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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950152-01-500566.txt : 20010323
<SEC-HEADER>0000950152-01-500566.hdr.sgml : 20010323
ACCESSION NUMBER: 0000950152-01-500566
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 15
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010322
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-K
SEC ACT:
SEC FILE NUMBER: 001-11302
FILM NUMBER: 1576575
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-K
<SEQUENCE>1
<FILENAME>l86594ae10-k.txt
<DESCRIPTION>KEYCORP 10-K FOR FISCAL YEAR END 12-31-00
<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, 2000
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. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $11,027,341,260 at February 28, 2001. (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 28, 2001.)
424,128,510 Shares
- --------------------------------------------------------------------------------
(NUMBER OF KEYCORP COMMON SHARES OUTSTANDING AS OF FEBRUARY 28, 2001)
Certain specifically designated portions of KeyCorp's 2000 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 2001 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Form 10-K.
<PAGE> 2
KEYCORP
2000 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........................................... 8
4 Submission of Matters to a Vote of Security Holders......... 8
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 8
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.................................. 9
PART III
10 Directors and Executive Officers of the Registrant.......... 9
11 Executive Compensation...................................... 9
12 Security Ownership of Certain Beneficial Owners and
Management................................................ 9
13 Certain Relationships and Related Transactions.............. 9
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 10
Signatures.................................................. 14
Exhibits.................................................... 15
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW
KeyCorp 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
KeyCorp's banking and other subsidiaries is subject to the prior claims of the
respective creditors of such banking and other subsidiaries, except to the
extent that KeyCorp's claims 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 ("BHCA"), is
headquartered in Cleveland, Ohio. At December 31, 2000, it was one of the
nation's largest integrated multi-line financial services companies with
consolidated total assets of $87 billion. Its subsidiaries provide investment
management, retail and commercial banking, consumer finance and investment
banking products and services to corporate, individual and institutional clients
through four lines of business: Key Retail Banking, Key Specialty Finance, Key
Corporate Capital and Key Capital Partners. As of December 31, 2000, these
services were provided across much of the country through banking subsidiaries
operating 922 full-service branches in 13 states, a 24-hour telephone banking
call center and 2,443 ATMs in 18 states. Additional information pertaining to
the four business lines referred to above is included in the "Line of Business
Results" section beginning on page 36 and in Note 4 ("Line of Business
Results"), beginning on page 70 of the Financial Review section of KeyCorp's
2000 Annual Report to Shareholders and is incorporated herein by reference.
KeyCorp and its subsidiaries have 22,142 full-time equivalent employees as of
December 31, 2000.
In addition to the customary banking services of accepting deposits and making
loans, KeyCorp's bank and trust company subsidiaries 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 company and registered investment adviser
subsidiaries, KeyCorp provides investment management services to individual and
institutional 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). In addition, investment management subsidiaries
serve as investment advisers to proprietary mutual funds offered by other
KeyCorp affiliates.
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 a joint venture with Key Merchant Services, LLC, which provides
merchant services to businesses.
1
<PAGE> 4
The following financial data is included in the Financial Review section of
KeyCorp's 2000 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..................................... 34
Average Balance Sheets, Net Interest Income and
Yields/Rates.............................................. 40
Components of Net Interest Income Changes................... 39
Composition of Loans........................................ 49
Maturities and Sensitivity of Certain Loans to Changes in
Interest Rates............................................ 50
Securities Available for Sale............................... 51
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...................................................... 56
Impaired Loans and Other Nonperforming Assets............... 75
Short-Term Borrowings....................................... 75
</TABLE>
The executive offices of KeyCorp are located at 127 Public Square, Cleveland,
Ohio 44114-1306, and its telephone number is (216) 689-6300.
ACQUISITIONS AND DIVESTITURES
The information presented in Note 3 ("Acquisitions and Divestitures"), beginning
on page 69 of the Financial Review section of KeyCorp's 2000 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 led to greater
concentration in the banking industry and placed added competitive pressure on
Key's core banking services. In addition, competition is expected to intensify
as a consequence of the financial modernization laws that were enacted in
November 1999 and permit qualifying financial institutions to expand into other
activities. For example, commercial banks are now permitted to have affiliates
that underwrite and deal in securities, underwrite insurance and make merchant
banking investments under certain conditions. See "Interstate Banking and
Branching" and "Financial Modernization Legislation" on page 7.
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. The
regulatory framework is intended primarily for the protection of customers and
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 security holders.
Set forth below is a brief discussion of selected laws, regulations, and
regulatory agency policies applicable to Key. Such discussion is not intended to
be comprehensive, and is qualified in its entirety by reference to the full text
of such statutes, regulations, and regulatory agency policies. Changes in
applicable laws, regulations, and regulatory agency policies cannot necessarily
be predicted, but may have a material effect on Key's business, financial
condition and results of operation.
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
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. KeyCorp'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 one national bank subsidiary
whose activities are limited to those 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.
KeyCorp 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, KeyCorp'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; KeyCorp's insurance
subsidiaries are subject to regulation by the insurance regulatory authorities
of the various states. Other nonbank subsidiaries of KeyCorp are 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 KeyCorp, including cash flow to pay
dividends on its common shares and debt service on its indebtedness, is
dividends from its subsidiaries. Various statutory and regulatory provisions
limit the amount of dividends that may be paid by KeyCorp's 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 KeyCorp'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.
Holding Company Structure
Transactions Involving Banking Subsidiaries. KeyCorp's national bank
subsidiaries (and their subsidiaries) are subject to Federal Reserve Act
provisions which impose qualitative standards and quantitative limitations upon
certain transactions with or involving KeyCorp (and its nonbank subsidiaries
which are not subsidiaries of KeyCorp's national banks). Transactions covered by
these provisions, which include loans and other extensions of credit as well as
purchases and sales of assets, must be on arm's length terms, cannot exceed
certain amounts
3
<PAGE> 6
which are determined with reference to the bank's regulatory capital, and if a
loan or other extension of credit, must be secured by collateral in an amount
and quality expressly prescribed by statute. For example, the aggregate of all
such outstanding covered transactions by KeyBank and KeyBank USA, including
their subsidiaries, with or involving KeyCorp and its nonbank subsidiaries which
are not subsidiaries of KeyBank and KeyBank USA was limited at December 31,
2000, to approximately $1.8 billion. As a result, these provisions materially
restrict the ability of KeyCorp's national bank subsidiaries and their
subsidiaries to fund KeyCorp and its nonbank subsidiaries which are not
subsidiaries of KeyCorp's national banks.
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 KeyCorp 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.
Uniform Retail Credit Policy. In February of 1999 and June of 2000, the Federal
banking agencies published revised uniform supervisory guidance with respect to
classification and charge-off of delinquent retail loans and lines of credit.
Key's implementation of this revised guidance, which was required by December
31, 2000, resulted in the acceleration of consumer loan charge-offs of $57
million in the first quarter of 2000 that otherwise might have occurred at later
dates and $13 million in the fourth quarter of 2000.
Subprime Lending. In January of 2001 the Federal banking agencies published
expanded guidance to examiners in connection with their examination of subprime
lending programs. For these purposes, a subprime lending program is one that
targets borrowers with weakened credit histories (as may be evidenced, for
example, by payment delinquencies, chargeoffs, judgments, or bankruptcies) or
having questionable repayment capacity (as may be evidenced, for example, by low
credit bureau scores or high debt-burden ratios). The guidance addresses
supervisory expectations with respect to risk management, the allowance for loan
and lease losses, regulatory capital, examination review and analysis (both at
the portfolio and transaction level), classification guidelines for both
individual loans and portfolios, cure program documentation, and predatory or
abusive lending practices. While this guidance principally applies to
institutions with subprime lending programs with an aggregate credit exposure of
at least 25% of Tier 1 capital, Federal banking examiners may apply it to other
subprime portfolios such as those that are experiencing rapid growth or adverse
performance trends, that are administered by inexperienced management, or which
possess inadequate or weak controls. Management is currently in the process of
evaluating the impact of this guidance upon Key.
4
<PAGE> 7
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.
Bank holding companies, such as KeyCorp, whose trading activities exceed
specified levels are required to maintain capital for market risk. 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, 2000,
Key's Tier 1 and total capital to risk-weighted assets ratios were 7.72% and
11.48%, 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 KeyCorp nor any of its banking
subsidiaries has been advised by its primary Federal banking regulator of any
specific leverage ratio applicable to it. At December 31, 2000, Key's Tier 1
capital leverage ratio was 7.71%.
KeyCorp'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,
2000, each of these 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 KeyCorp or any of its national bank
subsidiaries of any specific minimum risk-based or leverage capital ratio
applicable to KeyCorp or such national bank subsidiary.
Proposals published in 2000, and January and February of 2001, to amend the
regulatory capital treatment of recourse obligations, direct credit substitutes,
asset securitizations, claims on securities firms, treatment of residual
interests in asset securitizations and other transfers of financial assets, and
certain equity and debt
5
<PAGE> 8
investments in nonfinancial companies have not been acted upon through February
of 2001. Until final regulatory guidance is published, the financial impact upon
Key's regulatory capital cannot be determined.
As noted on page 4 in "Subprime Lending", the subprime lending examination
guidance published in January of 2001 addresses, among other matters, Federal
banking agency supervisory expectations with respect to regulatory capital of
institutions with subprime lending portfolios. For an institution having
subprime lending portfolio exposure aggregating 25% or more of the institution's
Tier 1 capital, the guidance indicates examiners will likely expect, as a
minimum, that the institution would hold capital against such portfolio in an
amount that is 1.5 to 3.0 times greater than what is appropriate for
non-subprime assets of a similar type. (Federal banking examiners may also apply
this additional capital requirement to other subprime portfolios such as those
that are experiencing rapid growth or adverse performance trends, that are
administered by inexperienced management, or which possess inadequate or weak
controls.) As noted in the section entitled "Subprime Lending," management is
currently in the process of evaluating the impact of this guidance upon Key.
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 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% 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, 2000, 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 KeyCorp 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
Because substantially all of the deposits of KeyCorp'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 1999 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
KeyCorp's depository institution subsidiaries in 2000 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.
6
<PAGE> 9
Beginning in 1997, all BIF-member institutions were 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 required the FICO
assessment rate on BIF assessable deposits to be one-fifth of that imposed on
SAIF assessable deposits through 1999. For 1999, Key paid approximately $6
million in FICO assessments. Starting in 2000, BIF and SAIF FICO assessment
rates equalized. Key's FICO assessment expense for 2000 increased to
approximately $9 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, the number of FDIC-insured
depository institutions operated by KeyCorp has been reduced to two -- KeyBank
and KeyBank USA.
FINANCIAL MODERNIZATION LEGISLATION
The Gramm-Leach-Bliley Act (the "GLBA"), enacted in November of 1999 authorizes
new activities for qualifying financial institutions. The GLBA repeals
significant provisions of the Glass Steagall Act to permit commercial banks,
among other things, to have affiliates that underwrite and deal in securities
and make merchant banking investments provided certain conditions are met. The
GLBA modifies the BHCA to permit bank holding companies that meet certain
specified standards (known as "financial holding companies") to engage in a
broader range of financial activities than previously permitted under the BHCA,
and allows subsidiaries of commercial banks that meet certain specified
standards (known as "financial subsidiaries") to engage in a wide range of
financial activities that are prohibited to such banks themselves under certain
circumstances. In February of 2000 KeyCorp filed with the Federal Reserve Board
its declaration of election to become a financial holding company. This election
became effective in March of 2000. Under the authority conferred by the GLBA,
Key has been able to expand the nature and scope of its equity investments in
nonfinancial companies, operate its McDonald Investments Inc. subsidiary with
fewer operating restrictions, and acquire financial subsidiaries to engage in
insurance agency activities without geographic restriction.
GLBA also established new requirements for financial institutions to provide new
privacy protections to consumers. In June of 2000 the Federal banking agencies
jointly adopted a final regulation providing for the implementation of these
protections. It requires a financial institution to provide notice to customers
about its privacy policies and practices, describes under what conditions a
financial institution may disclose nonpublic personal information about
consumers to non-affiliated third parties, and provides an "opt-out" method for
consumers to prevent the financial institution from disclosing that information
to non-affiliated third parties. Financial institutions must be in compliance
with the final regulation by July 1, 2001.
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, 2000, 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
507 of their branch banking offices and leased 415 offices. The lease terms for
applicable branch banking offices are not individually material, with terms
ranging from month-to-month to 99-years 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
7
<PAGE> 10
Financial Review section of KeyCorp's 2000 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The information presented in the Legal Proceedings section of Note 17
("Commitments, Contingent Liabilities and Other Disclosures"), beginning on page
82, of the Financial Review section of KeyCorp's 2000 Annual Report to
Shareholders is incorporated herein by reference.
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 2000 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............ 57
Presentation of quarterly market price and cash dividends
per common share.......................................... 59
Discussion of dividend restrictions presented in Note 17
("Commitments, Contingent Liabilities and Other
Disclosures")............................................. 83
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data presented on page 34 of the Financial Review section
of KeyCorp's 2000 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information included under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" presented on pages 32 through 59
of the Financial Review section of KeyCorp's 2000 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included under the caption "Market risk management" presented on
pages 39 through 44 of the Financial Review section of KeyCorp's 2000 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 59 and on pages 61 through 88, respectively, of the
Financial Review section of KeyCorp's 2000 Annual Report to Shareholders are
incorporated herein by reference.
8
<PAGE> 11
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 2001 Annual Meeting of Shareholders
to be held May 17, 2001, and is incorporated herein by reference. KeyCorp
expects to file its final proxy statement on or before March 26, 2001. The
information set forth in the sections captioned, "AUDIT AND RISK REVIEW
COMMITTEE INDEPENDENCE" and "AUDIT AND RISK REVIEW COMMITTEE REPORT" and Exhibit
A captioned "KEYCORP AUDIT AND RISK REVIEW COMMITTEE CHARTER" contained in
KeyCorp's definitive Proxy Statement for the 2001 Annual Meeting of Shareholders
to be held May 17, 2001, are not incorporated by reference in this Report on
Form 10-K.
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 2001 Annual Meeting of Shareholders
to be held May 17, 2001, 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 2001
Annual Meeting of Shareholders to be held May 17, 2001, is not incorporated by
reference in this Report on Form 10-K. KeyCorp expects to file its final proxy
statement on or before March 26, 2001.
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 2001 Annual Meeting of Shareholders to be held May 17,
2001, and is incorporated herein by reference. KeyCorp expects to file its final
proxy statement on or before March 26, 2001.
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 2001 Annual Meeting of Shareholders to be held May 17, 2001,
and is incorporated herein by reference. KeyCorp expects to file its final proxy
statement on or before March 26, 2001.
9
<PAGE> 12
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 2000 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, 2000 and 1999... 61
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998.......................... 62
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 2000, 1999 and 1998...... 63
Consolidated Statements of Cash Flow for the Years Ended
December 31, 2000, 1999 and 1998.......................... 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 Form of Change of Control Agreement 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.
10.2 First Amendment to Form of Change of Control Agreement
between KeyCorp and Certain Executive Officers of KeyCorp,
filed as Exhibit 10.1 to Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference.
10.3 Form of Premium Priced Option Grant between KeyCorp and
Robert W. Gillespie dated January 13, 1999, filed as Exhibit
10.2 to Form 10-Q for the quarter ended March 31, 1999, and
incorporated herein by reference.
10.4 Form of Premium Priced Option Grant between KeyCorp and
Henry L. Meyer III dated January 13, 1999, filed as Exhibit
10.3 to Form 10-Q for the quarter ended March 31, 1999, and
incorporated herein by reference.
10.5 Form of Option Grant between KeyCorp and Robert W.
Gillespie, dated November 15, 2000.
10.6 Form of Option Grant between KeyCorp and Henry L. Meyer III,
dated November 15, 2000.
10.7 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.
</TABLE>
10
<PAGE> 13
<TABLE>
<C> <S>
10.8 First Amendment to Amended and Restated Employment Agreement
between KeyCorp and Robert W. Gillespie, dated December 7,
1998, filed as Exhibit 10.10 to Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
10.9 Second Amendment to Amended and Restated Employment
Agreement between KeyCorp and Robert W. Gillespie, dated
November 23, 1999, filed as Exhibit 10.9 to Form 10-K for
the year ended December 31, 1999, and incorporated herein by
reference.
10.10 Amended Employment Agreement between KeyCorp and Henry L.
Meyer III, dated February 1, 2001.
10.11 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.
10.12 Employment Agreement among KeyCorp, William B. Summers, Jr.,
and McDonald Investments Inc., dated October 4, 2000.
10.13 Employment Agreement among KeyCorp, Robert T. Clutterbuck
and McDonald Investments Inc., dated October 4, 2000.
10.14 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.
10.15 KeyCorp Annual Incentive Plan (December 21, 1999
Restatement), filed as Exhibit 10.17 to Form 10-K for the
year ended December 31, 1999, and incorporated herein by
reference.
10.16 KeyCorp Amended and Restated 1991 Equity Compensation Plan
(Amended as of January 17, 2001).
10.17 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.
10.18 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.
10.19 McDonald & Company Investments, Inc. Stock Option Plan,
filed as Exhibit 10.39 to Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
10.20 McDonald & Company Investments, Inc. 1995 Key Employees
Stock Option Plan, filed as Exhibit 10.40 to Form 10-K for
the year ended December 31, 1998, and incorporated herein by
reference.
10.21 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.
10.22 KeyCorp 1997 Stock Option Plan for Directors as amended and
restated on April 21, 1999, filed as Exhibit 10 to Form 10-Q
for the quarter ended June 30, 1999, 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 18, 2000 Amendment and Restatement) filed as Exhibit 10
to Form 10-Q for the quarter ended June 30, 2000, 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.
</TABLE>
11
<PAGE> 14
<TABLE>
<C> <S>
10.26 KeyCorp Excess 401(k) Savings Plan (Amended and Restated as
of January 1, 1998), filed as Exhibit 10.31 to Form 10-K for
the year ended December 31, 1998, and incorporated herein by
reference.
10.27 KeyCorp Excess Cash Balance Pension Plan (Amended and
Restated as of January 1, 1998), filed as Exhibit 10.34 to
Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
10.28 First Amendment to KeyCorp Excess Cash Balance Pension Plan,
effective July 1, 1999, filed as Exhibit 10.4 to Form 10-Q
for the quarter ended September 30, 1999, and incorporated
herein by reference.
10.29 KeyCorp Deferred Compensation Plan (Amended and Restated as
of January 1, 1998), filed as Exhibit 10.38 to Form 10-K for
the year ended December 31, 1998, and incorporated herein by
reference.
10.30 KeyCorp Automatic Deferral Plan, filed as Exhibit 10.3 to
Form 10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference.
10.31 First Amendment to KeyCorp Automatic Deferral Plan.
10.32 Trust Agreement for certain amounts that may become payable
to certain executives 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.
10.33 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.
10.34 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.
10.35 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.
10.36 First Amendment to KeyCorp Supplemental Retirement Plan,
effective July 1, 1999, filed as Exhibit 10.5 to Form 10-Q
for the quarter ended September 30, 1999, and incorporated
herein by reference.
