06 (25.6) (28.8)
3,089 138 4.47 2.6 7.0
12,443 551 4.42 (.3) 3.5
1,019 32 3.09 (2.2) 9.3
- ----------------------------------------------------------------------------------------------------
36,555 1,233 3.37 (2.2) 2.0
4,378 130 2.97 8.7 21.3
1,196 45 3.72 46.2 59.1
1,896 127 6.96 40.3 37.1
- ----------------------------------------------------------------------------------------------------
44,025 1,535 3.49 5.5 12.6
7,786 1.8
1,051 20.6
-- N/M
184 N/M
4,005 6.7
- ----------------------------------------------------------------------------------------------------
$57,051 5.7
=======
4.80
$ 2,742 5.31% .3%
======= =====
$ 63 (11.6)%
- ----------------------------------------------------------------------------------------------------
</TABLE>
[Key Graphic] KEYCORP AND SUBSIDIARIES 41
<PAGE> 10
FIGURE 5 COMPONENTS OF NET INTEREST INCOME CHANGES
<TABLE>
<CAPTION>
1998 VS 1997 1997 VS 1996
-------------------------- ---------------------------
AVERAGE YIELD/ NET AVERAGE YIELD/ NET
in millions VOLUME RATE CHANGE VOLUME RATE CHANGE
- -----------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C>
Loans $ 524 $(208) $ 316 $ 288 $ (8) $ 280
Taxable investment securities 2 (2) -- -- (2) (2)
Tax-exempt investment securities (35) 5 (30) (16) (1) (17)
Securities available for sale (69) (8) (77) 14 18 32
Short-term investments 42 2 44 13 (1) 12
- -----------------------------------------------------------------------------------------------------------
Total interest income (TE) 464 (211) 253 299 6 305
INTEREST EXPENSE
Money market deposit accounts 24 25 49 21 1 22
Savings deposits (21) (14) (35) (29) (15) (44)
NOW accounts (6) (6) (12) (18) 2 (16)
Certificates of deposit ($100,000 or more) 8 (4) 4 -- (9) (9)
Other time deposits (55) (6) (61) (24) 19 (5)
Deposits in foreign offices (49) 1 (48) 44 1 45
- -----------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (99) (4) (103) (6) (1) (7)
Federal funds purchased and securities sold
under repurchase agreements (16) (1) (17) 57 7 64
Bank notes and other short-term borrowings 186 (10) 176 87 (1) 86
Long-term debt 263 (11) 252 99 (8) 91
- -----------------------------------------------------------------------------------------------------------
Total interest expense 334 (26) 308 237 (3) 234
- -----------------------------------------------------------------------------------------------------------
Net interest income (TE) $ 130 $(185) $ (55) $ 62 $ 9 $ 71
===== ===== ===== ===== ===== =====
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The change in interest not due solely to volume or rate has been allocated in
proportion to the absolute dollar amounts of the change in each.
TE = Taxable Equivalent
million and $247 million of tax-advantaged capital securities in 1996, 1997 and
1998, respectively. The distributions related to these capital securities are
classified as noninterest expense.
Average earning assets in 1998 totaled $66.7 billion, which was $5.4 billion, or
9%, higher than the prior year. This growth reflected a $6.0 billion, or 12%,
increase in loans with more than 80% of the increase coming from the commercial
portfolio. The fourth quarter of 1998 marked the seventh consecutive quarter in
which this portfolio has achieved annualized growth exceeding 10%. Also
contributing to 1998 growth were increases in the home equity and indirect
consumer loan portfolios, including the acquisition of an $805 million
marine/recreational vehicle installment loan portfolio in April 1998. In
addition, the increase in loans reflected Key's reduced use of loan
securitizations as a funding option in 1998 due primarily to unfavorable
conditions in the capital markets. Total loans securitized and sold in 1998
amounted to $300 million compared to $2.7 billion in 1997 and $923 million in
1996. Key's securitization activity is expected to increase in 1999 relative to
1998. In 1997, the growth in average earning assets reflected an aggregate $4.0
billion, or 10%, increase in commercial, home equity, credit card and consumer
installment loans, accompanied by a $1.0 billion decline in the residential
mortgage portfolio and a $221 million increase in loans held for sale. Earning
assets have grown steadily since the third quarter of 1996 following an
approximate two-year period of planned decreases in both residential mortgage
loans and securities (including both investment securities and securities
available for sale). Key's strategy with respect to its loan portfolio is
discussed in greater detail in the Loans section beginning on page 50.
Key uses portfolio interest rate swaps, caps and floors (as defined in Note 18,
Financial Instruments with Off-Balance Sheet Risk, beginning on page 80) in the
management of its interest rate sensitivity position. The notional amount of
such swaps increased to $12.4 billion at December 31, 1998, from $11.2 billion
at year-end 1997. Over the same period, the notional amount of interest rate
caps and floors rose $480 million to $3.9 billion. In 1998, interest rate swaps
(including the impact of both the spread on the swap portfolio and the
amortization of deferred gains and losses resulting from terminated swaps) and
interest rate caps and floors contributed $23 million and 3 basis points to net
interest income and the net interest margin, respectively. In 1997, these
instruments increased net interest income by $64 million and the net interest
margin by 10 basis points compared with increases of $66 million and 11 basis
points, respectively, in 1996. The manner in which interest rate swaps, caps and
floors are used in Key's overall program of asset and liability management is
described in the following Market Risk Management section.