10.37 Second Amendment to KeyCorp Supplemental Retirement Plan.
10.38 KeyCorp Supplemental Retirement Benefit Plan, effective
January 1, 1981, restated August 16, 1990, amended January
1, 1995, and August 1, 1996, filed as Exhibit 10.26 to Form
10-K for the year ended December 31, 1998, and incorporated
herein by reference.
10.39 Third Amendment to KeyCorp Supplemental Retirement Benefit
Plan, effective July 1, 1999, filed as Exhibit 10.6 to Form
10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference.
10.40 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.
10.41 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.
10.42 Third Amendment to KeyCorp Executive Supplemental Pension
Plan.
</TABLE>
12
<PAGE> 15
<TABLE>
<C> <S>
10.43 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.
10.44 Third Amendment to KeyCorp Supplemental Retirement Benefit
Plan for Key Executives, effective July 1, 1999, filed as
Exhibit 10.7 to Form 10-Q for the quarter ended September
30, 1999, and incorporated herein by reference.
10.45 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.
10.46 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.
10.47 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.
10.48 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.
12 Statement re: Computation of Ratios.
13 KeyCorp 2000 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
</TABLE>
KeyCorp 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 10.48 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 13, 2000 -- The Registrant's disclosure of its intention to issue a
press release on October 17, 2000, that announces its earnings for the
three-month and nine-month periods ended September 30, 2000.
October 18, 2000 -- The Registrant's October 17, 2000, press release announcing
its earnings results for the three-month and nine-month periods ended September
30, 2000.
No other reports on Form 8-K were filed during the fourth quarter of 2000.
13
<PAGE> 16
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
Vice Chairman,
Chief Administrative Officer and
Secretary
March 15, 2001
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 and Director
*Henry L. Meyer III President (Principal
Executive Officer), Chief
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)
*William G. Bares Director
*Albert C. Bersticker Director
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
*Edward P. Campbell Director
*Thomas A. Commes Director
*Kenneth M. Curtis Director
*Alexander M. Cutler Director
*Henry S. Hemingway Director
*Charles R. Hogan Director
*Douglas J. McGregor Director
*Steven A. Minter Director
*Bill R. Sanford 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 15, 2001
14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>2
<FILENAME>l86594aex10-5.txt
<DESCRIPTION>EXHIBIT 10.5
<TEXT>
<PAGE> 1
Exhibit 10.5
KEYCORP
NON-QUALIFIED GRANT AGREEMENT
Robert W. Gillespie
By action of the Compensation and Organization Committee ("Committee")
of the Board of Directors of KeyCorp, taken pursuant to the KeyCorp Amended and
Restated 1991 Equity Compensation Plan ("Plan") on November 15, 2000, you have
been granted Non-Qualified Stock Options (the "Options") effective on such date
(the "Option Grant Date") to purchase 200,000 Common Shares at a price of
$22.9375 per share (the "Exercise Price"), which may be exercised, subject to
the provisions of the Plan, from time to time, in part or with respect to the
full number of Common Shares then remaining subject to the Options, during the
period as set forth below and ending November 15, 2010. (Unless otherwise
indicated, the capitalized terms used herein shall have the same meaning as set
forth in the Plan).
1. Subject to earlier vesting as provided in Section 2 below, 66,667
Options shall become vested and exercisable on November 15, 2001, 66,667 Options
shall become vested and exercisable on November 15, 2002, and 66,666 Options
shall become vested and exercisable on November 15, 2003.
2. The Options shall also vest and become exercisable as of immediately
prior to the termination of your employment in all cases except when your
employment is terminated for "Cause," by "Voluntary Resignation before the end
of the Scheduled Term," or as a result of death or disability. Upon vesting and
becoming exercisable (whether pursuant to the preceding sentence, Section 1
above, or otherwise) the Options shall remain vested and exercisable through
November 15, 2010 (as fully as if you continued to be employed through that
date) unless your employment was terminated for "Cause" or by "Voluntary
Resignation before the end of the Scheduled Term". In the event that your
employment is terminated because of death or disability, the provisions of the
Plan shall govern the vesting and exercisability of the Options. In the event
that your employment is terminated for "Cause" or by "Voluntary Resignation
before the end of the Scheduled Term," the Options shall: (i) in the case of
"Cause," immediately be forfeited and cease to be exercisable, and (ii) in the
case of "Voluntary Resignation before the end of the Scheduled Term," those
Options which have not vested shall be terminated and those Options which have
vested shall be exercisable pursuant to the provisions of the Plan. The terms
"Cause" and "Voluntary Resignation before the end of the Scheduled Term" shall
have the meanings given to them in the Amended and Restated Employment
Agreement, dated as of November 21, 1996, between you and KeyCorp as heretofore
or hereafter amended or restated from time to time (the "Employment Agreement").
3. If, after written notice from KeyCorp, you shall engage in any
"Competitive Activity" (as defined in your Employment Agreement) in violation of
your Employment Agreement within one year after Employment Termination Date,
then any Profits realized upon the exercise of any
<PAGE> 2
Option the subject of this Agreement on or after one year prior to the
Employment Termination Date shall inure to KeyCorp. If any Profits realized upon
the exercise of any Option the subject of this Agreement inure to the benefit of
KeyCorp in accordance with the first sentence of this paragraph, you shall pay
all such Profits to KeyCorp within 30 days after first engaging in any such
Competitive Activity and all unexercised Options the subject of this Agreement
shall immediately be forfeited and canceled.
For purposes of this Agreement:
"Profit" shall mean, with respect to any Option, the
positive spread between the Fair Market Value of a Common
Share on the date of exercise and the exercise price
multiplied by the number of shares exercised under the
Option.
4. If KeyCorp prior to May 15, 2001 enters into a transaction intended
to qualify as a pooling of interests for accounting purposes the Options the
subject of this Agreement shall become void as if they were never granted in the
event that KeyCorp shall receive an opinion from Ernst & Young or advice from
the Securities and Exchange Commission that such grant will cause KeyCorp to be
unable to account for the transaction as a pooling of interests.
The Options shall be governed by the terms, conditions, and provisions
of the Plan, including, without limitation, Section 11 thereof.
This Agreement may not be modified, amended or waived except by an
instrument in writing signed by both parties hereto.
November 15, 2000
------------------------------
Thomas E. Helfrich
Executive Vice President
ACCEPTANCE
----------
The undersigned hereby acknowledges receipt of the Plan, agrees to be
bound by the foregoing Agreement and agrees and consents to the terms,
conditions, and provisions of the Agreement, Plan and the Award evidenced by
this Agreement.
------------------------------
Robert W. Gillespie
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>3
<FILENAME>l86594aex10-6.txt
<DESCRIPTION>EXHIBIT 10.6
<TEXT>
<PAGE> 1
Exhibit 10.6
KEYCORP
NON-QUALIFIED GRANT AGREEMENT
Henry L. Meyer III
By action of the Compensation and Organization Committee ("Committee")
of the Board of Directors of KeyCorp, taken pursuant to the KeyCorp Amended and
Restated 1991 Equity Compensation Plan ("Plan") on November 15, 2000, you have
been granted Non-Qualified Stock Options (the "Options") effective on such date
(the "Option Grant Date") to purchase 100,000 Common Shares at a price of
$22.9375 per share (the "Exercise Price"), which may be exercised, subject to
the provisions of the Plan, from time to time, in part or with respect to the
full number of Common Shares then remaining subject to the Options, during the
period as set forth below and ending November 15, 2010. (Unless otherwise
indicated, the capitalized terms used herein shall have the same meaning as set
forth in the Plan).
1. Subject to earlier vesting as provided in Section 2 below, 33,334
Options shall become vested and exercisable on November 15, 2001, 33,333 Options
shall become vested and exercisable on November 15, 2002, and 33,333 Options
shall become vested and exercisable on November 15, 2003.
2. The Options shall also vest and become exercisable as of immediately
prior to the termination of your employment in all cases except when your
employment is terminated for "Cause," by "Voluntary Resignation within Five
Years," or as a result of death or disability. Upon vesting and becoming
exercisable (whether pursuant to the preceding sentence, Section 1 above, or
otherwise) the Options shall remain vested and exercisable through November 15,
2010 (as fully as if you continued to be employed through that date) unless your
employment was terminated for "Cause" or by "Voluntary Resignation within Five
Years." In the event that your employment is terminated because of death or
disability, the provisions of the Plan shall govern the vesting and
exercisability of the Options. In the event your employment is terminated for
"Cause" or by "Voluntary Resignation within Five Years," the Options shall: (i)
in the case of "Cause," immediately be forfeited and cease to be exercisable,
and (ii) in the case of "Voluntary Resignation within Five Years," those Options
which have not vested shall be terminated and those Options which have vested
shall be exercisable pursuant to the provisions of the Plan. The term "Voluntary
Resignation within Five Years" means if you voluntarily elect to resign your
employment at your own instance without having been requested to so resign by
KeyCorp on or before the fifth anniversary date of the Option Grant Date, except
that any resignation by you shall not be deemed to be a Voluntary Resignation if
(a) you terminate your employment "on grounds of Constructive Termination," (b)
you terminate your employment after a "Change of Control" and receive a
severance benefit or continuing compensation under your Employment Agreement (as
hereinafter defined), or (c) the Committee otherwise determines that your
resignation is not voluntary. The terms "Cause," "on grounds of Constructive
Termination," and "Change of Control" shall have the meanings given to them in
the Employment Agreement, dated as of May 15, 1997, between you and KeyCorp, as
heretofore or hereafter amended or restated from time to time (including any
employment agreement replacing or superseding such agreement) (herein the
"Employment Agreement").
<PAGE> 2
3. If, after written notice from KeyCorp, you shall engage in any
"Competitive Activity" (as defined in your Employment Agreement) in violation of
your Employment Agreement within one year after Employment Termination Date,
then any Profits realized upon the exercise of any Option the subject of this
Agreement on or after one year prior to the Employment Termination Date shall
inure to KeyCorp. If any Profits realized upon the exercise of any Option the
subject of this Agreement inure to the benefit of KeyCorp in accordance with the
first sentence of this paragraph, you shall pay all such Profits to KeyCorp
within 30 days after first engaging in any such Competitive Activity and all
unexercised Options the subject of this Agreement shall immediately be forfeited
and canceled.
For purposes of this Agreement:
"Profit" shall mean, with respect to any Option, the
positive spread between the Fair Market Value of a Common
Share on the date of exercise and the exercise price
multiplied by the number of shares exercised under the
Option.
4. If KeyCorp prior to May 15, 2001 enters into a transaction intended
to qualify as a pooling of interests for accounting purposes the Options the
subject of this Agreement shall become void as if they were never granted in the
event that KeyCorp shall receive an opinion from Ernst & Young or advice from
the Securities and Exchange Commission that such grant will cause KeyCorp to be
unable to account for the transaction as a pooling of interests.
The Options shall be governed by the terms, conditions, and provisions
of the Plan, including, without limitation, Section 11 thereof.
This Agreement may not be modified, amended or waived except by an
instrument in writing signed by both parties hereto.
November 15, 2000
----------------------------
Thomas E. Helfrich
Executive Vice President
ACCEPTANCE
----------
The undersigned hereby acknowledges receipt of the Plan, agrees to be
bound by the foregoing Agreement and agrees and consents to the terms,
conditions, and provisions of the Agreement, Plan and the Award evidenced by
this Agreement.
------------------------------
Henry L. Meyer III
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>4
<FILENAME>l86594aex10-10.txt
<DESCRIPTION>EXHIBIT 10.10
<TEXT>
<PAGE> 1
Exhibit 10.10
AMENDED EMPLOYMENT AGREEMENT
THIS AMENDED EMPLOYMENT AGREEMENT (this "Agreement") is made at
Cleveland, Ohio, as of February 1, 2001, between KEYCORP, an Ohio corporation
("Key"), and HENRY L. MEYER III ("Meyer"). The original version of this
Agreement was entered into by Key and Meyer as of May 15, 1997, and was amended
as of November 20, 1997 and as of July 21, 1999. Further amendments are
incorporated below in this Agreement which replaces and supersedes both the
original version and those prior amendments.
Meyer has been elected as President and Chief Executive Officer of Key
and it is contemplated that the Board of Directors of Key will elect Meyer as
Chairman of the Board of Directors of Key immediately following Key's Annual
Shareholders Meeting scheduled to be held in May of 2001. Key is entering into
this Agreement in recognition of the importance of Meyer'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 Meyer's continued
attention and dedication to his duties on behalf of Key on into the future. (As
used in this Agreement, the term "Subsidiaries" and certain other capitalized
terms have the meanings ascribed to them in Section 25, at the end of this
Agreement.)
Key and Meyer agree, effective as of the date first set forth above
(the "Effective Date"), as follows:
1. Employment, Term. Key engages and employs Meyer to render such
services in the administration and operation of its affairs as, from time to
time, may be specified by its Board of Directors in a manner consistent with his
status as President, Chief Executive Officer, and (after Key's 2001 Annual
Meeting of Shareholders) Chairman of the Board of Directors, all in accordance
with the terms and conditions of this Agreement, for a constantly renewing three
year term, commencing on the Effective Date, so that the remaining term of
employment under this Agreement shall always be three years, unless: (a) either
party gives written notice to the other that the term shall no longer constantly
renew (in which case, the term of employment under this Agreement will expire on
the third anniversary of the giving of such notice) or (b) Meyer's employment
under this Agreement is earlier terminated in accordance with the provisions of
one of Sections 6.2 though 6.7 of this Agreement. Thus, for example, on February
2, 2001, the term of employment under this Agreement will be for three years
until February 2, 2004; automatically, without any action by either party, the
term will renew and extend itself on February 3, 2001 so as to be a three year
term of employment until February 3, 2004; and so on with the term automatically
extending on a daily basis so as always to be a three year term until either
notice is given under clause (a) above or Meyer's employment is earlier
terminated in accordance with the provisions of one of Sections 6.2 through 6.7
of this Agreement.
2. Full-Time Services. Meyer will devote all his time and efforts to
the service of Key, except for (a) usual vacation periods and reasonable periods
of illness, (b) services as an officer and director of any Subsidiary of Key,
and (c) services as a director or trustee of other
<PAGE> 2
corporations or organizations that are not in competition with Key or any
Subsidiary, except that, Meyer shall obtain the prior approval of the Chairman
of the Compensation and Organization Committee of Key's Board of Directors
before accepting a position as director or trustee of any for profit entity,
other than Lincoln Electric Holdings, Inc. (whether the entity is in corporate
or other form).
3. Executive Officer. Except as provided in the last sentence of this
Section 3, Meyer shall hold the offices of President and Chief Executive Officer
of Key throughout the period of his employment under this Agreement and Meyer
shall hold the position of Chairman of the Board of Directors of Key from
immediately after Key's 2001 Annual Meeting of Shareholders through the date on
which Meyer's employment under this Agreement is terminated. Notwithstanding the
immediately preceding sentence, Meyer and Key may, at some point in time after
the Effective Date, mutually agree that a different executive officer of Key
should hold the title of President and report to Meyer while Meyer remains as
Chief Executive Officer and Chairman of the Board of Directors of Key.
4. Compensation. For all services to be rendered by Meyer to Key under
this Agreement, including services as an officer, director, Chairman of the
Board of Directors, or member of any committee of Key or of any Subsidiary, or
any other services specified by the Board of Directors, Key shall pay to Meyer,
in equal monthly or more frequent installments, Base Salary, initially at the
rate of $825,000 per annum. The rate of Meyer's Base Salary shall be subject to
increase from time to time at the discretion of the Compensation and
Organization Committee of the Board of Directors and shall not be subject to
decrease except and then only to the extent that there is an across-the-board
salary reduction applicable to the executive officers of Key generally. In
addition to being paid such Base Salary, Meyer shall participate fully in any
incentive compensation, retirement, savings, stock option, disability, and other
employee benefit and welfare plan or arrangement allowed or provided by Key in
which he would otherwise be eligible for participation as an executive officer
and employee of Key, and, to the extent not provided, Key shall pay or provide
for the payment of benefits commensurate with Meyer's annual compensation.
5. Certain Compensation Guaranties During Two Years following a Change
of Control. For so long as Meyer remains in the employ of the Surviving Entity
or one of its Subsidiaries during the period beginning on the day after any
Change of Control and continuing through the second anniversary of that Change
of Control (the period of Meyer's employment during that two year period being
the "Guaranteed Compensation Period"), Meyer shall be entitled to the incentive
compensation guaranty set forth in Section 5.1 and to the equity compensation
guaranty set forth in Section 5.2.
5.1 Guaranteed Level of Incentive Compensation. Except as
provided in (c) below (which provides for a forfeiture of unpaid
amounts if Meyer's employment is terminated for Cause) and the last
sentence of (a) below (which provides for a potential reduction in
amount if based on overall corporate performance), the Surviving Entity
shall cause Meyer to receive, during the Guaranteed Compensation
Period, as incentive
2
<PAGE> 3
compensation, an amount that, on an annualized basis, is at least equal
to Meyer's Average Annual Incentive Compensation. The guaranty set
forth in the immediately preceding sentence (the "Incentive
Compensation Guaranty") establishes a minimum amount of incentive
compensation that must be paid to Meyer with respect to Meyer's
employment during the Guaranteed Compensation Period. Except as
otherwise provided in (a), (b), or (c) of this Section 5.1 below, the
guaranteed incentive compensation for the Guaranteed Compensation
Period shall be paid to Meyer quarterly, within 30 days after the end
of each calendar quarter, for each quarter (or portion thereof) during
the Guaranteed Compensation Period.
(a) If and to the extent Meyer, together with other executive
officers of the Surviving Entity, is a participant in one or
more bona fide incentive compensation plans during the
Guaranteed Compensation Period, the Surviving Entity may defer
payment of guaranteed incentive compensation payable under
this Section 5.1 up to the amount of the target award for
Meyer under that incentive compensation plan (provided,
however, if the compensation cycle under the incentive
compensation plan includes time periods outside the Guaranteed
Compensation Period, the deferral shall be up to a
proportionate amount of the target award) until such time as
payments are regularly scheduled to be made under that
incentive compensation plan, at which time the Surviving
Entity shall pay the deferred amount plus any other amount, if
any, to which Meyer is then entitled under the plan that has
not been earlier paid. (This could result in a guaranteed
payment being made after the end of the Guaranteed
Compensation Period, for example, where the compensation cycle
under the incentive compensation plan ends after the end of
the Guaranteed Compensation Period.) Notwithstanding the
foregoing, if the Surviving Entity, in administering a bona
fide incentive compensation plan in which Meyer participates,
in good faith and without discriminating against Meyer,
establishes or utilizes a factor which is intended to reflect
or rate for the compensation cycle in question the
corporation's overall performance and that performance factor
is uniformly applied (either in establishing an incentive
compensation pool or against each participant's target) to not
less than three quarters of all of the executive officers
participating in the plan, the Surviving Entity may elect to
apply that performance factor against the target award for
Meyer under the incentive compensation plan in question and,
if applying that factor reduces Meyer's target award, the
amount of guaranteed incentive compensation payable under this
Section 5.1 that has been deferred under this paragraph (a) on
account of the incentive compensation plan in question may be
reduced by the same amount (or, if the compensation cycle
includes time periods outside the Guaranteed Compensation
Period, the reduction shall be by a proportionate amount).