42 [KEY GRAPHIC] KEYCORP AND SUBSIDIARIES
<PAGE> 11
MARKET RISK MANAGEMENT
Market risk is the exposure to economic loss that arises from changes in the
values of certain market risk sensitive instruments. Types of market risk
include interest rate, foreign exchange and equity price risk (the risk of
economic loss related to equity securities held as assets). Foreign exchange and
equity price risk are not material to Key.
ASSET AND LIABILITY MANAGEMENT
Key manages its interest rate risk through an active program of asset and
liability management pursuant to guidelines established by its Asset/Liability
Management Policy Committee ("ALCO"). The ALCO has responsibility for approving
the asset/liability management policies of Key, overseeing the formulation and
implementation of strategies to improve balance sheet positioning and/or
earnings, and reviewing Key's interest rate sensitivity position.
MEASUREMENT OF SHORT-TERM INTEREST RATE EXPOSURE: The primary tool utilized by
management to measure and manage interest rate risk is a net interest income
simulation model. Use of the model to perform simulations of changes in interest
rates over one- and two-year time horizons has enabled management to develop
strategies for managing exposure to interest rate risk. In its simulations,
management estimates the impact on net interest income of various pro forma
changes in the overall level of interest rates. These estimates are based on a
large number of assumptions related to loan and deposit growth, asset and
liability prepayments, interest rates, on- and off-balance sheet management
strategies and other factors. Management believes that both individually and in
the aggregate these assumptions are reasonable, but the complexity of the
simulation modeling process results in a sophisticated estimate, not a precise
calculation of exposure. The ALCO guidelines provide that a gradual 200 basis
point increase or decrease in short-term rates over the next twelve-month period
should not result in more than a 2% impact on net interest income over the same
period from what net interest income would have been if such interest rates did
not change. As of December 31, 1998, based on the results of the simulation
model using the ALCO guidelines, Key would expect its net interest income to
increase by approximately $32 million if short-term interest rates gradually
decrease. Conversely, if short-term interest rates gradually increase, net
interest income would be expected to decrease by approximately $30 million.
MEASUREMENT OF LONG-TERM INTEREST RATE EXPOSURE: Short-term interest rate risk
analysis is complemented by an economic value of equity model. This model
provides the added benefit of measuring exposure to interest rate changes
outside the one- to two-year time frame measured by the simulation model. The
economic value of Key's equity is determined by modeling the net present value
of future cash flows for asset, liability and off-balance sheet positions based
on the implied forward yield curve. Economic value analysis has several
limitations including: the economic values of asset, liability and off-balance
sheet positions do not represent the true fair values of the positions, since
they do not consider factors such as credit risk and liquidity; the use of
estimates of cash flows is necessary for assets and liabilities with
indeterminate maturities; the future structure of the balance sheet derived from
ongoing loan and deposit activity by Key's core businesses is not factored into
present value calculations; and the analysis requires assumptions about events
that span an even longer time frame than that used in the simulation model.
Despite its limitations, the economic value of equity model does provide
management with a relatively sophisticated tool for evaluating the longer term
effect of possible interest rate movements. The ALCO guidelines provide that an
immediate 200 basis point increase or decrease in interest rates should not
result in more than a 1.75% change in the ratio of base case economic value of
equity to the sum of base case economic value of assets and net fixed rate
interest rate swaps, caps and floors. Key has been operating well within these
guidelines.
OTHER SOURCES OF INTEREST RATE EXPOSURE: Key utilizes the results of its
short-term and long-term interest rate exposure models to formulate strategies
to improve balance sheet positioning and/or earnings within interest rate risk,
liquidity and capital guidelines established by the ALCO. In addition to the
interest rate exposure measured using ALCO guidelines, the risk to earnings and
economic value arising from various other pro forma changes in the overall level
of interest rates is periodically measured. The variety of interest rate
scenarios modeled, and their potential impact on earnings and economic value,
quantifies the level of interest rate exposure arising from several sources,
namely option risk, basis risk and gap risk. Option risk exists in the form of
options (including caps and floors) embedded in certain products. These options
permit the customer (either a loan customer or a depositor) to take advantage of
changes in interest rates without penalty. Examples include floating-rate loans
that contain an interest rate cap, fixed-rate loans that do not contain
prepayment penalties and deposits that can be withdrawn on demand. Basis risk
refers to floating-rate assets and floating-rate liabilities that reprice
simultaneously, but are tied to different indices. Basis risk arises when one
index does not move consistently with another. Gap risk is the risk that assets,
liabilities or related interest rate swaps, caps and floors will mature or
reprice in different time frames. For example, floating-rate loans that reprice
monthly may be funded with fixed-rate certificates of deposit that mature in one
year.
MANAGEMENT OF INTEREST RATE EXPOSURE: To manage interest rate risk, management
uses interest rate swaps, caps and floors to modify the repricing or maturity
characteristics of specified on-balance sheet assets and liabilities.
Instruments used for this purpose are designated as portfolio swaps, caps and
floors. The decision to use these instruments versus on-balance sheet
alternatives depends on various factors, including the mix and cost of funding
sources, liquidity and capital requirements. Further details pertaining to
portfolio swaps, caps and floors are included in Note 18, Financial Instruments
with Off-Balance Sheet Risk, beginning on page 80. In addition, management
strategically selects the interest sensitivity structure of additions to Key's
securities portfolio, new debt issuances and loan securitizations in light of
interest rate risk management objectives.
PORTFOLIO SWAPS, CAPS AND FLOORS: As shown in Note 18, the estimated fair value
of Key's portfolio swaps increased to $178 million during 1998 from a fair value
of $102 million at December 31, 1997. The increase in fair value over the past
year reflected the combined impact of a number of factors, including the decline
in interest rates, the flattening of the implied forward yield curve, and the
fact that Key's receive fixed interest rate swap portfolio has a longer average
remaining maturity than the pay fixed portfolio. Swaps with a notional amount of
$642 million were terminated during 1998, resulting in a deferred loss of $1
million. Further information pertaining to the balance and remaining
amortization period of Key's deferred swap gains and losses at December 31,
1998, is also presented in Note 18. Each swap termination was made
[KEY GRAPHIC] KEYCORP AND SUBSIDIARIES 43
<PAGE> 12
in response to a unique set of circumstances and for various reasons; however,
the decision to terminate any swap contract is integrated strategically with
asset and liability management and other appropriate processes. During 1998, Key
continued to increase its use of portfolio caps in response to heavier reliance
placed on variable rate funding to support earning asset growth. These
instruments are used primarily to protect against the adverse impact that a
future rise in interest rates could have on variable rate short-term borrowings,
while having no impact in the event of a decline in rates. Portfolio swaps, caps
and floors activity for each of the last three years is summarized in Figure 6.
FIGURE 6 PORTFOLIO SWAPS, CAPS AND FLOORS ACTIVITY
<TABLE>
<CAPTION>
RECEIVE FIXED
-------------------------
PAY FIXED- TOTAL
INDEXED PAY FIXED- FORWARD- BASIS PORTFOLIO
in millions AMORTIZING CONVENTIONAL CONVENTIONAL STARTING SWAPS SWAPS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 6,200 $ 2,497 $ 2,412 -- -- $11,109
Additions -- 1,341 2,232 -- $ 400 3,973
Maturities -- 133 732 -- -- 865
Terminations -- 200 600 -- -- 800
Amortization 1,122 -- -- -- -- 1,122
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 5,078 3,505 3,312 -- 400 12,295
Additions -- 376 1,578 -- 1,110 3,064
Maturities -- 255 1,700 -- 400 2,355
Terminations 20 -- 200 -- -- 220
Amortization 1,609 -- -- -- -- 1,609
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 3,449 3,626 2,990 -- 1,110 11,175
Additions -- 1,341 3,226 $ 616 2,592 7,775
Maturities -- 342 1,876 -- 830 3,048
Terminations 268 300 68 6 -- 642
Forward-starting becoming effective -- -- 600 (600) -- --
Amortization 2,870 -- -- -- -- 2,870
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $ 311 $ 4,325 $ 4,872 $ 10 $ 2,872 $12,390
======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CAPS
AND
in millions FLOORS TOTAL
- --------------------------------------------------------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 103 $ 11,212
Additions 870 4,843
Maturities -- 865
Terminations -- 800
Amortization -- 1,122
- --------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 973 13,268
Additions 2,625 5,689
Maturities 203 2,558
Terminations -- 220
Amortization -- 1,609
- --------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 3,395 14,570
Additions 1,050 8,825
Maturities 570 3,618
Terminations -- 642
Forward-starting becoming effective -- --
Amortization -- 2,870
- --------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $3,875 $16,265
====== =======
- --------------------------------------------------------------
</TABLE>
A summary of the notional amount and fair values of portfolio swaps, caps and
floors by interest rate management strategy is presented in Figure 7. The fair
value at any given date represents the estimated income (if positive) or cost
(if negative) that would be recognized if the portfolios were to be liquidated
at that date. However, because these instruments are used to alter the repricing
or maturity characteristics of specific assets and liabilities, the net
unrealized gains and losses are not recognized in earnings. Interest from these
swaps, caps and floors is recognized on an accrual basis as an adjustment of the
interest income or expense from the asset or liability being managed.
FIGURE 7 PORTFOLIO SWAPS, CAPS AND FLOORS BY INTEREST RATE MANAGEMENT STRATEGY
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
---------------------- -----------------------
NOTIONAL FAIR NOTIONAL FAIR
in millions AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convert variable rate loans to fixed $ 1,526 $ 58 $ 4,630 $ 25
Convert fixed rate loans to variable 909 (38) 160 (1)
Convert variable rate deposits and short-term
borrowings to fixed 2,378 (24) 2,080 (4)
Convert fixed rate short-term borrowings to variable 200 -- -- --
Convert variable rate long-term debt to fixed 1,595 (6) 750 (2)
Convert fixed rate long-term debt to variable 2,910 169 2,445 87
Basis swaps-- foreign currency denominated debt 304 19 280 (3)
Basis swaps-- interest rate indices 2,568 -- 830 --
- ---------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps 12,390 178 11,175 102
Modify characteristics of variable rate short-term borrowings 3,060 2 2,580 2
Modify characteristics of variable rate long-term debt 565 -- 565 10
Modify characteristics of capital securities remarketing 250 (24) 250 (15)
- ---------------------------------------------------------------------------------------------------------------------------
Total portfolio caps and floors 3,875 (22) 3,395 (3)
- ---------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps, caps and floors $16,265 $ 156 $14,570 $ 99
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
44 [KEY GRAPHIC] KEYCORP AND SUBSIDIARIES
<PAGE> 13
The expected average maturities of the portfolio swaps, caps and floors at
December 31, 1998, are summarized in Figure 8.