(b) If Meyer's employment is terminated for any reason other
than Cause, all unpaid guaranteed incentive compensation with
respect to the Guaranteed
3
<PAGE> 4
Compensation Period shall be paid in a lump sum within 30
business days following the Termination Date.
(c) If Meyer's employment is terminated by the Surviving
Entity for Cause, the Surviving Entity shall not be required
to pay to Meyer any amount of incentive compensation otherwise
payable at any time on or after the Termination Date.
5.2 Guaranteed Participation in Equity Based Compensation
Plans. During the Guaranteed Compensation Period, Meyer shall
participate fully (at a level that is at least comparable to the level
at which he participated in the last calendar year that ended before
the date of the Change of Control and is at least equal to the highest
targeted level at which other executive officers of the Surviving
Entity participate) in each and every stock option, stock appreciation,
or similar equity based plan in which executive officers of the
Surviving Entity generally participate. The guaranty of full
participation set forth in this Section 5.2 is hereinafter sometimes
referred to as the "Equity Compensation Guaranty."
6. Termination.
6.1 Three Years following Notice of Non-Renewal. If either party gives
written notice to the other of his or its intention to discontinue the otherwise
automatic renewal of the term of Meyer's employment hereunder (a "Non-Renewal
Notice"), that term will terminate on the third anniversary of the giving of the
Non-Renewal Notice, except that if a Change of Control occurs before that third
anniversary date and while Meyer remains employed by Key pursuant to this
Agreement, the Non-Renewal Notice shall be automatically abrogated and
thereafter treated as though it had never been given unless Meyer gives written
notice, not later than 30 days after the occurrence of the Change of Control,
that he desires to have the Non-Renewal Notice (whether it was given by Key or
by Meyer) continue in effect. If either party gives the other a Non-Renewal
Notice as provided in the immediately preceding sentence, that Non-Renewal
Notice remains in effect through the third anniversary of the giving of that
notice, and Meyer's employment continues through that third anniversary, Meyer's
employment under this Agreement shall terminate at 12:00 Midnight on that third
anniversary.
6.2 Death or Disability. Meyer's employment hereunder will terminate
immediately upon Meyer's death. Key may terminate Meyer's employment hereunder
immediately upon giving notice of termination if Meyer is disabled, by reason of
physical or mental impairment, to such an extent that he is unable to
substantially perform his duties under this Agreement for 180 consecutive days.
6.3 For "Cause" Absent a Change of Control. At any time that is either
before the occurrence of any Change of Control or after the second anniversary
of the then most recent Change of Control, Key may terminate Meyer's employment
hereunder for "Cause" if :
(a) Meyer commits a felony (other than felonious operation of a motor
vehicle);
4
<PAGE> 5
(b) Meyer commits an act or series of acts of dishonesty in the course
of his employment that are materially inimical to the best interests of
Key or a Subsidiary as determined by Majority Action of the Board of
Directors and, if the act or acts are capable of being cured, Meyer
fails to cure or take all reasonable steps to cure within 30 days of
notice from the Board of Directors to Meyer;
(c) Key or any Subsidiary has been ordered or directed by any federal
or state regulatory agency with jurisdiction to terminate or suspend
Meyer's employment and such order or directive has not been vacated or
reversed upon appeal;
(d) Meyer continues to violate his obligation under Section 10.1 not to
engage in Competitive Activities for more than ten days after the Board
of Directors has by Majority Action advised him in writing to cease
those activities; or
(e) Other than for disability, Meyer abandons and consistently fails to
attempt to perform his duties and responsibilities as specified from
time to time by the Board of Directors for 90 consecutive days after
the Board of Directors has by Majority Action advised him in writing of
that failure.
6.4 For "Cause" Within Two Years After a Change of Control. From the
date on which occurs any Change of Control and thereafter through the second
anniversary of that Change of Control, the Surviving Entity and its Subsidiaries
may terminate Meyer's employment under this Agreement for "Cause" only if :
(a) Meyer is convicted of a felony (other than felonious operation of a
motor vehicle);
(b) Meyer commits an act or series of acts of dishonesty in the course
of his employment that are materially inimical to the best interests of
the Surviving Entity or any of its Subsidiaries and that constitutes
the commission of a felony (other than felonious operation of a motor
vehicle), all as determined in good faith by the vote of three quarters
of the entire number of members of the Board of Directors, 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) The Surviving Entity or any of its Subsidiaries has been ordered or
directed by any federal or state regulatory agency with jurisdiction to
terminate or suspend Meyer's employment and, notwithstanding the best
efforts of the Surviving Entity and/or its relevant Subsidiary or
Subsidiaries to oppose, initially, and to appeal, thereafter, the order
or directive, that order or directive has not been vacated or reversed
upon appeal; or
(d) Meyer continues to violate his obligation under Section 10.1 not to
engage in Competitive Activities for more than ten days after the Board
of Directors has by Majority Action advised him in writing to cease
those activities, that violation is material,
5
<PAGE> 6
and the fact that the violation both was material and so continued
beyond that ten day period 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 determining whether the
violation both was material and so continued beyond that ten day
period.
If (x) the Surviving Entity or any of its Subsidiaries terminates the employment
of Meyer 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) the
Surviving Entity or any of its Subsidiaries fails to offer to reinstate Meyer to
employment under this Agreement within ten days of the date on which the
vacation or reversal becomes final and no longer subject to further appeal, the
Surviving Entity and its Subsidiaries will be deemed to have terminated Meyer
without Cause during the two year period beginning on the date of the Change of
Control.
6.5 By Key Without Cause. Key may terminate Meyer's employment
hereunder without Cause at any time by Majority Action of the Board of
Directors.
6.6 By Meyer Following Constructive Termination at Any Time. Meyer may
terminate his employment hereunder "on grounds of Constructive Termination"
(and, if Meyer elects to terminate his employment in such circumstances, he will
be deemed to have been "Constructively Terminated" and not to have "Voluntarily
Resigned" or "Voluntarily Retired") if, at any time:
(a) Meyer's Base Salary is reduced other than in connection with, and
then only to the extent of, a general across-the-board salary reduction
applicable to the executive officers of Key generally;
(b) Meyer is excluded from full participation in any incentive, option,
or other compensatory plan applicable to executive officers of Key
generally;
(c) Meyer is subject to Demotion or Removal;
(d) Key requests Meyer's resignation or retirement at a time when Key
does not have grounds to terminate Meyer's employment for Cause; or
(e) Meyer's principal place of employment for Key is relocated outside
of the Cleveland metropolitan area or Meyer is otherwise required by
Key to relocate outside the Cleveland metropolitan area.
6.7 By Meyer Following Constructive Termination Within Two Years After
a Change of Control. At any time during the period beginning on the date on
which occurs any Change of Control and thereafter through the second anniversary
of that Change of Control, Meyer may terminate his employment hereunder "on
grounds of Constructive Termination" (and, if Meyer
6
<PAGE> 7
elects to terminate his employment in such circumstances, he will be deemed to
have been "Constructively Terminated" and not to have "Voluntarily Resigned" or
"Voluntarily Retired") if he could then terminate his employment on any of the
grounds of Constructive Termination listed under Section 6.6 or if:
(a) Meyer's Base Salary is reduced from the highest level in effect at
any time during the one year period ending on the date of the Change of
Control;
(b) Meyer is excluded from full participation in any incentive, option,
or other compensatory plan that was available to him and in effect at
any time during the one year period ending on the date of the Change of
Control (the "Pre-Change of Control Compensatory Plans") unless Meyer
is provided with substitute incentive, option, and other compensatory
plans that provide to Meyer, in the aggregate, at least substantially
equivalent compensatory opportunities as would have been provided had
the Pre-Change of Control Compensatory Plans remained in effect with
Meyer as a full participant therein;
(c) Following notice by Meyer to the Surviving Entity and an
opportunity by the Surviving Entity to cure, the Surviving Entity fails
to satisfy the Incentive Compensation Guaranty or the Equity
Compensation Guaranty or Meyer is otherwise excluded from full
participation in any incentive, option, or other compensation plan that
is generally applicable to executive officers of the Surviving Entity
after the Change of Control;
(d) The headquarters of the Surviving Entity is located outside of the
Cleveland metropolitan area;
(e) Meyer determines in good faith that his responsibilities, duties,
or authorities with the Surviving Entity are materially reduced from
those in effect before the Change of Control and the reduction has not
been cured within thirty days after Meyer gives notice to the Board of
Directors of the Surviving Entity of his election to terminate his
employment based upon that reduction; or
(f) Meyer determines in good faith that as a result of the Change of
Control he is unable to carry out the authorities, powers, functions,
responsibilities, or duties as Chairman of the Board of Directors and
Chief Executive Officer as those authorities, powers, functions,
responsibilities, or duties attached to those positions were in effect
before the Change of Control and the Board of Directors of the
Surviving Entity fails to fully address those issues (as determined by
Meyer in good faith) within thirty days after Meyer gives notice to the
Board of Directors of his determination under this clause (f) and the
basis of such determination.
For purposes of clause (c), the Surviving Entity will be deemed to have
had an opportunity to cure and to have failed to effect a cure if the
failure to satisfy the Incentive Compensation Guaranty or the Equity
Compensation Guaranty, as the case may be,
7
<PAGE> 8
persists (as determined in good faith by Meyer) for more than thirty
calendar days after Meyer has given notice to the Surviving Entity of
the existence of that failure.
7. Severance Payments and Benefits upon Termination.
7.1 Termination by Key Without Cause, etc., or by Meyer Following
Constructive Termination. If Meyer's employment is terminated by Key (or, if
applicable, the Surviving Entity) for any reason other than Cause, disability,
or death, or if Meyer is Constructively Terminated:
(a) Lump Sum Payment. Key shall pay to Meyer, within 30 days after the
Termination Date, a lump sum severance benefit equal to three times the
sum of (i) one year's Base Salary (at the highest rate in effect at any
time before the Termination Date) plus (ii) his Average Annual
Incentive Compensation;
(b) Retirement and Savings Plan Participation. For the period beginning
on the day after the Termination Date and ending on the third
anniversary of the Termination Date (the "Continuing Benefit Period"),
Key shall cause Meyer to continue to be covered by and to participate
in all Retirement Plans and Savings Plans that he was entitled to be
covered by and participating in as an officer of Key immediately before
the Termination Date in the same manner and to the same extent as if
Meyer continued in the full-time employ of Key throughout the
Continuing Benefit Period, except where such coverage or participation
is Impermissible. For these purposes: (i) the entire Continuing Benefit
Period shall be included in determining Meyer's years of service, (ii)
amounts received by Meyer under clause (a)(i) above shall be deemed to
be base salary received by Meyer ratably during the Continuing Benefit
Period, and (iii) amounts received by Meyer under clause (a)(ii) above
shall be deemed to be incentive compensation received by Meyer ratably
during the Continuing 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. If, at any time during the
Continuing Benefit Period, Key determines in good faith that continuing
Meyer's coverage by and participation in any of the Retirement Plans or
any of the Savings Plans during the Continuing Benefit Period is
Impermissible, Meyer shall not be covered by and participate in such
affected plan or plans during the Continuing Benefit Period, but Key
shall provide to Meyer under this Agreement, as a supplemental
retirement benefit, payments and benefits that put Meyer in the same
position that he would have been in had he continued to be covered by
and participated in all such affected plan or plans throughout the
Continuing Benefit Period to the same extent as he was a participant
immediately before the Termination Date, with the supplemental payments
and benefits under this sentence being payable to Meyer (or, if
applicable, to his wife, 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.
8
<PAGE> 9
(c) Medical, Disability, and Group Term Life Coverage. Through the
third anniversary of the Termination Date, Key shall continue to
maintain in effect medical (including dental) coverage, disability
coverage, and group term life insurance for the benefit of Meyer and
his dependents at the same levels and subject to the same (by dollar
amount) employee contribution requirement, if any, as had been in
effect for the benefit of Meyer and his dependents before the
Termination Date. After the third anniversary of the Termination Date,
Meyer and his dependents shall be provided retiree medical benefits
that are at least equal to those that Meyer and his dependents would
have been entitled to under the Retiree Medical Benefits Plan if Meyer
had retired from Key on the Termination Date after satisfying all
eligibility requirements for retiree medical benefits under that plan.
The retiree medical benefits shall be provided under the Retiree
Medical Benefit Plan, with the cost thereof borne as between Key and
Meyer and his dependents as provided in that plan, if and so long as
that plan remains in effect and Meyer and his dependents are in fact
eligible for the intended benefits thereunder. In all other
circumstances, the retiree medical benefits shall be provided directly
by Key, with the cost thereof borne as between Key and Meyer and his
dependents in the same manner as would have been the case if the
benefits had been provided under the Retiree Medical Benefits Plan
rather than directly by Key.
7.2 Effect of Death While in Employ of Key. If Meyer dies while
employed by Key:
(a) Key shall pay to Meyer's estate any unpaid Base Salary due or to
become due to Meyer with respect to any period ending before his death
and Key shall have no further obligations to Meyer for Base Salary for
any period after Meyer's death.
(b) Key shall continue to maintain medical (including dental) coverage
in effect (i) for the benefit of Meyer's wife, for her lifetime, and
(ii) for the benefit of each of Meyer's children, through the earlier
of the date on which he or she attains age 23 or has ceased for more
than 120 consecutive days to be a full time student, in each case at
Key's sole cost and at the highest levels as had been in effect for the
benefit of Meyer's wife and each of his children, as the case may be,
at any time before the Termination Date.
(c) Upon his death, Meyer's rights under any other plan or benefit of
Key shall be governed by the respective terms thereof.
7.3 Effect of Disability While in Employ of Key. If, while Meyer is
employed by Key, he becomes disabled, by reason of physical or mental
impairment, to such an extent that he is unable to perform his duties under this
Agreement:
(a) Key may relieve Meyer of his duties under this Agreement for as
long as Meyer is so disabled.
(b) Key shall pay to Meyer all Base Salary and incentive
9
<PAGE> 10
compensation to which he would have been entitled under this Agreement
and under applicable incentive compensation plans had he continued to
be actively employed by Key to the earliest of (i) the date on which he
becomes eligible for payment of long term disability benefits under the
Long Term Disability Benefit Plan, (ii) the date of his death, or (iii)
the third anniversary of the first date on which his employment
hereunder could have been terminated by Key pursuant to the second
sentence of Section 6.2, except that if, after Meyer has become so
disabled and before he is terminated by Key pursuant to the second
sentence of Section 6.2, Meyer recovers so that he is no longer so
disabled to such an extent that he is unable to perform his duties
under this Agreement, Meyer shall be restored to his duties under this
Agreement and entitled to the benefits of and subject to this Agreement
as if no period of disability had occurred.
(c) The amounts payable to Meyer for any month under this Section 7.3
shall be reduced, but not below zero, by the full amount of the
payments, if any, received by Meyer for that month (i) from all
Retirement Plans, (ii) from the Long Term Disability Plan, and (iii)
from any other disability plan the entire cost of which is borne by
Key.
(d) For purposes of all retirement, savings, stock option, disability,
and other employee benefit and welfare plans or arrangements allowed or
provided by Key to executive officers, Meyer shall be treated in the
same manner that Key treats other executive officers who become
disabled.
(e) Except as provided in this Section 7.3, Key shall have no further
obligations to Meyer for Base Salary or incentive compensation for any
period during which Meyer is so disabled to such an extent that he is
unable to perform his duties under this Agreement.
(f) The payments provided for under this Section 7.3 shall be made as
provided for in this Section notwithstanding any termination of Meyer's
employment under the second sentence of Section 6.2.
7.4 Effect of Termination for Cause. If Meyer's employment is
terminated for Cause, Key may, by giving written notice to Meyer, terminate all
its obligations remaining to be performed or observed by it under this Agreement
(other than the obligation to pay Base Salary to Meyer through the Termination
Date and the obligations of Key under Sections 11, 12.3, and 14 and, to the
extent then applicable by its terms, Section 15), except no termination of Key's
obligations under this Agreement shall affect Meyer's rights under any plan or
benefit of Key, all of which shall be governed by their respective terms.
7.5 Effect of Termination Upon Meyer's Voluntary Resignation or
Voluntary Retirement. If Meyer's employment is terminated by Meyer's Voluntary
Resignation or Voluntary Retirement, Key may, by giving written notice to Meyer,
terminate all its obligations remaining to be performed or observed by it under
this Agreement (other than the obligation to pay Base Salary to Meyer through
the Termination Date, the obligations of Key under Sections 11, 12, and 14 and,
to the extent then applicable by their respective terms, the obligations of Key
under Sections 15, 16, and 17), except no termination of Key's obligations
10
<PAGE> 11
under this Agreement shall affect Meyer's rights under any plan or benefit of
Key, all of which shall be governed by their respective terms.
8. 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 set-off, counterclaim, recoupment,
defense, or other claim whatsoever that Key or any of its Subsidiaries may have
against Meyer, except that the prohibition on set-off, counterclaim, recoupment,
defense, or other claim contained in this sentence shall not apply if Meyer's
employment is terminated by Key for Cause at any time that is either before the
occurrence of any Change of Control or after the second anniversary of the then
most recent Change of Control. Meyer 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 Meyer
as the result of employment by another employer or otherwise after the
termination of Meyer's employment. Neither the provisions of this Agreement nor
the making of any payment provided for hereunder, nor the termination of Key's
obligations under this Agreement, shall reduce any amounts otherwise payable, or
in any way diminish Meyer's rights, under any incentive compensation plan, stock
option or stock appreciation rights plan, deferred compensation, 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, all of which shall be governed by their respective terms.
9. Payments Are in Lieu of Severance Payments. If Meyer becomes
entitled to receive payments under this Agreement as a result of termination of
his employment, those payments shall be in lieu of any and all other claims or
rights that Meyer may have against Key for severance, separation, and/or salary
continuation pay upon that termination of his employment.
10. Limitations on Competition.
10.1 During Employment. Meyer shall not engage in any Competitive
Activity during the period of his employment with Key.
10.2 Two Years in Certain Circumstances. If Meyer's employment is
terminated within two years after the occurrence of a Change of Control either
by Key without Cause or by Meyer after he has been Constructively Terminated,
Meyer shall not engage in any Competitive Activity during the two year period
ending on the second anniversary of the Termination Date.
10.3 Three Years Following Any Other Termination. If Meyer's employment
is terminated (whether by him, by Key, or otherwise) in any circumstances other
than those expressly covered by Section 10.2 above, Meyer shall not engage in
any Competitive Activity at any time during the three year period ending on the
third anniversary of the Termination Date.
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<PAGE> 12
10.4 No Further Obligation to Make Payments or Provide Benefits
Following Continuing Breach. If Meyer continues to violate the restriction set
forth in Section 10.2 or 10.3, as may be applicable, after the Board of
Directors has advised him by Majority Action in writing to cease those
activities and that violation is material, Key shall thereupon be relieved of
all further obligations to make payments and provide benefits to Meyer under any
of the provisions contained in Section 7.1. Meyer shall not be required to repay
to Key any payment received by him before he began to engage in any such
Competitive Activity.