FIGURE 8 EXPECTED AVERAGE MATURITIES OF PORTFOLIO SWAPS, CAPS AND FLOORS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 RECEIVE FIXED
------------------------
PAY FIXED- TOTAL CAPS
INDEXED PAY FIXED- FORWARD- BASIS PORTFOLIO AND
in millions AMORTIZING CONVENTIONAL CONVENTIONAL STARTING SWAPS SWAPS FLOORS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mature in one year or less -- $ 522 $ 1,448 -- $ 1,100 $ 3,070 $ 1,725 $ 4,795
Mature after one through five years $ 311 1,365 2,679 $ 1 1,747 6,103 2,150 8,253
Mature after five through ten years -- 2,438 325 2 25 2,790 -- 2,790
Mature after ten years -- -- 420 7 -- 427 -- 427
- -----------------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps, caps and floors $ 311 $4,325 $4,872 $10 $ 2,872 $12,390 $ 3,875 $16,265
======= ====== ====== === ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TRADING PORTFOLIO RISK MANAGEMENT
Key's trading portfolio includes interest rate swap contracts entered into to
accommodate the needs of its customers, and other positions with third parties
that are intended to mitigate the interest rate risk of the customer positions,
foreign exchange contracts entered into to accommodate the needs of its
customers and financial assets and liabilities (trading positions) included in
short-term investments and other liabilities, respectively, on the balance
sheet. Further information pertaining to off-balance sheet contracts is included
in Note 18, Financial Instruments with Off-Balance Sheet Risk, beginning on page
80.
During the second half of 1997, Key began using a value at risk ("VAR") model to
estimate the adverse effect of changes in interest and foreign exchange rates on
the fair value of its trading portfolio. VAR uses statistical methods to
estimate the maximum potential one-day loss with a 95% confidence level. At year
end, Key's aggregate daily VAR was $1.6 million and averaged less than $.7
million for the year ended December 31, 1998. As of the 1997 year end, Key's
aggregate daily VAR was less than $.8 million and averaged less than $.5 million
for the second half of 1997. VAR augments other controls used by Key to mitigate
the market risk exposure of its trading portfolio. These controls are
established by Key's Financial Markets Committee and include, in addition to
VAR, loss and position equivalent limits which are based on the level of
activity and volatility of trading products and market liquidity.
NONINTEREST INCOME
Noninterest income totaled $1.6 billion in 1998, representing a $269 million, or
21%, increase from the prior year and the highest level for any year in Key's
history. Included in 1998 and 1997 results were bank and branch divestiture
gains of $39 million and $151 million, respectively. Excluding these gains,
noninterest income for 1998 was up $381 million, or 33%, from the prior year. In
1996, noninterest income included an $11 million gain from the sale of an
out-of-franchise credit card portfolio and an $8 million gain from the sale of a
Florida savings bank. After excluding these gains and the 1997 gains referred to
above, noninterest income in 1997 rose $87 million, or 8%, from 1996. On an
adjusted basis, noninterest income represented 36% of total revenue in 1998, up
from 29% in 1997 and 28% in 1996. One of Key's objectives is to increase
noninterest income as a percentage of total revenue to 50%.
The strong growth in noninterest income in 1998 reflected increases in all major
components of fee income with the exception of credit card fees. As shown in
Figure 9, some of the largest increases from the prior year came from investment
banking and capital markets income, trust and asset management income, and
insurance and brokerage income. The improvement in these categories was
bolstered by the October 1998 acquisition of McDonald that contributed more than
$55 million to Key's 1998 noninterest income. In addition, the acquisitions of
Leasetec and Champion, completed during the third quarter of 1997, added
approximately $18 million to the overall growth in noninterest income relative
to the prior year. These acquisitions, as well as the NOVA transaction discussed
below, are more fully disclosed in Note 3, Mergers, Acquisitions and
Divestitures, beginning on page 68. Also noteworthy in 1998 was the fact that
service charges on deposit accounts reached a record high for Key despite the
divestiture of 150 banking offices during 1997 and 1998.
In 1998, the largest contribution to the increase in Key's core noninterest
income came from investment banking and capital markets income which more than
doubled that earned in the prior year. This business is conducted principally
through KCP whose revenues are derived from various capital markets activities
(primary among which are trading, derivatives and foreign exchange), corporate
advisory and underwriting fees, and gains recognized in connection with equity
capital investments. Strong growth in investment banking and capital markets
income was also the largest contributor to the increase in noninterest income in
1997 from that of 1996. Additional detail pertaining to investment banking and
capital markets income is presented in Figure 10.