10.5 Other Remedies. In addition to other remedies provided by law or
equity, upon a breach by Meyer of any prohibition on Competitive Activity
contained in this Section 10, Key shall be entitled to have a court of competent
jurisdiction enter an injunction against Meyer restraining him from any further
breach of any such prohibition.
11. Indemnification. Key shall indemnify Meyer, to the full extent
permitted or authorized by the Ohio General Corporation Law as it may from time
to time be amended, if Meyer is 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 Meyer 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 11 shall not be deemed
exclusive of any other rights to which Meyer 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 Meyer's official capacity and as to action in another capacity
while holding such office, and shall continue as to Meyer after Meyer has ceased
to be a director, trustee, officer, or employee and shall inure to the benefit
of the heirs, executors, and administrators of Meyer.
12. Reimbursement of Certain Expenses.
12.1 Key shall pay, as incurred, all expenses, including the reasonable
fees of counsel engaged by Meyer, of defending any action brought to have this
Agreement declared invalid or unenforceable.
12.2 Key shall pay, as incurred, all expenses, including the reasonable
fees of counsel engaged by Meyer, of prosecuting any action to compel Key to
comply with the terms of this Agreement upon receipt from Meyer of an
undertaking to repay Key for such expenses if, and only if, it is ultimately
determined by a court of competent jurisdiction that Meyer had no reasonable
grounds for bringing that action (which determination need not be made simply
because Meyer fails to succeed in the action).
12.3 Expenses (including attorney's fees) incurred by Meyer in
defending any action, suit, or proceeding commenced or threatened against Meyer
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
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<PAGE> 13
undertaking by or on behalf of Meyer in which he agrees to reasonably cooperate
with Key or the Subsidiary, as the case may be, concerning the action, suit, or
proceeding, and (a) if the action, suit, or proceeding is commenced or
threatened against Meyer 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 his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to Key or a
Subsidiary or with reckless disregard for the best interests of Key or a
Subsidiary or (b) if the action, suit, or proceeding is commenced or threatened
against Meyer for any action or failure to act as an officer or employee, to
repay the amount if it is ultimately determined that he is not entitled to be
indemnified. The obligation of Key to advance expenses provided for in this
Section 12.3 shall not be deemed exclusive of any other rights to which Meyer
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.
13. Gross-Up of Payments Deemed to be Excess Parachute Payments.
13.1 Key and Meyer acknowledge that, following a Change of Control, one
or more payments or distributions to be made by Key to or for the benefit of
Meyer (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 Meyer 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 Meyer'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 13, 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 Meyer within 30 days after the Termination Date or such earlier
time as is requested by Key. Key and Meyer 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 13.
13.2 If the Accounting Firm determines that any Payment gives rise,
directly or indirectly, to liability on the part of Meyer 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 Meyer, from time to time
and at the same time as any Payment constituting an excess parachute payment is
paid or provided to Meyer, in such amounts as are necessary to put Meyer 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 Meyer
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.
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<PAGE> 14
13.3 If the Internal Revenue Service determines that any Payment gives
rise, directly or indirectly, to liability on the part of Meyer 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 Meyer 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 Meyer 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 Meyer
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.
13.4 If Key desires to contest any determination by the Internal
Revenue Service with respect to the amount of excise tax under Section 4999,
Meyer shall, upon receipt from Key of an unconditional written undertaking to
indemnify and hold Meyer 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
Section 13.4 shall require Meyer to incur any expense other than expenses with
respect to which Key has paid to Meyer sufficient sums so that after the payment
of the expense by Meyer and taking into account the payment by Key with respect
to that expense and any and all taxes that may be imposed upon Meyer as a result
of his receipt of that payment, the net effect is no cost to Meyer. Nothing in
this Section 13.4 shall require Meyer to extend the statute of limitations with
respect to any item or issue in his 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,
Meyer receives a refund of a Section 4999 excise tax previously paid and/or any
interest with respect thereto, Meyer shall promptly pay to Key such amount as
will leave Meyer, net of the repayment and all tax effects, in the same
position, after all taxes and interest, that he would have been in if the
refunded excise tax had never been paid.
14. Deferral of Payment of Compensation under Certain Circumstances.
14.1 Section 162(m). For purposes of this Section 14, the term "Section
162(m)" shall mean Section 162(m) of the Internal Revenue Code (which, as
amended by the Revenue Reconciliation Act of 1993, prescribes rules disallowing
deductions for certain "applicable employee remuneration" to any of five
specified "covered employees" of a publicly held corporation in excess of
$1,000,000 per year), as from time to time amended, and the corresponding
provisions of any similar law subsequently enacted, and to all regulations
issued under that section and any such provisions.
14.2 Deferral. Except as otherwise provided in either of Section 14.3
or Section 14.4, below, if Key determines that, after giving effect to all
applicable elective deferrals of compensation, any amount of compensation
(including any Base Salary and any incentive compensation payable under any
incentive compensation plan in which Meyer is a participant) otherwise payable
to Meyer under this Agreement at any particular time (the "Scheduled Time"),
14
<PAGE> 15
(a) would not be deductible by Key if paid at the Scheduled Time by
reason of the disallowance rules of Section 162(m), and
(b) would be deductible by Key if deferred until and paid during a
later year,
that amount of compensation shall be deferred until, and paid during, the year
that is determined by Key to be the first year following the year of deferral
during which the compensation can be paid without disallowance of the deduction
for payment of the compensation by reason of Section 162(m). If Key determines
that in any year following the year of deferral a portion of, but not all of,
the amounts deferred (together with interest thereon as provided in Section
14.5, below) can be paid without disallowance of the deduction, that portion
that can be so paid shall be paid by Key during that year and the remainder,
except as otherwise provided in Section 14.3 or Section 14.4, below, shall
continue to be deferred until a later year.
14.3 Early Payout of Deferred Amount if Deferral is Determined to be
Ineffective. If any amount of compensation is deferred under Section 14.2 with
the expectation that it will be deductible by Key if paid in a later year and
Key later determines that the compensation will not be deductible by Key even if
payment thereof is deferred until a later year, then, within 30 days of the date
on which that determination is made, the deferral with respect to that
compensation shall terminate and Key shall pay that compensation to Meyer.
14.4 Payout Following Termination of Employment in All Events. On April
15 of the year immediately following the year in which Meyer ceases to be
employed by Key, Key shall pay to Meyer, in a single lump sum, all amounts of
compensation that have been deferred pursuant to this Section 14 and have not
previously been paid so that, as of the close of business on that date, no
amount of compensation will remain deferred under this Section 14 whether or not
Key is entitled to a deduction with respect to the payment of that compensation.
14.5 Interest on Deferred Amounts. Upon payment of any amounts of
compensation deferred for any period of time pursuant to this Section 14, Key
shall pay to Meyer an additional amount equivalent to the interest that would
have accrued on such deferred compensation if interest accrued thereon on a
daily basis from the date on which that compensation would have been paid but
for this Section 14 through the date on which that compensation is paid at a
rate varying from month to month and equal to 50 basis points higher than the
effective annual yield of the average of the Moody's Average Corporate Bond
Yield Index for the previous month, as published by Moody's Investor Services,
Inc. (or any successor published thereto), or, if such index is no longer
published, a substantially similar index selected by the Accounting Firm, with
interest compounded as of the end of each month.
14.6 Miscellaneous. Meyer's rights with respect to payment during his
lifetime of any compensation deferred under this Section 14 shall not be subject
to assignment. If Meyer dies before all compensation deferred under this Section
14 has been paid to him, any such unpaid compensation shall be paid, at the same
time it would have been paid if Meyer had not died but had merely ceased to be
an employee of Key on the date of his death (or, if earlier, on the last
15
<PAGE> 16
date he actually was an employee of Key), to his estate or, if Meyer shall so
direct to Key in writing, to his wife or to a trust created by Meyer. The
obligation of Key to make payments of compensation deferred pursuant to this
Section 14 constitutes the unsecured promise of Key to make payments from its
general assets as and when due and neither Meyer nor any person claiming through
him shall have, as a result of this Section 14, any lien or claim on any assets
of Key that is superior to the claims of the general creditors of Key.
15. Vesting of Supplemental Retirement Benefit. Upon any termination of
Meyer's employment with Key other than (a) a termination by Key for Cause before
Meyer attains age 55 or (b) by Meyer's Voluntary Resignation before he attains
age 55, Meyer will be treated as having satisfied all of the requirements for
eligibility for and as being fully vested in a supplemental retirement benefit
under the Supplemental Retirement Plan. Nothing in this Section 15 shall be
deemed to create an inference that Meyer is not otherwise eligible for or fully
vested in a supplemental retirement benefit under the Supplemental Retirement
Plan and whether or not he is so otherwise eligible for or fully vested in such
a benefit will be determined pursuant to the terms of the Supplemental
Retirement Plan without reference to this Section 15
16. Vesting of, and Extension of Exercise Period for, Stock Options.
All stock options (other than so-called "performance options," which are options
that vest or become exercisable only if certain stock price and/or financial
performance tests are achieved) granted to Meyer by Key after the Effective Date
that remain outstanding on the Termination Date shall be deemed to have vested
(to the extent not already vested) as of immediately prior to the termination of
his employment unless Meyer's employment is terminated by Key for Cause, by
Meyer's Voluntary Resignation before the fifth anniversary of the date of grant
of the particular stock option, or as a result of death or disability. Each
stock option (other than any performance option) that is granted to Meyer by Key
after the Effective Date and remain outstanding and are vested on the
Termination Date (whether pursuant to the immediately preceding sentence or
otherwise) shall be exercisable after the Termination Date until that particular
option's expiration date (which is the last date that the option would be
exercisable in accordance with its terms if Meyer had continued in Key's
employment indefinitely) unless Meyer's employment is terminated by Key for
Cause or by Meyer's Voluntary Resignation before the fifth anniversary of the
date of grant of the particular stock option. In the case of incentive stock
options granted to Meyer by Key after the Effective Date, this Section 16 shall
apply, recognizing however that failure to exercise the incentive stock option
within the time periods after the Termination Date prescribed by the Internal
Revenue Code may cause the option to fail to qualify for incentive stock option
treatment under the Internal Revenue Code. If, in accordance with its terms and
without regard to this Section 16, an option would vest earlier than is provided
in this Section 16 or would be exercisable for a longer period than is provided
in this Section 16, the terms of the option providing for earlier vesting and/or
a longer period of exercisability, as the case may be, shall govern. Each stock
option (other than performance options) granted to Meyer by Key after the
Effective Date shall be deemed to contain the provisions of this Section 16 as a
part of the award instrument evidencing such option.
16
<PAGE> 17
17. Post-Termination Benefits. Following termination of his employment
with Key for any reason other than Cause, Voluntary Resignation, or death, Key
shall continue to provide to Meyer the following benefits:
(a) Payment of monthly membership dues at one country club, one
luncheon club, and one professional or cultural group or association
located in the Greater Cleveland metropolitan area.
(b) Payment of the cost of tax preparation assistance but only to the
extent and as long as Key provides this benefit to its executive
officers.
(c) Payment of the cost of an executive physical examination but only
to the extent and as long as Key provides this benefit to its executive
officers.
(d) Payment of an amount equal to the meeting fee and payment of
reasonable expenses for a meeting of the Board of Directors if Meyer
attends Key's annual meeting of shareholders.
(e) Use of office space and secretarial support in Key facilities in
Cleveland for a period of two years following the Termination Date.
18. Savings Clause. If any payments otherwise payable to Meyer under
this Agreement are prohibited by any applicable 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 so called "golden parachute payments" that can be made
by an FDIC insured institution or its holding company if the institution is
financially troubled and certain so-called "indemnification payments" (any such
statute or regulation being 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,
and including using its best efforts to appeal any refusal by any such
agency to grant its consent) to the payment by Key to Meyer of the
maximum amount that is permitted (up to the amounts that would be due
to Meyer under this Agreement or otherwise absent the Limiting Rule);
and
(b) Meyer 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 plan or
policy (including any severance, separation pay, and/or salary
continuation plan that may be in effect at the time of Meyer's
termination), up to the amounts that would be due to Meyer under this
Agreement or otherwise absent the Limiting Rule.
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<PAGE> 18
19. Survival of Obligations. Except as is otherwise expressly provided
in this Agreement, the respective obligations of Key and Meyer hereunder shall
survive any termination of Meyer's employment under this Agreement.
20. Merger or Transfer of Assets of Key. Key will not consolidate with
or merge into any other corporation, or transfer all or substantially all of its
assets to another corporation, unless such other corporation shall assume this
Agreement in a signed writing and deliver a copy thereof to Meyer. Upon such
assumption the successor corporation 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.
21. Notices. 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 in person (to the Secretary of Key in the case of notices to Key and
to Meyer in the case of notices to Meyer) or mailed by United States registered
mail, return receipt requested, postage prepaid, as follows:
If to Key:
KeyCorp
127 Public Square
Cleveland, Ohio 44114-1306
Attention: Secretary
If to Meyer:
Mr. Henry L. Meyer III
3385 Roundwood Road
Hunting Valley, Ohio 44022
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.
22. 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.
23. Miscellaneous. 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 Meyer 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 which is not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Ohio.
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<PAGE> 19
24. Prior Agreement. This Agreement supersedes the agreement entered
into between Meyer and Key as of October 15, 1996 that provided Meyer certain
protection in the event of a Change of Control of Key.
25. Definitions.
25.1 Accounting Firm. The term "Accounting Firm" means the independent
auditors of Key for the fiscal year preceding the year in which the earlier of
(i) the Termination Date, or (ii) the year, if any, in which occurred the first
Change of Control occurring after the Effective Date, 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 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")).
25.2 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 Meyer for each of the last two years immediately
preceding the Relevant Year (as defined below in this clause
(a)) or, if for any reason short term incentive compensation
was payable to Meyer for only one of those two years, the
amount of short term incentive compensation payable to Meyer
for that year, and
(ii) Meyer's targeted short term incentive compensation for
the Relevant Year or for the year immediately preceding the
Relevant Year, whichever is higher.
For purposes of this Section 25.2, the term "Relevant Year" means the
year in which the Termination Date occurs unless, during the two year
period ending on the Termination Date, there has occurred one or more
Changes of Control, in which case the term "Relevant Year" means the
year in which occurred the first Change of Control that occurred during
that two year period.
(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 Meyer for each of the last two
multi-year cycles that ended before the Relevant Year or, if,
for any reason, long term incentive compensation was payable
to Meyer for only one of
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those two multi-year cycles, the Applicable Amount of the long
term incentive compensation award payable to Meyer for that
multi-year cycle, and
(ii) the Applicable Amount of Meyer's targeted long term
incentive compensation award for the multi-year cycle that
began with the Relevant Year or, if higher or if no multi-year
cycle began with the Relevant Year, the Applicable Amount of
Meyer's targeted long term incentive compensation award for
the most recently commenced multi-year cycle that began before
the Relevant Year,
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>
1996-1998 1998 100%
----------------------------------------------------------------------------------------
1997-1999 1999 100%
----------------------------------------------------------------------------------------
1998-2001 2001 50%
----------------------------------------------------------------------------------------
2000-2003 2003 50%
----------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 21
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------
2002-2005 2005 50%
----------------------------------------------------------------------------------------
</TABLE>
As used in this Section 25.2, incentive compensation means any cash based
incentive compensation, including bonuses, and is calculated before any
reduction on account of deferrals; short term incentive compensation means
incentive compensation under all plans for periods of time of one year or less
and long term incentive compensation means incentive compensation under all
plans for periods of time of more than one year; targeted long term or short
term incentive compensation, as the case may be, means: (w) if the incentive
compensation plan, program, or arrangement in question designates a targeted
amount or a targeted level of achievement applicable to Meyer, it means that
targeted amount or level, (x) if the incentive compensation plan, program, or
arrangement in question has only one level of payout applicable to Meyer (other
than zero), it means that level (i.e. the level other than zero), (y) if the
incentive compensation plan, program, or arrangement in question does not
designate a targeted amount or level of achievement applicable to Meyer but does
have multiple anticipated levels of possible payout or achievement applicable to
Meyer, it means (in each case excluding from consideration any level that
results in zero payout) the middle level of payout or achievement applicable to
Meyer (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 (z) 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.
25.3 Base Salary. The term "Base Salary" means the salary payable to
Meyer from time to time before any reduction for voluntary contributions to the
KeyCorp 401(k) Plan or any other deferral under any other plan. Base Salary does
not include imputed income from payment by Key of country club membership fees
or other noncash benefits.
25.4 Board of Directors. The term "Board of Directors," when used other
than with specific reference to another entity, means the Board of Directors of
Key.
25.5 Change of Control. A "Change of Control" shall be deemed to have
occurred if, at any time after the date of this Agreement and while Meyer
remains in the employ of Key, 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 25.5, 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
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<PAGE> 22
(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 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 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 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
22
<PAGE> 23
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
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.
25.6 Competitive Activity. Meyer shall be deemed to have engaged in
"Competitive Activity" if he engages, without Key's prior written consent, 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 has an ownership interest in, or
serves as a director, officer, agent, or employee of, or in any other capacity
with, any Financial Services Company or renders services of a consultative,
advisory, or other nature to any Financial Services Company. Notwithstanding the
foregoing, Meyer will not be deemed to have engaged in Competitive Activity
solely because of any one or more investments he may make in any one
23
<PAGE> 24
or more for profit entity or entities, none of which is a Financial Services
Company, or solely because he owns stock in a publicly held Financial Services
Company that constitutes not more than 1% of the outstanding stock of that
Financial Services Company.
25.7 Day. A "day" as used in this Agreement means a calendar day unless
business day is specifically referred to.
25.8 Demotion or Removal. Meyer shall be deemed to have been subjected
to "Demotion or Removal:"
(a) if Meyer is not elected Chairman of the Board of Key immediately
after Key's Annual Meeting of Shareholders in May 2001, or if, having
been so elected, he ceases to be Chairman of the Board of Key (or,
after a Change of Control, of the Surviving Entity) at any time before
the expiration of the term of his employment pursuant to Section 6.1,
other than as a result of the termination of his employment by Key for
Cause or of his Voluntary Resignation or Voluntary Retirement, death,
or disability,
(b) if Meyer ceases to be or have the responsibilities, duties, or
authorities of Chief Executive Officer of Key (or, after a Change of
Control, of the Surviving Entity) at any time before the expiration of
the term of his employment pursuant to Section 6.1, other than as a
result of the termination of his employment by Key for Cause or of his
Voluntary Resignation or Voluntary Retirement, death, or disability, or
(c) if Meyer ceases to be a director of Key (or, after a Change of
Control, of the Surviving Entity) at any time before the expiration of
the term of his employment pursuant to Section 6.1, other than as a
result of the termination of his employment by Key for Cause or of his
Voluntary Resignation or Voluntary Retirement, death, or disability.
25.9 Financial Services Company. The term "Financial Services Company"
means a bank, bank holding company, savings and loan association, building and
loan association, savings and loan holding company, insurance company,
investment banking, or securities company, or other financial services company,
other than Key or any of its Subsidiaries.
25.10 Impermissible. The term "Impermissible," when used in the context
of Meyer'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 Revenue Code to fail to be so
qualified, would require shareholder approval, or would be unlawful.
25.11 Long Term Disability Plan. The term "Long Term Disability Plan"
means and includes the KeyCorp Long Term Disability Plan as from time to time
amended, restated, or otherwise modified, including any long term disability
plan or program that, after the Effective Date, succeeds, replaces, or is
substituted for that plan and includes long term disability benefits
24
<PAGE> 25
or rights provided pursuant to or under insurance contracts maintained by Key
applicable to executive officers of Key.
25.12 Majority Action. The term "Majority Action," when used in
reference to the Board of Directors, means an action taken by the affirmative
vote of a majority of the entire number of members of the Board of Directors.
25.13 Retiree Medical Benefits Plan. The term "Retiree Medical Benefits
Plan" means and includes the KeyCorp Medical Benefits Plan For Retirees as from
time to time amended, restated, or otherwise modified, including any plan that,
after the Effective Date, succeeds, replaces, or is substituted for that plan.
25.14 Retirement Plans. The term "Retirement Plans" means and includes
the KeyCorp Cash Balance Pension Plan, which succeeded by merger the Retirement
Plan for Employees of Society Corporation and Subsidiaries, and the Supplemental
Retirement Plan, in all cases, as from time to time amended, restated, or
otherwise modified, including any plan that, after the Effective Date, 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 Meyer was
participating prior to the Termination Date. Reference to a "Retirement Plan,"
in the singular, means any of the Retirement Plans.
25.15 Savings Plan. 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 Effective Date, 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 Meyer was participating prior to the
Termination Date. Reference to a "Savings Plan," in the singular, shall mean any
of the Savings Plans.
25.16 Subsidiary. The term "Subsidiary," as of any time, means any
corporation, bank, partnership, or other entity a majority of the voting control
of which is directly or indirectly owned or controlled at that time by Key or,
after a Change of Control, by the Surviving Entity.
25.17 Surviving Entity. The term "Surviving Entity" means the entity
surviving or resulting from any Change of Control involving Key or (if Key
becomes a subsidiary in the transaction) the ultimate parent of Key.
25.18 Supplemental Retirement Plan. The term "Supplemental Retirement
Plan" means the KeyCorp Supplemental Retirement Plan, which succeeded by merger
the Amended and Restated Society Corporation Supplemental Retirement Plan, in
all cases, as from time to time amended, restated, or otherwise modified,
including any plan that, after the Effective Date, succeeds, replaces, or is
substituted for the KeyCorp Supplemental Retirement Plan.
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<PAGE> 26
25.19 Termination Date. The term "Termination Date" means the date on
which Meyer's employment with Key and its Subsidiaries terminates.
25.20 Voluntary Resignation. The term "Voluntary Resignation" means a
termination by Meyer of his employment with Key and its Subsidiaries before the
expiration of the term of his employment pursuant to Section 6.1 by voluntarily
resigning at his own instance without having been requested to so resign by Key,
except that any resignation by Meyer will not be deemed to be a Voluntary
Resignation if it occurs at a time when Meyer is entitled to terminate his
employment on grounds of Constructive Termination. The term "Voluntary
Resignation" includes a Voluntary Retirement if the Voluntary Retirement occurs
before the expiration of the term of Meyer's employment pursuant to Section 6.1;
provided, however, Meyer will not be considered to have Voluntarily Resigned if
Meyer retires after February 1, 2011 (the tenth anniversary of the Effective
Date) or, if he retires earlier, he does so with the approval of the Board of
Directors or the committee thereof that serves as the compensation committee.
25.21 Voluntary Retirement. The term "Voluntary Retirement" means a
termination by Meyer of his employment with Key and its Subsidiaries by
voluntarily retiring at his own instance without having been requested to so
retire by Key, except that any retirement by Meyer will not be deemed to be a
Voluntary Retirement if it occurs at a time when Meyer is entitled to terminate
his employment on grounds of Constructive Termination.
IN WITNESS WHEREOF, Key and Meyer have executed this Agreement, Key by
its duly authorized Chairman of the Board, as of the date first written above.
KEYCORP
By
--------------------------------------
Robert W. Gillespie
Chairman of the Board
----------------------------------------
HENRY L. MEYER III
26
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>5
<FILENAME>l86594aex10-12.txt
<DESCRIPTION>EXHIBIT 10.12
<TEXT>
<PAGE> 1
Exhibit 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of the
4th day of October, 2000, by and among McDonald Investments Inc., an Ohio
corporation (the "Company"), KeyCorp, an Ohio corporation ("KeyCorp"), and
William B. Summers, Jr. (the "Executive").
WHEREAS, the Executive, the Company and KeyCorp are parties to
that certain Employment Agreement, dated as of June 14, 1998 (the "Prior
Agreement");
WHEREAS, the Executive and KeyCorp are parties to that certain
Agreement, dated as of October 23, 1998, providing for certain payments and
benefits to the Executive if his employment is terminated under certain
circumstances in connection with a change of control of KeyCorp (the "Change of
Control Agreement");
WHEREAS, the Executive, the Company and KeyCorp desire to
terminate and supersede the Prior Agreement and the Change of Control Agreement;
and
WHEREAS, the Executive desires to continue to be employed by
the Company, and the Company desires to continue to employ the Executive, on the
terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
respective covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
1. EMPLOYMENT PERIOD. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to be employed by the
Company, subject to the terms and conditions of this Agreement, for the period
commencing on the date of this Agreement (the "Commencement Date") and ending on
October 23, 2003 (the "Employment Period"), unless the Employment Period is
renewed or terminated earlier in accordance with the terms hereof.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, the Executive shall
serve as Chairman of the Company and shall serve on the Board of Directors of
the Company, or its successor (if any). During the Employment Period, the
Executive shall report directly to Henry Meyer or the Chief Executive Officer of
KeyCorp.
(ii) During the Employment Period, the Executive
shall continue to make available to the Company his experience, knowledge,
understanding and relationships relating to the brokerage and investment banking
business by assisting, at a senior executive level and at his and KeyCorp's
mutual discretion, in the following activities:
A. Maintaining relationships with, and the
development of, key customers for the Company and other KeyCorp
affiliates;
<PAGE> 2
B. Participating, on behalf of the Company,
in professional industry association activities related to the
Company's business, such as Securities Industry Association and New
York Stock Exchange activities;
C. Participating in community activities to
promote the goodwill of KeyCorp and the Company, including continued
involvement in The McDonald Foundation (for so long as it exists as a
separate foundation);
D. Offering input into, and perspective on,
strategic issues facing the Company's business; and
E. Recruiting and retaining key executives
for the Company's business.
As used in this Agreement, the terms "affiliates" and "affiliated companies"
shall include any company controlled by, controlling or under common control
with the Company or KeyCorp, as the case may be.
(iii) In addition to the foregoing, the Executive
agrees that the principal investing activities of KeyCorp, presently known as
Key Principal Partners, shall report to the Executive for up to six months after
the Commencement Date. After the expiration of such period, such principal
investing activities shall continue to report to the Executive only if he
consents thereto upon the request of KeyCorp.
(iv) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to fulfill the foregoing duties and responsibilities in
accordance with a flexible schedule dictated by his own judgment of how best to
fulfill his duties and responsibilities hereunder. The Executive shall be
present at the Company's offices only in accordance with a schedule he
determines.
(v) It shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments; provided, however,
that the Executive's service on boards or committees shall be subject to the
following conditions: (x) any such service shall not be provided to a for-profit
entity in the financial services industry (except for a KeyCorp affiliate); (y)
KeyCorp and its affiliates shall not be responsible for indemnification or
directors and officers liability insurance relating to such service; and (z) the
Chief Executive Officer of KeyCorp (or its successor) or Henry Meyer (or, if
Henry Meyer then is not an executive officer of KeyCorp or its successor, the
Chief Operating Officer of KeyCorp or its successor) shall have been advised in
advance of such service and not objected to such service on the basis that it
would cause a conflict of interest or public embarrassment or discomfort to
KeyCorp.
(b) MANAGEMENT AND OPERATIONS OF THE COMPANY. The Executive
acknowledges and agrees that the Compensation Committee of the Board of
Directors of the Company shall terminate on October 23, 2001 and thereafter
shall no longer continue as a committee of the Board of Directors of the Company
or otherwise. The Executive shall not serve on such Compensation Committee after
the Commencement Date.
2
<PAGE> 3
(C) COMPENSATION.
(i) CASH COMPENSATION THROUGH DECEMBER 31, 2000.
A. 2000 BASE SALARY. During the period from
the Commencement Date through and ending on December 31, 2000, the
Executive shall continue to receive base salary payments ("2000 Base
Salary") at an annualized rate of $200,000 in accordance with the
compensation policies and practices established by the Compensation and
Organization Committee of KeyCorp's Board of Directors, or its
successor (the "Committee").
B. 2000 BONUS. In addition to 2000 Base
Salary, the Executive shall be awarded a cash bonus for the year 2000
(the "2000 Bonus") in an amount determined by the Committee, provided
that in no event shall the amount of the 2000 Bonus be less than $1.3
million. The 2000 Bonus shall be payable no later than March 1, 2001.
(ii) CASH COMPENSATION AFTER DECEMBER 31, 2000.
During the remainder of the Employment Period after December 31, 2000, the
Executive shall receive annual compensation at the rate of $1.6 million per year
("Annual Compensation"). Annual Compensation shall be payable to the Executive
in substantially equal periodic installments throughout the year (no less
frequently than monthly) and shall be prorated during any calendar year in which
the Executive is employed by the Company for less than the entire calendar year.
The parties acknowledge and agree that Annual Compensation represents a combined
base and bonus compensation amount and, accordingly, that the Executive shall
not be eligible to receive additional bonus compensation for periods after
December 31, 2000, unless otherwise determined by the Committee, in its sole
discretion.
(iii) RETENTION AWARDS. The parties acknowledge and
agree that, in connection with the transactions contemplated by the Prior
Agreement, the Executive was granted a cash retention award, effective October
23, 1998, in the amount of $2.2 million (the "Cash Retention Award") and was
granted non-qualified stock options, effective October 23, 1998 and January 13,
1999, to acquire a total of 241,055 KeyCorp Common Shares (the "Retention
Options"). The parties agree that the terms of the Cash Retention Award and the
Retention Options shall not be affected or modified hereby, except as follows or
as otherwise expressly set forth herein:
A. Section 2 of each Non-Qualified Grant
Agreement evidencing the Retention Options shall be, and it hereby is,
deleted and replaced in its entirety by the following:
"2. Upon (i) the termination of your employment by
KeyCorp and its subsidiaries other than for Cause, as defined
in the Employment Agreement, dated as of October 4, 2000,
among KeyCorp, McDonald Investments Inc. and you (the
"Employment Agreement"), including by reason of your
Disability, as defined in the Employment Agreement, (ii) your
termination of your employment with KeyCorp and its
subsidiaries
3
<PAGE> 4
for Good Reason or on the Early Termination Date, each as
defined in the Employment Agreement, or (iii) your death, all
outstanding Options granted hereunder shall become immediately
vested and exercisable in full."
B. Section 2 of the Agreement evidencing the
Cash Retention Award shall be, and it hereby is, deleted and replaced
in its entirety by the following:
"2. Upon (i) the termination of your employment by
KeyCorp and its subsidiaries other than for Cause, as defined
in the Employment Agreement, dated as of October 4, 2000,
among KeyCorp, McDonald Investments Inc. and you (the
"Employment Agreement"), including by reason of your
Disability, as defined in the Employment Agreement, (ii) your
termination of your employment with KeyCorp and its
subsidiaries for Good Reason or on the Early Termination Date,
each as defined in the Employment Agreement, or (iii) your
death, all unpaid portions of the Award shall become
immediately payable in full."
(iv) EMPLOYEE BENEFIT PLANS. During the Employment
Period, the Executive shall continue to be eligible to participate in welfare
and retirement benefit plans, programs, policies and arrangements to the same
extent as immediately prior to the Commencement Date; provided, however, that
KeyCorp or the Company may amend, modify or terminate any such plan, program,
policy or arrangement at any time so long as the amendment, modification or
termination applies to a significant portion or number of participants in such
plan, program, policy or arrangement.
(v) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
business expenses incurred by the Executive, consistent with the past practice
of the Executive and in accordance with the policies of the Company and KeyCorp.
(vi) INDEMNIFICATION/D&O INSURANCE. The Executive
shall be indemnified by KeyCorp against claims arising in connection with the
Executive's status as an employee, officer or agent of KeyCorp in accordance
with KeyCorp's indemnity policies for its senior executives, subject to
applicable law.
(vii) DEFERRAL OF COMPENSATION. Subject to Section
2(c)(viii), during the Employment Period, the Executive shall not be subject to
any policy or plan of KeyCorp or any affiliated company requiring the automatic
deferral of incentive compensation, including, without limitation, the KeyCorp
Automatic Deferral Plan as in effect from time to time. During the Employment
Period, the Executive shall have the right to defer voluntarily up to 75% of his
Annual Compensation pursuant to the terms of KeyCorp's Deferred Compensation
Plan as in effect from time to time (and such plan is hereby amended to the
extent necessary to permit the deferral of such amounts under such plan),
provided that the Executive elects such deferral and gives notice of such
election to KeyCorp in advance of the year in which the Annual Compensation to
be deferred is to be earned and otherwise complies with the terms of KeyCorp's
Deferred Compensation Plan as in effect from time to time.
4
<PAGE> 5
(viii) SECTION 162(m). In the event that KeyCorp
would be denied a deduction for federal income tax purposes for any amounts
payable to the Executive by reason of the limitations imposed by Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), the Executive
agrees that, in accordance with the policy of the Committee (and only so long as
that policy continues and is applicable to all executives of KeyCorp who are
subject to Section 162(m)), the amount that would not be deductible shall be
deferred pursuant to the terms of KeyCorp's Deferred Compensation Plan as in
effect from time to time.
(d) EMPLOYMENT LOCATION. During the Employment Period, the
Executive's principal place of employment (i) shall be located at the McDonald
Investment Center, provided that such building continues to be the principal
office of the Company, and (ii) shall, in any case, be located no more than 20
miles from the Executive's principal place of employment at the date hereof.
3. TERMINATION OF EMPLOYMENT.
(a) EXPIRATION OF EMPLOYMENT PERIOD, DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the expiration of the
Employment Period or the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness or injury.
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the engaging by the Executive in illegal conduct
constituting a felony, or
(ii) gross intentional misconduct which is materially
and demonstrably injurious to the Company or KeyCorp, or
(iii) any material breach by the Executive of Section
7 hereof, provided that, to the extent any such breach is curable, the Company
has given the Executive notice thereof and the Executive has failed to cure such
breach within 10 days after such notice is effective, or
5
<PAGE> 6
(iv) conduct that results in the permanent loss of
the Executive's professional license to conduct business or in the Executive's
being disqualified or barred by banking or security law regulators from serving
in the capacity contemplated by this Agreement for six months or more.
The employment of the Executive shall not be deemed to be terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than two-thirds of
the entire membership of the Board of Directors of KeyCorp, or its successor
(the "Board"), at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in any of subparagraphs (i) through (iv) above, and specifying the
particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean a material breach by the Company of an
obligation of the Company under this Agreement, without the consent or
concurrence of the Executive, that the Company has failed to cure within 10 days
after the effective time at which the Executive has given the Company and
KeyCorp written notice of such breach. A breach described in this clause
includes (i) the relocation of the Executive's principal place of employment to
any location more than 20 miles from the Executive's principal place of
employment on the Commencement Date, (ii) the failure of the Company to obtain
an agreement reasonably satisfactory to the Executive from any successor to
assume and agree to perform this Agreement, as contemplated in Section 9 hereof,
or (iii) any termination of the Executive's employment which is not effected
pursuant to the terms of this Agreement. Notwithstanding the foregoing, the
Executive's failure to give notice to the Company and KeyCorp of his objection
to an event alleged to constitute "Good Reason" within 45 days after the date of
occurrence of such event shall be deemed a waiver of such event by the Executive
and the Executive thereafter may not terminate his employment hereunder for Good
Reason based on such event.
(d) EARLY TERMINATION DATE. The Executive's employment may be
terminated by the Executive, in his sole discretion, effective any date on or
after January 19, 2003 (but not later than October 22, 2003), upon 30 days'
advance Notice of Termination (as defined below) to the Company and KeyCorp. The
effective date of such termination is referred to herein as the "Early
Termination Date."
(e) FOLLOWING A CHANGE OF CONTROL OF KEYCORP. The Executive's
employment may be terminated during the Employment Period by the Executive, in
his sole discretion, at any time within two years after a Change of Control,
upon 30 days' advance Notice of Termination to the Company and KeyCorp. For
purposes of this Agreement, "Change of Control" shall be defined as set forth in
Schedule A, attached hereto.
(f) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, on the Early Termination Date or
within two years after a Change of Control, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 10(b) of
this Agreement. For purposes of this Agreement, a
6
<PAGE> 7
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) specifies the Date of Termination. The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder, except as otherwise
set forth in Section 3(c).
(g) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of termination of employment that is set
forth in the Notice of Termination (which shall not be earlier than the date on
which such notice is given and which shall be subject to any applicable cure
period), (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, or the Executive resigns without Good Reason
(other than on the Early Termination Date or within two years after a Change of
Control), the date on which the Company or the Executive notifies the Executive
or the Company, respectively, of such termination, (iii) if the Executive's
employment is terminated by reason of expiration of the Employment Period, death
or Disability, the date of expiration of the Employment Period, death of the
Executive or the Disability Effective Date, as the case may be, and (iv) if the
Executive's employment is terminated by the Executive on the Early Termination
Date or within two years after a Change of Control, the Early Termination Date
or the date of termination of employment, respectively, set forth in the Notice
of Termination (which, in either case, shall not be earlier than the 30th day
after the date on which such notice is given).
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; EARLY TERMINATION DATE; OTHER THAN FOR CAUSE,
DEATH OR DISABILITY. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason or on the Early Termination
Date:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
amounts determined under clauses A and B below:
A. the "Accrued Obligations", which shall
mean the sum of the amounts described and payable under clause (1) or
clause (2) below (but not both), as applicable based on the Date of
Termination:
(1) if the Date of Termination
occurs on or before December 31, 2000, the Accrued Obligations
shall be the sum of (I) the Executive's 2000 Base Salary
through the Date of Termination to the extent not theretofore
paid and (II) the product of (x) $1.4 million and (y) a
fraction, the numerator of which is the number of days in
calendar year 2000 through the Date of Termination, and the
denominator of which is 365; or
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<PAGE> 8
(2) if the Date of Termination
occurs after December 31, 2000, the Accrued Obligations shall
be the sum of (I) the Executive's 2000 Base Salary and Annual
Compensation through the Date of Termination to the extent not
theretofore paid and (II) any unpaid portion of the 2000
Bonus; and
B. the amount (the "Continuation
Obligation") equal to the product of (1) the number of years (including
fractions thereof) remaining from the Date of Termination until October
23, 2003 (the "Continuation Period") and (2) $1.6 million.