Trust and asset management income, including fees associated with investment
advisory services, continued to be a major source of noninterest income. In
1998, the increase in this revenue component resulted from new business, the
repricing of certain services and continued strong performance of both the stock
and bond markets during most of the year. New business and strong markets also
contributed to the 1997 increase, along with substantial growth in income from
securities lending activities. At December 31, 1998, Key, through its bank,
trust and registered investment advisory subsidiaries, had assets under
discretionary management (excluding corporate trust assets) of $69 billion,
compared with $60 billion at the end of 1997. Fees from investment advisory
services accounted for approximately 34% and 27% of Key's total trust and asset
management income in 1998 and 1997, respectively. Additional detail pertaining
to trust income and assets is presented in Figure 11.
In both 1998 and 1997, the growth in insurance and brokerage income also
reflected the strength of the stock and bond markets. Underscored by the
McDonald acquisition, brokerage income, the
[KEY GRAPHIC] KEYCORP AND SUBSIDIARIES 45
<PAGE> 14
FIGURE 9 NONINTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CHANGE 1998 VS 1997
-------------------
dollars in millions 1998 1997 1996 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust and asset management income $ 335 $ 266 $ 247 $ 69 25.9%
Service charges on deposit accounts 306 299 293 7 2.3
Investment banking and capital markets income 239 119 73 120 100.8
Insurance and brokerage income 111 88 70 23 26.1
Corporate owned life insurance 104 85 58 19 22.4
Credit card fees 68 96 93 (28) (29.2)
Net loan securitization income (loss) 35 (12) 62 47 N/M
Net securities gains 9 1 1 8 800.0
Gains from sales of branches/subsidiaries 89 151 8 (62) (41.1)
Other income:
Letter of credit and loan fees 71 48 36 23 47.9
Electronic banking fees 47 38 17 9 23.7
Gains from sales of loans 50 23 -- 27 117.4
Mortgage banking income 5 6 22 (1) (16.7)
Miscellaneous income 106 98 107 8 8.2
- ------------------------------------------------------------------------------------------------------
Total other income 279 213 182 66 31.0
- ------------------------------------------------------------------------------------------------------
Total noninterest income $ 1,575 $ 1,306 $ 1,087 $ 269 20.6%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------
</TABLE>
N/M = Not Meaningful
largest of the two components, rose by $17 million, or 33%, to $71 million in
1998, following an increase of 28% in 1997. Substantially all of the increase in
1998 came from commissions related to the trading of stocks and mutual funds.
Income from corporate owned life insurance, representing a tax-deferred increase
in cash surrender values and death benefits, increased in both 1998 and 1997 as
a result of improved investment performance and expanded coverage. In addition,
1997 results benefited from the realization of a higher level of death benefits.
Gains from the sales of branches/subsidiaries in 1998 included the $39 million
of branch divestiture gains discussed above and $50 million of gains recognized
in connection with the sale of a 51% interest in Key Merchant Services, LLC (a
merchant credit card processing subsidiary) to NOVA. Of the $50 million of
gains, $23 million was recognized in the first quarter at the time of closing.
In the fourth quarter, an additional $27 million was recognized as a result of
the agreement with NOVA that specifies that Key is entitled to receive
additional consideration if certain revenue-related performance targets are met.
These gains were accompanied by related reductions in both merchant credit card
processing services revenue and noninterest expense (primarily personnel).
The $66 million improvement in other income in 1998 included sizeable increases
in loan sale gains and non-yield related loan fees. Both of these items are an
outgrowth of Key's ability to generate loans at a faster pace than that related
to the growth of traditional funding sources. In 1997, other noninterest income
was up $42 million, after excluding the $11 million gain from the credit card
portfolio sale recorded in 1996. This year-to-year improvement included
increases in non-yield related loan fees, loan sale gains, electronic banking
fees and fees for various other services included in "Miscellaneous Income." The
1997 growth in other noninterest income was moderated by a decline in mortgage
banking income, reflecting Key's reduced focus on the mortgage loan origination
business and the March 1995 sale of Key's residential mortgage loan servicing
business.
The $28 million decline in credit card fees in 1998 was due primarily to the
sale of $365 million of Key's out-of-franchise credit card receivables during
the first and third quarters of 1997 and lower merchant credit card processing
services revenue resulting from the first quarter 1998 transaction with NOVA,
previously discussed.
Key considers the securitization of certain loans as a funding alternative and
has maintained a strategy of securitizing and/or selling education loans,
automobile loans, home equity loans and other loans which do not meet certain
return on equity, credit or other internal standards. Securitization was not an
attractive funding alternative for a significant part of 1998, leading to a
reduced volume of activity compared to that of prior years. The volatility of
the capital markets made balance sheet funding alternatives more attractive.