For purposes of this Section 4(a)(i), any amounts of compensation deferred by
the Executive into a deferral plan of KeyCorp or any affiliate, whether
voluntarily, automatically or otherwise, shall be deemed to have been paid on
the date of deferral, and all such deferred amounts shall be payable as governed
by the terms of the applicable deferral plan, subject to Section 4(a)(vi);
(ii) any unpaid portion of the Cash Retention Award
shall become fully vested and immediately payable;
(iii) the Retention Options shall become fully vested
and immediately exercisable;
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is entitled to
receive under any plan, program, policy or practice or contract or agreement
(but excluding the KeyCorp Separation Pay Plan) of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits");
(v) for the duration of the Continuation Period, the
Executive and the Executive's dependents shall continue to be eligible to
participate in the medical, dental, health and group-term life benefit plans and
arrangements applicable to the Executive immediately prior to the Date of
Termination on the same terms and conditions as in effect for the Executive and
the Executive's dependents immediately prior to the Date of Termination;
(vi) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon), including
the Executive's employer match and employee share under all automatic and
voluntary deferral programs in which the Executive participated while employed
by the Company, shall become fully vested and nonforfeitable and all such
deferred compensation shall be payable as governed by, and subject to, the terms
of the applicable deferral plan; and
(vii) the Executive shall be entitled to participate,
at his cost, in KeyCorp's Retiree Medical Plan (the "Retiree Medical Plan")
through age 65, or through such later age through which participants in the
Retiree Medical Plan may continue to participate therein under the terms thereof
as amended with general application to all participants therein from time to
time. Consistent with the requirements of the Retiree Medical Plan, in the event
this Agreement terminates and is not renewed, this clause providing for retiree
medical benefits shall be deemed to be part of a termination agreement. The
Executive acknowledges and agrees
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<PAGE> 9
that, consistent with the requirements of the Retiree Medical Plan, he must
inform KeyCorp at the time of termination of his employment whether he wishes to
participate in the Retiree Medical Plan and if he does not then elect
participation in the Retiree Medical Plan or ever ceases participation, he shall
not later be eligible to elect or resume participation. Such requirement to
elect participation in the Retiree Medical Plan at the time of termination of
employment (or forego participation therein) shall apply to the Executive
notwithstanding any potentially duplicate benefits (if any) that may be
available to the Executive under Section 4(a)(v) pursuant to the terms of this
Agreement.
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the Continuation Obligation, the timely payment or provision of
Other Benefits and the payments referred to in Section 4(a)(ii). Accrued
Obligations, the Continuation Obligation and the payments referred to in Section
4(a)(ii) shall be paid to the Executive's estate or beneficiary, as applicable,
in a lump sum in cash within 30 days of the Date of Termination. In addition,
the Retention Options shall become fully vested and immediately exercisable and
Section 4(a)(vi) shall be applicable. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 4(b) shall include
death benefits as in effect on the date of the Executive's death.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the Continuation Obligation, the
timely payment or provision of Other Benefits and the payments referred to in
Section 4(a)(ii). Accrued Obligations, the Continuation Obligation and the
payments referred to in Section 4(a)(ii) shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. In addition, the
Retention Options shall become fully vested and immediately exercisable and
Sections 4(a)(v), 4(a)(vi) and 4(a)(vii) shall be applicable. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 4(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits as in effect
on the Disability Effective Date; provided, however, that the Executive hereby
assigns to KeyCorp any amounts that are paid or payable to the Executive under
the KeyCorp Long Term Disability Plan (or any successor plan) for any period
coinciding with the Continuation Period and the Executive further agrees, should
the Executive receive any such amount, to pay such amount promptly to KeyCorp.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause or the Executive terminates employment
without Good Reason (other than on the Early Termination Date or within two
years after a Change of Control) during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) Accrued Obligations less the amount
determined under Section 4(a)(i)A(1)(II) hereof (if applicable), and (y) Other
Benefits, in each case to the extent not theretofore paid.
(e) BY THE EXECUTIVE FOLLOWING A CHANGE OF CONTROL. If the
Executive terminates employment under Section 3(e) during the Employment Period
within two years after
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<PAGE> 10
a Change of Control, the Executive shall be entitled to receive the same
payments and benefits upon such termination of employment to which the Executive
would have been entitled under the terms of Section 4(a) had he terminated his
employment for Good Reason at that time, except that, in lieu of the
Continuation Obligation, the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the greater of the amount set
forth in clause (i) or the amount set forth in clause (ii) below:
(i) the amount of the Continuation Obligation that
would have been payable to the Executive had he terminated his employment for
Good Reason on such Date of Termination; or
(ii) $1.6 million.
In addition, for purposes of the Cash Retention Award and the Retention Options,
the Executive's employment shall be deemed to have been terminated under the
terms of this Agreement by the Executive for Good Reason on such Date of
Termination.
(f) EXPIRATION OF THE EMPLOYMENT PERIOD. If the Executive's
employment terminates automatically upon the expiration of the Employment
Period, this Agreement shall terminate without further obligations to the
Executive, other than the right of the Executive to receive the benefits
provided for under Sections 4(a)(vi) and 4(a)(vii).
5. NON-EXCLUSIVITY OF RIGHTS. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies (other than the KeyCorp Separation Pay Plan) at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement. The Executive shall not be entitled to
any benefits under the KeyCorp Separation Pay Plan.
6. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest brought in good faith (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
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<PAGE> 11
7. CONFIDENTIAL INFORMATION/NONCOMPETITION/NONSOLICITATION.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of KeyCorp's affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of KeyCorp's affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of KeyCorp or as may
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than KeyCorp and those designated
by it or to an attorney retained by the Executive.
(b) While employed by the Company or any of KeyCorp's
affiliates and during the Post-Employment Non-Competition Period (as defined
below), the Executive shall not, without the written consent of KeyCorp,
directly or indirectly, be connected as an officer, employee, partner, director
or otherwise with any business which engages within a 50-mile radius of any area
in which the Company or KeyCorp's Capital Partners Group conducted business
during the 12-month period immediately preceding the Executive's Date of
Termination, in any business that competes, at the time such engagement is
commenced, with any business actively conducted by the Company or KeyCorp's
Capital Partners Group. Ownership, for personal investment purposes only, of
less than 5% of the voting stock of any publicly held corporation shall not
constitute a violation hereof.
(i) For purposes of Section 7(b), the Post-Employment
Non-Competition Period shall mean a period commencing on the termination of the
Executive's employment hereunder and ending on the earliest to occur of the
following: (A) January 19, 2005; (B) two years after the Date of Termination; or
(C) if a Change of Control has occurred, that date which is six months after the
later to occur of the Change of Control or the Date of Termination.
(ii) If the Executive requests KeyCorp to waive the
noncompetition obligations of the Executive under Section 7(b) with respect to a
specific activity or event, KeyCorp agrees not to withhold its consent to the
Executive's engaging in such activity or event if the activity or event were not
likely to be adverse to the economic or other business interests of KeyCorp, the
Company or other affiliated companies, as determined by KeyCorp in its sole
discretion at the time such request is made.
(c) While employed by the Company or any of KeyCorp's
affiliates and for two years after the Date of Termination, the Executive shall
not, directly or indirectly, on behalf of the Executive or any other person,
solicit for employment by other than KeyCorp or its affiliates any person
employed by KeyCorp or its affiliates.
(d) While employed by the Company or any of its affiliates and
for two years after the Date of Termination, the Executive will not, directly or
indirectly, on behalf of the Executive or any other person, solicit any customer
or client who was a customer or client of the Company or KeyCorp's Capital
Partners Group during the 12-month period immediately
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<PAGE> 12
preceding the Date of Termination, for the purpose of providing such customer or
client with services that are directly competitive with the services provided by
the Company or KeyCorp's Capital Partners Group, provided that under no
circumstances may the Executive solicit any customer or client for the purpose
of providing services relating to business that was under discussion prior to
the Date of Termination.
(e) In the event of a breach or threatened breach of this
Section 7, the Executive agrees that the Company and KeyCorp shall be entitled
to injunctive relief in a court of competent jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient.
(f) The provisions of this Section 7 shall remain in full
force and effect until the expiration of the period specified herein
notwithstanding the earlier termination of the Executive's employment hereunder.
8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 8) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm reasonably
acceptable to the Company as may be designated by the Executive (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five
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<PAGE> 13
days of the later of (i) the due date for the payment of any Excise Tax, and
(ii) the receipt of the Accounting Firm's determination. Any determination by
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one
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<PAGE> 14
or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 8(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and KeyCorp and their respective successors and
assigns. The Company and KeyCorp may assign this Agreement without the consent
of the Executive, including to any affiliated company, subject to Section 9(c).
(c) The Company and KeyCorp will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company or
KeyCorp, or any business of the Company or KeyCorp for which the Executive's
services are principally performed, to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company or
KeyCorp would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" and "KeyCorp" shall mean the Company and
KeyCorp as hereinbefore defined and any successors to their business and/or
assets as aforesaid which assume and agree to perform this Agreement by
operation of law, or otherwise.
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<PAGE> 15
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE: William B. Summers, Jr.
------------------- 20749 Beachcliff
Rocky River, Ohio 44116
IF TO THE COMPANY: McDonald Investments Inc.
----------------- 800 Superior Avenue
Cleveland, Ohio 44114
Att: Chief Executive Officer
COPY TO: KeyCorp
------- 127 Public Square
Cleveland, Ohio 44114
Att: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The parties agree to treat all amounts paid to the
Executive hereunder as compensation for services. Accordingly, the Company may
withhold from any amounts payable under this Agreement such Federal, state,
local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) This Agreement supersedes any other agreement, written or
oral (including the Prior Agreement and the Change of Control Agreement),
pertaining to the Executive's employment by the Company, KeyCorp or any
affiliate. The parties hereto agree that the Prior Agreement and the Change of
Control Agreement are each hereby terminated and that neither such agreement
shall be of any further force or effect. The Executive hereby irrevocably waives
and consents to any event or action by the Company, KeyCorp or any affiliate
that may have been a breach of the Prior Agreement, so long as such event or
action is not a breach of this Agreement, and the Executive agrees that any such
event or action shall have no effect on the Cash Retention Award or the
Retention Options.
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(f) This Agreement may be executed in counterparts, which
together shall constitute one and the same original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 17
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from their respective Boards
of Directors, the Company and KeyCorp have caused these presents to be executed
in their names on their behalf, all as of the day and year first above written.
-----------------------------------
William B. Summers, Jr.
MCDONALD INVESTMENTS INC.
-----------------------------------
By: Robert T. Clutterbuck
Title: Chief Executive Officer
KEYCORP
-----------------------------------
By: Thomas C. Stevens
Title: Senior Executive Vice President,
General Counsel and Secretary
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SCHEDULE A
----------
DEFINITION OF CHANGE OF CONTROL
-------------------------------
For purposes of this Agreement, a "Change of Control" shall be deemed to have
occurred if, at any time during the Employment Period, there is a Change of
Control under any of clauses (a), (b), (c), or (d) below. For these purposes,
KeyCorp shall be deemed to have become a subsidiary of another corporation if
any other corporation (which term shall, for all purposes of this Schedule A,
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
KeyCorp or any successor to KeyCorp.
(a) A Change of Control will have occurred under this clause (a)
if KeyCorp is a party to a transaction pursuant to which
KeyCorp 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 KeyCorp becomes a subsidiary in the
transaction) of the ultimate parent of KeyCorp
represent or were issued in exchange for voting
securities of KeyCorp outstanding immediately prior
to the transaction, or
(ii) immediately after giving effect to that transaction,
individuals who were directors of KeyCorp 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 KeyCorp becomes a subsidiary in
the transaction) of the ultimate parent of KeyCorp.
(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 KeyCorp or
any person (as the term "person" is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")) is or becomes the beneficial owner
of 35% or more of the outstanding voting stock of KeyCorp 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 KeyCorp 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 KeyCorp Board of Directors
any person or entity makes a public announcement of a
bona fide intention (A) to engage in a transaction
with
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<PAGE> 19
KeyCorp 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 KeyCorp
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 KeyCorp (pursuant to
Regulation 14A 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 KeyCorp (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 KeyCorp'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 KeyCorp 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 KeyCorp 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 25% or more of the outstanding voting
stock of KeyCorp in a transaction or series of
transactions by any person (as defined earlier in
this subclause (x)).
(y) KeyCorp is a party to a transaction pursuant to which
KeyCorp 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 KeyCorp becomes a subsidiary in
the transaction) of the ultimate parent of KeyCorp
represent or were issued in exchange for voting
securities of KeyCorp outstanding immediately prior
to such transaction or less than 51% of the directors
of the surviving or resulting
A-2
<PAGE> 20
corporation or (if KeyCorp becomes a subsidiary in
the transaction) of the ultimate parent of KeyCorp
were directors of KeyCorp 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 KeyCorp.
(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 KeyCorp.
A-3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>6
<FILENAME>l86594aex10-13.txt
<DESCRIPTION>EXHIBIT 10.13
<TEXT>
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is made as of the
4th day of October, 2000, by and among McDonald Investments Inc., an Ohio
corporation (the "Company"), KeyCorp, an Ohio corporation ("KeyCorp"), and
Robert T. Clutterbuck (the "Executive").
WHEREAS, the Executive, the Company and KeyCorp are parties to
that certain Employment Agreement, dated as of June 14, 1998 (the "Prior
Agreement");
WHEREAS, the Executive and KeyCorp are parties to that certain
Agreement, dated as of October 23, 1998, providing for certain payments and
benefits to the Executive if his employment is terminated under certain
circumstances in connection with a change of control of KeyCorp (the "Change of
Control Agreement");
WHEREAS, the Executive, the Company and KeyCorp desire to
terminate and supersede the Prior Agreement and to reaffirm the Change of
Control Agreement; and
WHEREAS, the Executive desires to continue to be employed by
the Company, and the Company desires to continue to employ the Executive, on the
terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
respective covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
1. EMPLOYMENT PERIOD. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to be employed by the
Company, subject to the terms and conditions of this Agreement, for the period
commencing on the date of this Agreement (the "Commencement Date") and ending on
December 31, 2003 (the "Employment Period"). If the Executive remains employed
by the Company on January 1, 2002, then the Employment Period shall
automatically be renewed for a period of three years commencing on January 1,
2002 and ending on December 31, 2004. There shall be no other automatic renewals
of the Employment Period and, in any case, the Employment Period may be
terminated earlier under the terms and conditions set forth herein.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, the Executive shall
serve as the Chairman and Chief Executive Officer of, and will be responsible
for heading, the major business group of KeyCorp known as Key Capital Partners
(including as from time to time renamed) ("Key Capital Partners") and the
Executive shall serve as the Chief Executive Officer of the Company. During the
Employment Period, the Executive shall report directly to Henry Meyer or the
Chief Executive Officer of KeyCorp.
(ii) During the Employment Period, the Executive
shall serve on the most senior officer committee of KeyCorp on which all other
major business group heads also serve (currently the KeyCorp Senior Staff and
KeyCorp Management Committee), or their
<PAGE> 2
successors, the Key Capital Partners Management Committee, or its successor (if
any), and the Board of Directors of the Company, or its successor (if any). In
addition, during the Employment Period, the Executive shall serve on the
Compensation Committee of the Board of Directors of the Company (the "Company
Compensation Committee"), which the Executive acknowledges and agrees will
terminate on October 23, 2001.
(iii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote his full attention and time during normal business
hours to the business and affairs of Key Capital Partners and the Company and to
use the Executive's reasonable best efforts to perform such responsibilities in
a professional manner. It shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. For purposes hereof, service on corporate boards pursuant to
appointments after the date hereof shall be subject to the prior approval of
KeyCorp, which shall not be unreasonably denied, and to KeyCorp's Code of
Ethics. It is expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Commencement Date
in accordance with the terms of the Prior Agreement, the continued conduct of
such activities shall not be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) MANAGEMENT AND OPERATIONS OF THE COMPANY. During the
Employment Period, but only until October 23, 2001, the Executive, together with
the other members of the Company Compensation Committee, will be responsible for
establishing the aggregate and individual compensation levels for certain
employees of the Company, in accordance with the compensation policies and
practices established by the Company Compensation Committee, which shall be
consistent with the historical compensation practices and policies of the
Company and KeyCorp and in conformity with industry practice. The Executive
acknowledges and agrees that the Company Compensation Committee shall terminate
on October 23, 2001 and thereafter shall no longer continue as a committee of
the Board of Directors of the Company or otherwise.
(c) COMPENSATION.
(i) CASH COMPENSATION THROUGH DECEMBER 31, 2000.
A. 2000 BASE SALARY. During the period from
the Commencement Date through and ending on December 31, 2000, the
Executive shall continue to receive base salary payments ("2000 Base
Salary") at an annualized rate of $200,000 in accordance with the
compensation policies and practices established by the Compensation and
Organization Committee of KeyCorp's Board of Directors, or its
successor (the "Committee").
B. 2000 BONUS. In addition to 2000 Base
Salary, the Executive shall be awarded a cash bonus for the year 2000
(the "2000 Bonus") in an amount determined by the Committee, provided
that in no event shall the amount of the
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<PAGE> 3
2000 Bonus be less than $1.3 million. The 2000 Bonus shall be payable
no later than March 1, 2001.
(ii) RETENTION AWARDS. The parties acknowledge and
agree that, in connection with the transactions contemplated by the Prior
Agreement, the Executive was granted a cash retention award, effective October
23, 1998, in the amount of $2.2 million (the "Cash Retention Award") and was
granted non-qualified stock options, effective October 23, 1998 and January 13,
1999, to acquire a total of 241,055 KeyCorp Common Shares (the "Retention
Options"). The parties agree that the terms of the Cash Retention Award and the
Retention Options shall not be affected or modified hereby, except as follows or
as otherwise expressly set forth herein:
A. Section 2 of each Non-Qualified Grant
Agreement evidencing the Retention Options shall be, and it hereby is,
deleted and replaced in its entirety by the following:
"2. Upon (i) the termination of your employment by
KeyCorp and its subsidiaries other than for Cause, as defined
in the Employment Agreement, dated as of October 4, 2000,
among KeyCorp, McDonald Investments Inc. and you (the
"Employment Agreement"), including by reason of your
Disability, as defined in the Employment Agreement, (ii) your
termination of your employment with KeyCorp and its
subsidiaries for Good Reason, as defined in the Employment
Agreement, or (iii) your death, all outstanding Options
granted hereunder shall become immediately vested and
exercisable in full."
B. Section 2 of the Agreement evidencing the
Cash Retention Award shall be, and it hereby is, deleted and replaced
in its entirety by the following:
"2. Upon (i) the termination of your employment by
KeyCorp and its subsidiaries other than for Cause, as defined
in the Employment Agreement, dated as of October 4, 2000,
among KeyCorp, McDonald Investments Inc. and you (the
"Employment Agreement"), including by reason of your
Disability, as defined in the Employment Agreement, (ii) your
termination of your employment with KeyCorp and its
subsidiaries for Good Reason, as defined in the Employment
Agreement, or (iii) your death, all unpaid portions of the
Award shall become immediately payable in full."
(iii) BASE SALARY COMMENCING IN 2001. During the
Employment Period, commencing January 1, 2001, the Executive shall receive an
annual base salary ("Annual Base Salary"), in an amount determined by the
Committee, in its sole discretion, under the terms of Section 2(c)(v), provided
that in no event shall the Annual Base Salary be less than $200,000. Annual Base
Salary shall be payable to the Executive in substantially equal periodic
installments throughout the year (no less frequently than monthly) and shall be
prorated during any calendar year in which the Executive is employed by the
Company for less than the entire calendar year.
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<PAGE> 4
(iv) INCENTIVE COMPENSATION COMMENCING IN 2001. In
addition to the Annual Base Salary, the Executive shall be awarded annual
incentive compensation (the "Annual Incentive Compensation"), as determined by
the Committee, in its sole discretion, under the terms of Section 2(c)(v), for
calendar years during the Employment Period after the year 2000, provided that
in no event shall the aggregate amount of the Annual Base Salary and Annual
Incentive Compensation be less than $1,533,333 (the "Minimum Annual
Compensation") for any such calendar year. The Annual Incentive Compensation
shall be payable and/or awarded no later than March 1 of the year following the
calendar year for which it was earned.
(v) TOTAL COMPENSATION OPPORTUNITY. The objective of
the compensation process will be to assure the Executive compensation
competitive with his counterparts at appropriate peer firms, subject to relative
performance. Accordingly, subject to the Minimum Annual Compensation, for
calendar years after the year 2000 during the Employment Period, the Committee
shall determine the Executive's total annual compensation, in its sole
discretion, based on the following principles:
A. The Executive's total compensation
opportunity will be consistent with appropriate peer firms, taking into
consideration primarily bank-based competitors. In establishing total
compensation opportunity, KeyCorp shall select and engage a consulting
firm reasonably satisfactory to the Executive, and the consulting firm
shall assist the Committee in identifying and defining the peer group
and provide factual information to the Committee to determine the
peers' median total compensation on a normal operating basis (excluding
extraordinary compensation related to business combinations or other
non-recurring events) ("Peer Median Compensation").
B. The Executive's position will be marked
against external peers rather than being based on internal job
relationships within KeyCorp.
C. Total compensation will be positioned at
Peer Median Compensation, including appropriate upside opportunity and
downside risk. Individual pay elements (such as base salary, short-term
incentive compensation and stock options) will be consistent with those
at firms within the peer group, although the mix of such elements may
vary (for example, the use and amount of stock options as part of the
total compensation package).
D. Actual total compensation will be
directly linked to the Executive's individual performance and Key
Capital Partners and KeyCorp performance. The weighting of the KeyCorp
component will be consistent with the weighting of such component for
the most senior executives of the other major business groups of
KeyCorp (i.e., currently Key Retail Banking and Key Corporate Capital
and Specialty Finance).
E. The performance measures used to assess
performance will be:
(1) Individual performance of the
Executive;
-4-
<PAGE> 5
(2) Key Capital Partners
performance versus peer group performance with respect to
specific, mutually agreed upon metrics;
(3) Key Capital Partners
performance versus its business plan; and
(4) KeyCorp's performance versus
performance measures established by the Committee from time to
time for KeyCorp as a whole (such as core earnings per share
growth and return on equity).
F. Any change in the Executive's base
salary, short- or long-term incentive award and stock option grants
must be approved by the Committee in the exercise of its sole
discretion.
G. In the event that the Minimum Annual
Compensation for any year during the Employment Period exceeds the
total compensation that would have been paid under these principles
absent the Minimum Annual Compensation guarantee, such overpayment will
be taken into account to reduce the amount by which total compensation
otherwise payable in a succeeding year exceeds the Minimum Annual
Compensation.
H. The parties acknowledge that these
principles are consistent with the compensation philosophy utilized by
the Committee for KeyCorp in general. The Committee shall retain the
right, in its sole discretion, to change these principles consistent
with any alteration of the Committee's overall compensation philosophy
for KeyCorp or any significant portion thereof.
(vi) RELATED OPTION GRANT. The parties acknowledge that, in
connection with the execution of this Agreement, the Executive has been granted
an option to acquire 141,000 KeyCorp Common Shares, which shall become
exercisable 50% on December 31, 2003 and 50% on December 31, 2004, or in full
upon the earlier termination of the Executive's employment hereunder (x) by the
Company other than for Cause (as defined below), including by reason of the
Executive's Disability (as defined below), (y) by the Executive for Good Reason
(as defined below) or (z) by the Executive's death. KeyCorp agrees to recommend
to the Committee that, at the next regularly scheduled meeting of the Committee
at which options would regularly be granted (currently anticipated to be in
January 2001), the Executive be granted an additional option to acquire 9,000
KeyCorp Common Shares, which shall become exercisable in three equal
installments on the first, second and third anniversaries of the date of grant.
The parties agree that the grant of such options alone shall not preclude the
Executive from being considered for participation in other option grants to
similarly situated senior executives of KeyCorp. In the event of discrepancy
between the terms of this Agreement and the terms of any option agreement or
other instrument evidencing the grant of an option described in this Section
2(c)(vi), the terms of such instrument shall govern.
-5-
<PAGE> 6
(vii) EMPLOYEE BENEFIT PLANS. During the Employment Period,
the Executive shall continue to be eligible to participate in welfare and
retirement benefit plans, programs, policies and arrangements to the same extent
as immediately prior to the Commencement Date; provided, however, that KeyCorp
or the Company may amend, modify or terminate any such plan, program, policy or
arrangement at any time so long as the amendment, modification or termination
applies to a significant portion or number of participants in such plan,
program, policy or arrangement.
(viii) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by the Executive, in accordance with the policies of Key
Capital Partners and KeyCorp.
(ix) INDEMNIFICATION/D&O INSURANCE. The Executive shall be
indemnified by KeyCorp against claims arising in connection with the Executive's
status as an employee, officer or agent of KeyCorp in accordance with KeyCorp's
indemnity policies for its senior executives, subject to applicable law.
(x) SECTION 162(m). In the event that KeyCorp would be denied
a deduction for federal income tax purposes for any amounts payable to the
Executive by reason of the limitations imposed by Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Executive agrees that, in
accordance with the policy of the Committee (and only so long as that policy
continues and is applicable to all executives of KeyCorp who are subject to
Section 162(m)), he shall defer the amount that would not be deductible pursuant
to the terms of KeyCorp's Deferred Compensation Plan as in effect from time to
time.
(xi) VOLUNTARY DEFERRAL OF COMPENSATION. During the Employment
Period, the Executive shall have the right to defer voluntarily up to 50% of his
Annual Base Salary pursuant to the terms of KeyCorp's Deferred Compensation Plan
as in effect from time to time, provided that the Executive elects such deferral
and gives notice of such election to KeyCorp in advance of the year in which the
Annual Base Salary to be deferred is to be earned and otherwise complies with
the terms of KeyCorp's Deferred Compensation Plan as in effect from time to
time.
(d) EMPLOYMENT LOCATION. During the Employment Period, the
Executive's principal place of employment shall be located no more than 20 miles
from the Executive's principal place of employment at the date hereof.
3. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the
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<PAGE> 7
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with Key Capital Partners on a
full-time basis for 180 consecutive days as a result of incapacity due to mental
or physical illness or injury.
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the continued and willful failure of the
Executive to perform substantially the Executive's duties with Key Capital
Partners (other than any such failure resulting from incapacity due to mental or
physical illness or injury), after a written demand for substantial performance
is delivered to the Executive by the Chief Executive Officer of KeyCorp (the
"CEO"), which specifically identifies the manner in which the CEO believes that
the Executive has not substantially performed the Executive's duties, or
(ii) the engaging by the Executive in illegal conduct
constituting a felony, or
(iii) gross misconduct which is materially and
demonstrably injurious to Key Capital Partners or KeyCorp, or
(iv) any material breach of Section 7 hereof,
provided that to the extent any such breach is curable, Key Capital Partners has
given the Executive notice thereof and the Executive has failed to cure such
breach within 30 days after such notice is effective, or
(v) conduct that results in the permanent loss of the
Executive's professional license to conduct business or in the Executive's being
disqualified or barred by banking or security law regulators from serving in the
capacity contemplated by this Agreement for six months or more.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of Key Capital
Partners. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board of Directors of KeyCorp or upon the
instructions of the CEO or another senior officer of KeyCorp or based upon the
advice of counsel for Key Capital Partners or KeyCorp shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of Key Capital Partners. The employment of the Executive
shall not be deemed to be terminated for Cause unless and until there shall have
been delivered to the Executive a copy of a written determination executed by
the CEO on behalf of KeyCorp (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the CEO), finding that, in the good faith opinion of the CEO,
the Executive is guilty of the conduct described in any of subparagraphs (i)
through (v) above, and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean a material breach by the Company of an
obligation of the Company under
-7-
<PAGE> 8
this Agreement, without the consent or concurrence of the Executive, that the
Company has failed to cure within 45 days after the effective time at which the
Executive has given the Company and KeyCorp written notice of such breach. A
breach described in this clause includes any of the following events (subject to
such opportunity of the Company to cure):
(i) a detrimental alteration or failure to comply
with the terms of the Executive's employment as they relate to the Executive's
position, reporting, responsibilities and duties under Sections 2(a)(i) and
2(a)(ii) hereof;
(ii) a material failure to comply with the provisions
of Section 2(c) hereof relating to compensation and benefit arrangements and
opportunities applicable to the Executive;
(iii) as a result of KeyCorp's reassigning business
activities or products from Key Capital Partners to other business groups or
lines at KeyCorp outside of Key Capital Partners, the annual revenues of Key
Capital Partners decline to less than $1.05 billion, without taking into account
any decline resulting from economic conditions or the financial performance of
Key Capital Partners;
(iv) as a result of KeyCorp's reassigning business
activities or products from Key Capital Partners to other business groups or
lines at KeyCorp outside of Key Capital Partners, Key Capital Partners ceases to
be the principal provider among KeyCorp affiliates of any of the following
products and services:
A. investment banking;
B. capital markets;
C. securities brokerage and
investment-related services to
individuals; and
D. asset management;
the Executive acknowledges that the Affordable Housing Unit and the current
business of Key Global Finance (regardless of any increase in size of such
business within the specialized areas it serves but without any significant
expansion of such business otherwise into core investment banking or the other
products and services listed above) shall not be considered part of the products
and services to be provided by Key Capital Partners for purposes hereof;
(v) the relocation of the Executive's principal place
of employment to any location more than 20 miles from the Executive's principal
place of employment on the Commencement Date;
(vi) the failure of the Company to obtain an
agreement reasonably satisfactory to the Executive from any successor to assume
and agree to perform this Agreement, as contemplated in Section 9 hereof; or
(vii) any termination of the Executive's employment
which is not effected pursuant to the terms of this Agreement.
-8-
<PAGE> 9
Notwithstanding the foregoing, the Executive's failure to give notice to the
Company and KeyCorp of his objection to an event alleged to constitute "Good
Reason" within 45 days after the date of occurrence of such event shall be
deemed a waiver of such event by the Executive and the Executive thereafter may
not terminate his employment hereunder for Good Reason based on such event.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 10(b)) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specifies the Date of
Termination. The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder, except as otherwise set forth in Section 3(c).
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of termination of employment that is set
forth in the Notice of Termination (which shall not be earlier than the date on
which such notice is given and which shall be subject to any applicable cure
period), (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, or the Executive resigns without Good Reason, the
date on which the Company or the Executive notifies the Executive or the
Company, respectively, of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
amounts determined under clauses A and B below:
A. the "Accrued Obligations", which shall
mean the sum of the amounts described and payable under clause (1) or
clause (2) below (but not both), as applicable based on the Date of
Termination:
(1) if the Date of Termination
occurs on or before December 31, 2000, the Accrued Obligations
shall be the sum of (I) the Executive's 2000 Base Salary
through the Date of Termination to the extent not theretofore
paid and (II) the product of (x) $1,333,333 and (y) a
fraction, the
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<PAGE> 10
numerator of which is the number of days in calendar year 2000
through the Date of Termination, and the denominator of which
is 365; or
(2) if the Date of Termination
occurs after December 31, 2000, the Accrued Obligations shall
be the sum of (I) the Executive's 2000 Base Salary and Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (II) the product of (x) the average of the
cash amounts of Annual Incentive Compensation (which, for
purposes of this paragraph, shall include any cash incentive
or bonus compensation) paid or payable to the Executive for
the three most recent annual fiscal periods of the Company
prior to the Date of Termination, including any cash incentive
or bonus compensation or portion thereof which has been earned
but deferred (and annualized for any annual fiscal period of
the Company consisting of less than twelve full months) (such
amount being referred to as the "Average Annual Bonus") and
(y) a fraction, the numerator of which is the number of days
in the current calendar year through the Date of Termination,
and the denominator of which is 365, and (III) any unpaid cash
Annual Incentive Compensation for a prior year; and
B. the amount equal to the product of (1)
the number of years (including fractions thereof) remaining from the
Date of Termination until the end of the Employment Period (i.e., until
December 31, 2003 or December 31, 2004, as applicable, depending on
whether the Employment Period has been renewed under Section 1 before
the Date of Termination) (the "Continuation Period") and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Average Annual
Bonus.
For purposes of this Section 4(a)(i), any amounts of compensation deferred by
the Executive into a deferral plan of KeyCorp or any affiliate, whether
voluntarily, automatically or otherwise, shall be deemed to have been paid on
the date of deferral, and all such deferred amounts shall be payable as governed
by the terms of the applicable deferral plan, subject to Section 4(a)(vi);
(ii) any unpaid portion of the Cash Retention Award
shall become fully vested and immediately payable;
(iii) the Retention Options shall become fully vested
and immediately exercisable;
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is entitled to
receive under any plan, program, policy or practice or contract or agreement
(but excluding the KeyCorp Separation Pay Plan) of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits");
(v) for the duration of the Continuation Period, the
Executive and the Executive's dependents shall continue to be eligible to
participate in the medical, dental, health and group-term life benefit plans and
arrangements applicable to the Executive immediately
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<PAGE> 11
prior to the Date of Termination on the same terms and conditions as in effect
for the Executive and the Executive's dependents immediately prior to the Date
of Termination;
(vi) if the Date of Termination occurs on or before
October 23, 2003, any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon), including the
Executive's employer match and employee share under all automatic and voluntary
deferral programs in which the Executive participated while employed by the
Company, shall become fully vested and nonforfeitable and all such deferred
compensation shall be payable as governed by, and subject to, the terms of the
applicable deferral plan; and
(vii) if the Executive has attained age 50 on or
before the Date of Termination, the Executive shall be entitled to participate,
at his cost, in KeyCorp's Retiree Medical Plan (the "Retiree Medical Plan")
through age 65, or through such later age through which participants in the
Retiree Medical Plan may continue to participate therein under the terms thereof
as amended with general application to all participants therein from time to
time. Consistent with the requirements of the Retiree Medical Plan, in the event
this Agreement terminates and is not renewed, this clause providing for retiree
medical benefits shall be deemed to be part of a termination agreement. The
Executive acknowledges and agrees that, consistent with the requirements of the
Retiree Medical Plan, he must inform KeyCorp at the time of termination of his
employment whether he wishes to participate in the Retiree Medical Plan and if
he does not then elect participation in the Retiree Medical Plan or ever ceases
participation, he shall not later be eligible to elect or resume participation.
Such requirement to elect participation in the Retiree Medical Plan (if
eligible) at the time of termination of employment (or forego participation
therein) shall apply to the Executive notwithstanding any potentially duplicate
benefits (if any) that may be available to the Executive under Section 4(a)(v)
pursuant to the terms of this Agreement.
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations, the timely payment or provision of Other Benefits and the payments
referred to in Section 4(a)(ii). Accrued Obligations and the payments referred
to in Section 4(a)(ii) shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination.
In addition, the Retention Options shall become fully vested and immediately
exercisable and the provisions of Section 4(a)(vi) shall be applicable (subject
to the condition set forth at the beginning of such Section). With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 4(b) shall include death benefits as in effect on the date of the
Executive's death.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations, the timely payment or provision of
Other Benefits and the payments referred to in Section 4(a)(ii). Accrued
Obligations and the payments referred to in Section 4(a)(ii) shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of Termination.
In addition, the Retention Options shall become fully vested and immediately
exercisable and the provisions of Sections 4(a)(vi)
-11-
<PAGE> 12
and 4(a)(vii)shall be applicable (subject in each case to the condition set
forth at the beginning of the respective Section). With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 4(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits as in effect on the
Disability Effective Date.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause or the Executive terminates employment
without Good Reason during the Employment Period, this Agreement shall terminate
without further obligations to the Executive other than the obligation to pay to
the Executive (x) Accrued Obligations less the amount determined under Section
4(a)(i)A(1)(II) or Section 4(a)(i)A(2)(II) hereof, as applicable, and (y) Other
Benefits, in each case to the extent not theretofore paid.
5. NON-EXCLUSIVITY OF RIGHTS. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies (other than the KeyCorp Separation Pay Plan) at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement. The Executive shall not be entitled to
any benefits under the KeyCorp Separation Pay Plan.
6. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest brought in good faith (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
7. CONFIDENTIAL INFORMATION/NONCOMPETITION/NONSOLICITATION.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of KeyCorp's affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of KeyCorp's affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of KeyCorp or as may
otherwise be required by law or legal
-12-
<PAGE> 13
process, communicate or divulge any such information, knowledge or data to
anyone other than KeyCorp and those designated by it or to an attorney retained
by the Executive.
(b) While employed by the Company or any of KeyCorp's
affiliates and for two years after the Executive's termination of employment by
the Company for Cause or by the Executive without Good Reason (but in no event
for more than two years following the expiration of the Employment Period), the
Executive shall not, without the written consent of KeyCorp, directly or
indirectly, be connected as an officer, employee, partner, director or otherwise
with any business which engages within a 50-mile radius of any area in which Key
Capital Partners conducted business during the 12-month period immediately
preceding the Executive's Date of Termination, in any business that competes, at
the time such engagement is commenced, with any business actively conducted by
Key Capital Partners. Ownership, for personal investment purposes only, of less
than 5% of the voting stock of any publicly held corporation shall not
constitute a violation hereof.
(c) While employed by the Company or any of KeyCorp's
affiliates and for two years after the earlier of the Date of Termination and
the expiration of the Employment Period, the Executive shall not, directly or
indirectly, on behalf of the Executive or any other person, solicit for
employment by other than KeyCorp or the Company any person employed by KeyCorp
or its affiliates.
(d) While employed by the Company or any of its affiliates and
for two years after the earlier of (i) the Executive's termination of employment
by the Company for Cause or by the Executive without Good Reason and (ii) the
expiration of the Employment Period, the Executive shall not, directly or
indirectly, on behalf of the Executive or any other person, solicit any customer
or client who was a customer or client of Key Capital Partners during the
12-month period immediately preceding the Date of Termination, for the purpose
of providing such customer or client with services that are directly competitive
with the services provided by Key Capital Partners, provided that under no
circumstances may the Executive solicit any customer or client for the purpose
of providing services relating to business that was under discussion prior to
the Date of Termination.
(e) In the event of a breach or threatened breach of this
Section 7, the Executive agrees that the Company and KeyCorp shall be entitled
to injunctive relief in a court of competent jurisdiction to remedy any such
breach or threatened breach, and the Executive acknowledges that damages would
be inadequate and insufficient.