On occasion Key's securitization strategy will result in the recognition of a
loss in connection with removing such assets from the balance sheet. In 1997,
the growth in total noninterest income was moderated by net securitization
losses of $12 million, following net loan securitization income of $62 million
recorded in 1996. The year-to-year change resulted from several factors,
including a $36 million loss recorded in the fourth quarter of 1997 on the
securitization and sale of $949 million of prime credit automobile loans with
low returns on equity. A primary factor contributing to the decrease in the
level of net loan securitization income was the impact of the accounting change
brought about by the January 1, 1997, adoption of Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This new accounting
standard served to reduce loan securitization income by reclassifying a portion
of such revenue to interest income and by deferring an additional portion which
is
46 [KEY GRAPHIC] KEYCORP AND SUBSIDIARIES
<PAGE> 15
expected to be recognized as interest income over the life of the respective
securitizations. SFAS No. 125 is discussed in greater detail in Note 1, Summary
of Significant Accounting Policies, beginning on page 65. Additional information
pertaining to the type and volume of securitized loans which are either
administered or serviced by Key and not recorded on its balance sheet is
included in the Loans section, beginning on page 50.
FIGURE 10 INVESTMENT BANKING AND CAPITAL MARKETS INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CHANGE 1998 VS 1997
--------------------
dollars in millions 1998 1997 1996 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dealer trading and derivatives income $ 93 $ 40 $22 $ 53 132.5%
Investment banking income 79 43 15 36 83.7
Equity capital income 45 19 25 26 136.8
Foreign exchange income 22 17 11 5 29.4
- -----------------------------------------------------------------------------------------------------
Total investment banking and capital markets income $239 $119 $73 $120 100.8%
==== ==== === ==== ======
- -----------------------------------------------------------------------------------------------------
</TABLE>
FIGURE 11 TRUST AND ASSET MANAGEMENT
<TABLE>
<CAPTION>
CHANGE 1998 VS 1997
--------------------
dollars in millions 1998 1997 1996 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Personal asset management and custody fees $166 $145 $147 $21 14.5%
Institutional asset management and custody fees 90 75 64 15 20.0
Bond services 2 6 13 (4) (66.7)
All other fees 77 40 23 37 92.5
- -----------------------------------------------------------------------------------------------------
Total trust and asset management income $335 $266 $247 $69 25.9%
==== ==== ==== === ====
dollars in billions
- -----------------------------------------------------------------------------------------------------
DECEMBER 31,
Discretionary assets $ 69 $ 60 $50 $ 9 15.0%
Non-discretionary assets 47 48 46 (1) (2.1)
- -----------------------------------------------------------------------------------------------------
Total trust assets $116 $108 $96 $ 8 7.4%
==== ==== === === ====
- -----------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
Noninterest expense, as shown in Figure 12, totaled $2.5 billion in 1998, up
$113 million, or 5%, from the 1997 level. Included in noninterest expense for
1998 were $65 million ($49 million in 1997) of distributions accrued on capital
securities (tax-advantaged preferred securities) and $20 million ($17 million in
1997) of expense incurred in connection with efforts being undertaken by Key to
modify computer information systems to be Year 2000 compliant. As of December
31, 1998, Key had recognized approximately $39 million of the estimated $45 to
$50 million of expense that it expects to incur (primarily for internal and
external programmers) to complete this project. Further information pertaining
to the Year 2000 issue and the status of Key's efforts to address it is included
on pages 48 and 49. The capital securities are more fully described in Note 10,
Capital Securities, beginning on page 74. Noninterest expense in 1997 also
included a $50 million charge recorded in connection with actions taken to
vacate and/or dispose of certain properties or to alter certain leasing
arrangements in response to Key's national banking and related centralization
efforts. Key is currently in the process of evaluating the potential for similar
actions in 1999. In 1996, noninterest expense included a $100 million
restructuring charge recorded in connection with Key's transformation to a
national bank-based financial services company in 1997, a one-time charge of $17
million to provide for an assessment mandated by legislation passed by Congress
to recapitalize the SAIF and $3 million of distributions accrued on capital
securities. Excluding the above items, core noninterest expense for 1998 rose by
$144 million, or 6%, following a decrease of $25 million, or 1%, in 1997.
The growth in core noninterest expense in 1998 was due largely to increases in
personnel expense, computer processing, professional fees and marketing expense.
The increase in these categories reflected additional costs associated with the
implementation of strategic initiatives geared toward growing Key's fee revenue
businesses, addressing the Year 2000 issue and various marketing activities.
Contributing to the increases in these expense categories was the October 1998
acquisition of McDonald and the acquisitions of Leasetec and Champion which were
completed during the third quarter of 1997. In total these acquisitions
accounted for approximately $118 million of
[KEY GRAPHIC] KEYCORP AND SUBSIDIARIES 47
<PAGE> 16
FIGURE 12 NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CHANGE 1998 VS 1997
--------------------
dollars in millions 1998 1997 1996 AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personnel $ 1,256 $ 1,181 $ 1,190 $ 75 6.4%
Net occupancy 226 222 219 4 1.8
Equipment 185 177 161 8 4.5
Computer processing 176 131 96 45 34.4
Marketing 100 86 88 14 16.3
Amortization of intangibles 91 87 88 4 4.6
Professional fees 62 47 70 15 31.9
Restructuring charge -- -- 100 -- --
Other expense:
Postage and delivery 73 75 71 (2) (2.7)
Distributions on capital securities 65 49 3 16 32.7
Telecommunications 53 50 52 3 6.0
Equity- and gross receipts-based taxes 39 36 35 3 8.3
FDIC insurance assessments 6 6 25 -- --
Real estate disposition charge -- 50 -- (50) (100.0)
Miscellaneous expense 216 238 266 (22) (9.2)
- ------------------------------------------------------------------------------------------------------
Total other expense 452 504 452 (52) (10.3)
- ------------------------------------------------------------------------------------------------------
Total noninterest expense $ 2,548 $ 2,435 $ 2,464 $ 113 4.6%
======= ======= ======= =======
Full-time equivalent employees at year end 25,862 24,595 27,689
Efficiency ratio(1) 57.61% 57.50% 60.84%
Overhead ratio(2) 34.35 39.64 45.46
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities
transactions and gains from bank and branch divestitures).
(2) Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) less noninterest income (excluding
net securities transactions and gains from bank and branch divestitures)
divided by taxable-equivalent net interest income.
the net increase in Key's noninterest expense for 1998. Additional information
pertaining to these transactions is disclosed in Note 3, Mergers, Acquisitions
and Divestitures, beginning on page 68.
Personnel expense, the largest category of noninterest expense, accounted for
more than half of the total 1998 increase in core noninterest expense relative
to the prior year. The $75 million increase reflected higher costs associated
with various incentive programs (including those related to investment banking
and capital markets activities), the impact of annual merit increases (which
take effect in April for the majority of Key's employees), and the impact of the
acquisitions, including the resulting increase in the number of full-time
equivalent employees. At December 31, 1998, the number of full-time equivalent
employees was 25,862, compared with 24,595 and 27,689 at the end of 1997 and
1996, respectively. The slight decline in personnel expense in 1997 reflected
reduced staff resulting from Key's restructuring efforts which centered around
the formation of a single community bank, as well as the implementation of
expense control initiatives (including branch mergers and divestitures).
The increase in computer processing expense in both 1998 and 1997 was primarily
the result of a higher level of computer software amortization. The 1998 growth
in professional fees was due largely to additional costs incurred in connection
with the implementation of strategic initiatives, while the growth in marketing
expense reflected the impact of the acquisitions, additional costs incurred in
connection with Key's continued efforts to strengthen brand identity and
expenses related to the promotion of selected product lines.
The efficiency ratio, which provides a measure of the extent to which recurring
revenues are used to pay operating expenses, was 57.61% for 1998, compared with
57.50% in 1997 and 60.84% in 1996. Excluding the impact of the McDonald,
Champion and Leasetec acquisitions, the efficiency ratios for 1998 and 1997 were
56.04% and 57.25%, respectively. The substantial improvement from the 1996 ratio
of 60.84% reflects the benefits and effectiveness of Key's expense control
strategies and growth in revenues. Included in other expense are equity- and
gross receipts-based taxes that are assessed in lieu of an income tax in certain
states in which Key operates. These taxes, which are shown in Figure 12,
represented 90, 89 and 91 basis points of Key's efficiency ratio for 1998, 1997
and 1996, respectively. The extent to which such taxes impact the level of
noninterest expense will vary among companies based on the geographic locations
in which they conduct their business.
Year 2000
During 1998, Key continued its efforts to prepare its systems to be Year 2000
compliant. The Year 2000 issue refers to the fact that many computer systems
were originally programmed using two digits rather than four digits to identify
the applicable year. Therefore, when the year 2000 occurs, these systems could
interpret the year as 1900 rather than 2000. Unless hardware, system software
and applications are corrected to be Year 2000 compliant, computers and the
devices they control could generate miscalculations and create operational
problems. Various systems could be affected ranging from complex computer
systems to telephone systems, ATMs and elevators.
48 [KEY GRAPHIC] KEYCORP AND SUBSIDIARIES
<PAGE> 17
To address this issue, Key developed an extensive plan, including the formation
of a team consisting of internal resources and third-party experts. The plan,
originally developed in 1995, has been in implementation since that time and
consists of five major phases: awareness-ensuring a common understanding of the
issue throughout Key; assessment-identifying and prioritizing the systems and
third parties with whom Key has exposure to Year 2000 issues;
renovation-enhancing, replacing or retiring hardware, software and systems
applications; validation-testing modifications made; and
implementation-certifying Year 2000 compliance and user understanding and
acceptance. The awareness and assessment phases have been completed. The
remaining phases are substantially complete and final testing and refinement
will be addressed in 1999. As of December 31, 1998, all of the above phases had
been completed for approximately 80% of the core systems identified and
compliance efforts for the remaining core systems are expected to be completed
by June 30, 1999.
Financial institutions, such as Key, may experience increases in problem loans
and credit losses in the event that borrowers fail to properly respond to this
issue. In addition, financial institutions may incur higher funding costs if
consumers react to publicity about the issue by withdrawing deposits. They also
could be impacted if third parties they deal with in conducting their business,
such as foreign banks, governmental agencies, clearing houses, telephone
companies, and other service providers, fail to properly address this issue.
Accordingly, Key has formed a separate internal team charged with the task of
identifying critical business interfaces; assessing potential problems relating
to credit, liquidity and counterparty risk; and where appropriate, developing
contingency plans. This team has been surveying significant credit customers to
determine their Year 2000 readiness and to evaluate the level of potential
credit risk to Key. Based on the information obtained, specific follow-up
programs have been established and the adequacy of the allowance for loan losses
will be assessed on an ongoing basis. The results of the assessment will be
reflected in the assignment of an appropriate risk rating in Key's loan grading
system. On an ongoing basis, Key is also contacting significant third parties
with whom it conducts business to determine the status of their Year 2000
compliance efforts. Notwithstanding these actions, there can be no assurance
that significant customers or critical third parties will adequately address
their Year 2000 issues. Consequently, Key is developing contingency plans to
help mitigate the risks associated with potential delays in completing the
renovation, validation and implementation phases of its Year 2000 plan; and the
failure of external parties to adequately address their Year 2000 issues. These
plans were well underway by the 1998 year end and address primarily contingency
solutions for Key's core systems and the identification of alternative business
partners. Because the Year 2000 issue has never previously occurred, it is not
possible to foresee or quantify the overall financial and operational impact
and/or to determine whether it will be material to the financial condition or
operations of Key.
The cost of the project (currently estimated to be $45 to $50 million) and
timing of its implementation are based on management's best estimates, which
were derived using numerous assumptions about future events, including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. As of December 31, 1998, Key had
recognized approximately $39 million of its total estimated project cost. It is
currently expected that the estimated remaining cost of $6 million to $11
million will be recognized in 1999 and the first half of 2000. The total cost of
the project is being funded through operating cash flows.
EURO CONVERSION
Effective January 1, 1999, 11 of the 15 member countries of the European
Economic and Monetary Union established fixed conversion rates between their
existing sovereign currencies and the "euro" and adopted the euro as their
common legal currency. The existing sovereign currencies will remain legal
tender in the participating countries as denominations of the euro until January
1, 2002, at which time new euro-denominated bills and coins will be introduced.
By July 1, 2002, the participating countries will withdraw all bills and coins
denominated in sovereign currencies and the euro will become the only currency
and the only official legal tender in such countries.
The euro conversion will impact companies that conduct business in or use the
currencies of any of the eleven participating countries. In addition, the euro
will create more efficient foreign exchange markets and reduce arbitrage
opportunities. Key has implemented new processes and controls to accommodate the
new currency. The Foreign Exchange department installed a new foreign exchange
system that facilitates transactions in the new currency, as well as trading in
national currencies throughout the transition period. The business conducted by
Key in the participating countries is not material to its earnings. Thus, the
introduction of the euro has had little or no impact on Key's operations. Key
continues to evaluate the potential loss of revenue and increase in costs
associated with the introduction of the euro and to work closely with its
customers, counterparties and the regulatory agencies to mitigate its financial
risk. Key can not be assured that the euro will not have an adverse effect on
the third parties on whom it relies. However, Key currently believes that the
risk associated with such third parties will not be material.
INCOME TAXES
The provision for income taxes for 1998 was $483 million compared with $426
million in 1997 and $360 million in 1996. The effective income tax rate
(provision for income taxes as a percentage of income before income taxes) was
32.7% in 1998, 31.7% in 1997 and 31.5% in 1996. The effective income tax rate
remains below the statutory Federal rate of 35% due primarily to continued
investment in tax-advantaged assets (such as tax-exempt securities and corporate
owned life insurance) and the recognition of credits associated with investments
in low-income housing projects. The increase in the effective tax rate in 1998
resulted from a lower proportion of tax-exempt income and tax credits to pretax
earnings relative to both 1997 and 1996.
[KEY GRAPHIC] KEYCORP AND SUBSIDIARIES 49
<PAGE> 18
FINANCIAL CONDITION
LOANS
As shown in Figure 13, at December 31, 1998, total loans outstanding were $62.0
billion, up from $53.4 billion at December 31, 1997, and $49.2 billion at
December 31, 1996.
The $8.6 billion, or 16%, increase in loans outstanding from the December 31,
1997, level was due primarily to internal growth, but also included the net
impact of acquisitions, sales and divestitures. During the second quarter of
1998, Key acquired an $805 million marine/recreational vehicle installment loan
portfolio. The sales and divestitures which occurred during 1998 and 1997 are
summarized in Figure 14 and include the impact of bank and branch divestitures,
as well as the securitization and/or sale of education loans, automobile loans,
certain non-prime home equity loans and other loans which do not meet Key's
return on equity, credit or other internal standards. In addition to bank and
branch divestitures, activity since December 31, 1997, included the sales of
$475 million of home equity loans (of which $300 million was associated with
securitizations), $346 million of education loans and $167 million of commercial
real estate loans. Securitizations are considered as an alternative funding
source and the extent to which they are used is dependent upon whether
conditions in the capital markets make securitizations more attractive as a
funding source than on-balance sheet alternatives. Management will continue to
explore opportunities for sales and/or other arrangements with respect to
certain loan portfolios, consistent with prudent asset/liability management
practices.
Excluding the net impact of acquisitions, sales and divestitures, loans (other
than one-to-four family mortgages and loans held for sale) increased by $9.1
billion, or 20%, since December 31, 1997. Key's policy regarding new
originations of one-to-four family mortgage loans is to originate such loans as
a customer and community accommodation, but to retain few of such loans on the
balance sheet due to their marginal returns. Over the past year, the largest
growth in Key's loan portfolio came from commercial loans which rose by $5.8