(f) The provisions of this Section 7 shall remain in full
force and effect until the expiration of the period specified herein
notwithstanding the earlier termination of the Executive's employment hereunder.
8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard
-13-
<PAGE> 14
to any additional payments required under this Section 8) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it
shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt of Payments
would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm reasonably
acceptable to the Company as may be designated by the Executive (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of (i) the later
of the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
-14-
<PAGE> 15
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 8(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven
-15-
<PAGE> 16
and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
9. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and KeyCorp and their respective successors and
assigns. The Company and KeyCorp may assign this Agreement without the consent
of the Executive, including to any affiliated company, subject to Section 9(c).
(c) The Company and KeyCorp will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company or
KeyCorp, or any business of the Company or KeyCorp for which the Executive's
services are principally performed, to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company or
KeyCorp would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" and "KeyCorp" shall mean the Company and
KeyCorp as hereinbefore defined and any successors to their business and/or
assets as aforesaid which assume and agree to perform this Agreement by
operation of law, or otherwise.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE: Robert T. Clutterbuck
------------------- 10 Kensington Oval
Rocky River, Ohio 44116
'
'
-16-
<PAGE> 17
'
IF TO THE COMPANY: McDonald Investments Inc.
----------------- 800 Superior Avenue
Cleveland, Ohio 44114
Att: President and Chief Operating
Officer
COPY TO: KeyCorp
------- 127 Public Square
Cleveland, Ohio 44114
Att: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The parties agree to treat all amounts paid to the
Executive hereunder as compensation for services. Accordingly, the Company may
withhold from any amounts payable under this Agreement such Federal, state,
local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) This Agreement supersedes any other agreement, written or
oral (including the Prior Agreement but not including the Change of Control
Agreement), entered into before the date hereof pertaining to the Executive's
employment by the Company, KeyCorp or any affiliate. The parties hereto agree
that the Prior Agreement is hereby terminated and shall be of no further force
or effect and the parties hereby reaffirm the Change of Control Agreement. The
Executive hereby irrevocably waives and consents to any event or action by the
Company, KeyCorp or any affiliate that may have been a breach of the Prior
Agreement, so long as such event or action is not a breach of this Agreement,
and the Executive agrees that any such event or action shall have no effect on
the Cash Retention Award or the Retention Options.
(f) As used in this Agreement, the terms "affiliates" and
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company or KeyCorp, as the case may be.
(g) This Agreement may be executed in counterparts, which
together shall constitute one and the same original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 18
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from their respective Boards
of Directors, the Company and KeyCorp have caused these presents to be executed
in their names on their behalf, all as of the day and year first above written.
-------------------------------
Robert T. Clutterbuck
MCDONALD INVESTMENTS INC.
-------------------------------
By: William B. Summers, Jr.
Title: Chairman
KEYCORP
-------------------------------
By: Thomas C. Stevens
Title: Senior Executive Vice President,
General Counsel and Secretary
-18-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>7
<FILENAME>l86594aex10-16.txt
<DESCRIPTION>EXHIBIT 10.16
<TEXT>
<PAGE> 1
Exhibit 10.16
KEYCORP
AMENDED AND RESTATED
1991 EQUITY COMPENSATION PLAN
(AMENDED AS OF JANUARY 17, 2001)
1. PURPOSE. The KeyCorp Amended and Restated 1991 Equity Compensation
Plan is intended to promote the interests of the Corporation and its
shareholders by providing equity-based incentives for effective service and high
levels of performance to Employees selected by the Committee. To achieve these
purposes, the Corporation may grant Awards of Options, Stock Appreciation
Rights, Limited Stock Appreciation Rights, Restricted Stock, and Performance
Shares to selected Employees, all in accordance with the terms and conditions
hereinafter set forth.
2. DEFINITIONS.
2.1 1934 ACT. The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
2.2 ACQUISITION PRICE. The term "Acquisition Price" with respect to
Restricted Stock shall mean such amount, not less than the par value per Common
Share, as may be specified by the Committee in the Award Instrument with respect
to that Restricted Stock as the consideration to be paid by the Employee for
that Restricted Stock.
2.3 AWARD. The term "Award" shall mean an award granted under the Plan
of an Option, of Stock Appreciation Rights, of Limited Stock Appreciation
Rights, of Restricted Stock, or of Performance Shares.
2.4 AWARD INSTRUMENT. The term "Award Instrument" shall mean a written
instrument evidencing an Award in such form and with such provisions as the
Committee may prescribe, including, without limitation, an agreement to be
executed by the Employee and the Corporation, a certificate issued by the
Corporation, or a letter executed by the Committee or its designee. Acceptance
of the Award Instrument by an Employee constitutes agreement to the terms of the
Award evidenced thereby.
2.5 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have
occurred if, at any time after the date of the grant of the relevant Award,
there is a Change of Control under any of clauses (a), (b), (c), or (d) below.
For these purposes, the Corporation will be deemed to have become a subsidiary
of another corporation if any other corporation (which term shall 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 the
Corporation or any successor to the Corporation.
<PAGE> 2
(a) A Change of Control will have occurred under this clause (a)
if the Corporation is a party to a transaction pursuant to
which the Corporation 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 the Corporation becomes a subsidiary in the
transaction) of the ultimate parent of the
Corporation represent or were issued in exchange for
voting securities of the Corporation outstanding
immediately prior to the transaction, or
(ii) immediately after giving effect to that transaction,
individuals who were directors of the Corporation on
the day before the first public announcement of (A)
the pendency of the transaction or (B) 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 the Corporation becomes a
subsidiary in the transaction) of the ultimate parent
of the Corporation.
(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 the
Corporation 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 35% or more of the outstanding
voting stock of the Corporation 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 the Corporation 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 Corporation's Board of
Directors any person or entity makes a public
announcement of a bona fide intention (A) to engage
in a transaction with the Corporation 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
2
<PAGE> 3
or recommended by the Corporation's 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 the Corporation
(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 the Corporation
(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 the Corporation'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 the
Corporation 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 the
Corporation 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 25% or more of the
outstanding voting stock of the Corporation in a
transaction or series of transactions by any person
(as defined earlier in this subclause (x)).
(y) The Corporation is a party to a transaction pursuant
to which the Corporation is merged with or into, or
is
3
<PAGE> 4
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 the Corporation becomes a
subsidiary in the transaction) of the ultimate parent
of the Corporation represent or were issued in
exchange for voting securities of the Corporation
outstanding immediately prior to such transaction or
less than 51% of the directors of the surviving or
resulting corporation or (if the Corporation becomes
a subsidiary in the transaction) of the ultimate
parent of the Corporation were directors of the
Corporation 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 the Corporation.
(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 the Corporation.
2.6 COMMITTEE. The term "Committee" shall mean a committee appointed by
the Board of Directors of the Corporation to administer the Plan. The Committee
shall be composed of not less than three directors of the Corporation. The Board
of Directors may also appoint one or more directors as alternate members of the
Committee. No officer or Employee of the Corporation or of any Subsidiary shall
be a member or alternate member of the Committee. The Committee shall at all
times be so comprised (a) as to satisfy the disinterested administration
standard contained in Rule 16b-3, if required to qualify for the Rule 16b-3
Exemption and (b) as to satisfy the outside director standard under Section
162(m) of the Internal Revenue Code of 1986, as amended, if required to qualify
compensation paid under one or more of the provisions of the Plan as
performance-based compensation within the meaning of that section.
2.7 COMMON SHARES. The term "Common Shares" shall mean common shares of
the Corporation, with a par value of $1 each.
2.8 CORPORATION. The term "Corporation" shall mean KeyCorp and its
successors, including the surviving or resulting corporation of any merger of
KeyCorp with or into, or any consolidation of KeyCorp with, any other
corporation or corporations.
2.9 DISABILITY. The term "Disability" with respect to an Employee shall
mean physical or mental impairment which entitles the Employee to receive
disability payments under any long-term disability plan maintained by the
Corporation.
4
<PAGE> 5
2.10 EMPLOYEE. The term "Employee" shall mean any individual employed
by the Corporation or by any Subsidiary and shall include officers as well as
all other employees of the Corporation or of any Subsidiary (including employees
who are members of the Board of Directors of the Corporation or any Subsidiary).
2.11 EMPLOYMENT TERMINATION DATE. The term "Employment Termination
Date" with respect to an Employee shall mean the first date on which the
Employee is no longer employed by the Corporation or any Subsidiary.
2.12 EXERCISE PRICE. The term "Exercise Price" with respect to an
Option shall mean the price specified in the Option at which the Common Shares
subject to the Option may be purchased by the holder of the Option.
2.13 FAIR MARKET VALUE. Except as otherwise determined by the Committee
at the time of the grant of an Award, the term "Fair Market Value" with respect
to Common Shares shall mean: (a) if the Common Shares are traded on a national
exchange, the mean between the high and low sales price per Common Share on that
national exchange on the date for which the determination of fair market value
is made or, if there are no sales of Common Shares on that date, then on the
next preceding date on which there were any sales of Common Shares, or (b) if
the Common Shares are not traded on a national exchange, the mean between the
high and low sales price per Common Share in the over-the-counter market,
National Market System, as reported by the National Quotations Bureau, Inc. and
NASDAQ on the date for which the determination of fair market value is made or,
if there are no sales of Common Shares on that date, then on the next preceding
date on which there were any sales of Common Shares.
2.14 INCENTIVE STOCK OPTION. The term "Incentive Stock Option" shall
mean an Option intended by the Committee to qualify as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended.
2.15 LIMITED STOCK APPRECIATION RIGHT. The term "Limited Stock
Appreciation Right" or "Limited SAR" shall mean an Award granted to an Employee
with respect to all or any part of any Option, that entitles the holder thereof
to receive from the Corporation, upon exercise of the Limited SAR and surrender
of the related Option, or any portion of the Limited SAR and the related Option,
an amount equal to (unless the Committee specifies a lesser amount at the time
of the grant of the Award):
(a) in the case of a Limited SAR granted with respect to an
Incentive Stock Option, 100% of the excess, if any, measured
at the time of the exercise of the Limited SAR, of (i) the
Fair Market Value of the Common Shares subject to the
Incentive Stock Option with respect to which the Limited SAR
is exercised over (ii) the Exercise Price of those Common
Shares under the Incentive Stock Option, or
5
<PAGE> 6
(b) in the case of a Limited SAR granted with respect to a
Nonqualified Option, 100% of the highest of:
(i) the excess, measured at the time of the exercise of
the Limited SAR, of (A) the Fair Market Value of the
Common Shares subject to the Nonqualified Option with
respect to which the Limited SAR is exercised over
(B) the Exercise Price of those Common Shares under
the Nonqualified Option,
(ii) the excess of (A) the highest gross price (before
brokerage commissions and soliciting dealers' fees)
paid or to be paid for a Common Share (whether in
cash or in property and whether by way of exchange,
conversion, distribution upon liquidation, or
otherwise) in connection with any Change of Control
multiplied by the number of Common Shares subject to
the Nonqualified Option with respect to which the
Limited SAR is exercised over (B) the Exercise Price
of those Common Shares under the Nonqualified Option,
or
(iii) the excess of (A) the highest Fair Market Value of
the Common Shares subject to the Nonqualified Option
with respect to which the Limited SAR is exercised on
any one day during the period beginning on the
sixtieth day prior to the date on which the Limited
SAR is exercised multiplied by the number of Common
Shares subject to the Nonqualified Option with
respect to which the Limited SAR is exercised over
(B) the Exercise Price of those Common Shares under
the Nonqualified Option.
2.16 NONQUALIFIED OPTION. The term "Nonqualified Option" shall mean an
Option intended by the Committee not to qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code of 1986, as amended.
2.17 OPTION. The term "Option," (a) when used otherwise than in
connection with the term Stock Appreciation Right or Limited Stock Appreciation
Right, shall mean an Award entitling the holder thereof to purchase a specified
number of Common Shares at a specified price during a specified period of time,
and (b) when used in connection with the term Stock Appreciation Right or
Limited Stock Appreciation Right, shall mean (i) any such Award or (ii) any
award under any other plan maintained or assumed by the Corporation entitling
the holder thereof to purchase a specified number of Common Shares at a
specified price during a specified period of time.
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2.18 OPTION EXPIRATION DATE. The term "Option Expiration Date" with
respect to any Option shall mean the date selected by the Committee after which,
except as provided in Section 10.4 in the case of the death of the Employee to
whom the option was granted, the Option may not be exercised.
2.19 PERFORMANCE GOAL. The term "Performance Goal" shall mean a
performance goal specified by the Committee in connection with the potential
grant of Performance Shares and may include, without limitation, goals based
upon cumulative earnings per Common Share, return on investment, return on
shareholders' equity, or achievement of any other goals, whether or not readily
expressed in financial terms, that are related to the performance by the
Corporation, by any Subsidiary, or by any Employee or group of Employees in
connection with services performed by that Employee or those Employees for the
Corporation, a Subsidiary, or any one or more subunits of the Corporation or of
any Subsidiary.
2.20 PERFORMANCE PERIOD. The term "Performance Period" shall mean such
one or more periods of time, which may be of varying and overlapping durations,
as the Committee may select, over which the attainment of one or more
Performance Goals will be relevant in connection with one or more Awards of
Performance Shares.
2.21 PERFORMANCE SHARES. The term "Performance Shares" shall mean an
Award denominated in Common Shares and contingent upon attainment of one or more
Performance Goals by the Corporation or a Subsidiary or any subunit of the
Corporation or of any Subsidiary over a Performance Period.
2.22 PLAN. The term "Plan" shall mean this KeyCorp Amended and Restated
1991 Equity Compensation Plan as from time to time hereafter amended in
accordance with Section 20.
2.23 RESTRICTED STOCK. The term "Restricted Stock" shall mean Common
Shares of the Corporation delivered to an Employee pursuant to an Award subject
to such restrictions, conditions and contingencies as the Committee may provide
in the relevant Award Instrument, including (a) the restriction that the
Employee not sell, transfer, otherwise dispose of, or pledge or otherwise
hypothecate the Restricted Stock during the applicable Restriction Period, (b)
the requirement that, subject to the provisions of Section 10, if the Employee's
employment terminates so that the Employee is no longer employed by the
Corporation or any Subsidiary before the end of the applicable Restriction
Period, the Employee will offer to sell to the Corporation at the Acquisition
Price each Common Share of Restricted Stock held by the Employee at the
Employment Termination Date with respect to which, as of that date, any
restrictions, conditions, or contingencies have not lapsed, and (c) such other
restrictions, conditions, and contingencies, if any, as the Committee may
provide in the Award Instrument with respect to that Restricted Stock.
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2.24 RESTRICTION PERIOD. The term "Restriction Period" with respect to
an Award of Restricted Stock shall mean the period selected by the Committee and
specified in the Award Instrument with respect to that Restricted Stock during
which the Employee may not sell, transfer, otherwise dispose of, or pledge or
otherwise hypothecate that Restricted Stock.
2.25 RULE 16b-3. Term "Rule 16b-3" shall mean Rule 16b-3 or any rule
promulgated in replacement thereof or in substitution therefor under the 1934
Act.
2.26 RULE 16b-3 EXEMPTION. The term "Rule 16b-3 Exemption" shall mean
the exemption from Section 16(b) of the 1934 Act that is available under Rule
16b-3.
2.27 SECTION 16(b) EMPLOYEE. The term "Section 16(b) Employee" shall
mean an individual who is, or at any time within the preceding six months was, a
director, officer, or 10% shareholder of the Corporation within the meaning of
Section 16(b) of the 1934 Act.
2.28 STOCK APPRECIATION RIGHT. The term "Stock Appreciation Right "or
"SAR" shall mean an Award granted to an Employee with respect to all or any part
of any Option that entitles the holder thereof to receive from the Corporation,
upon exercise of the SAR and surrender of the related Option, or any portion of
the SAR and the related Option, an amount equal to 100%, or such lesser
percentage as the Committee may determine at the time of the grant of the Award,
of the excess, if any, measured at the time of the exercise of the SAR, of (a)
the Fair Market Value of the Common Shares subject to the Option with respect to
which the SAR is exercised over (b) the Exercise Price of those Common Shares
under the Option.
2.29 SUBSIDIARY. The term "Subsidiary" shall mean any corporation,
partnership, joint venture, or other business entity in which the Corporation
owns, directly or indirectly, 50 percent or more of the total combined voting
power of all classes of stock (in the case of a corporation) or other ownership
interest (in the case of any entity other than a corporation).
2.30 TANDEM AWARD. The term "Tandem Award" shall mean any two or more
Awards that are linked by the terms of any such Awards so that the exercise of
one such Award, in whole or in part, requires or will automatically result in
the surrender or cancellation, in whole or in proportionate part, of the other
such Awards.
2.31 TRANSFEREE. The term "Transferee" shall mean, with respect to
Nonqualified Options only, any person or entity to which an Employee is
permitted by the Committee to transfer or assign all or part of his or her
Options.
3. ADMINISTRATION. The Plan shall be administered by the Committee. No
Award may be made under the Plan to any member or alternate member of the
Committee. The Committee shall have authority, subject to the terms of the Plan,
(a) to determine the Employees who are eligible to participate in the Plan, the
type, size, and terms of Awards to be granted to any Employee, the time or times
at which Awards shall be exercisable or at which restrictions, conditions, and
contingencies shall lapse, and the terms and provisions of the instruments by
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which Awards shall be evidenced, (b) to establish any other restrictions,
conditions, and contingencies on Awards in addition to those prescribed by the
Plan, (c) to interpret the Plan, and (d) to make all determinations necessary
for the administration of the Plan.
The construction and interpretation by the Committee of any provision
of the Plan or any Award Instrument delivered pursuant to the Plan and any
determination by the Committee pursuant to any provision of the Plan or any
Award Instrument shall be final and conclusive. No member or alternate member of
the Committee shall be liable for any such action or determination made in good
faith.
The Committee may act only by a majority of its members. Any
determination of the Committee may be made, without a meeting, by a writing or
writings signed by all of the members of the Committee. In addition, the
Committee may authorize any one or more of their number or any officer of the
Corporation to execute and deliver documents on behalf of the Committee and the
Committee may delegate to one or more employees, agents, or officers of the
Corporation, or to one or more third party consultants, accountants, lawyers, or
other advisors, such ministerial duties related to the operation of the Plan as
it may deem appropriate.
4. ELIGIBILITY. Awards may be granted to Employees of the Corporation
or any Subsidiary selected by the Committee in its sole discretion. The granting
of any Award to an Employee shall not entitle that Employee to, nor disqualify
the Employee from, participation in any other grant of an Award. The maximum
number of Common Shares with respect to which any Employee may receive Awards
during any calendar year shall be the lesser of 400,000 Common Shares or .2% of
the outstanding Common Shares of the Corporation on the date such award was
made, which maximum number shall be subject to adjustment as provided in Section
13 of the Plan.
5. STOCK SUBJECT TO THE PLAN. The stock that may be issued and
distributed to Employees in connection with Awards granted under the Plan shall
be Common Shares and may be authorized and unissued Common Shares, treasury
Common Shares, or Common Shares acquired on the open market specifically for
distribution under the Plan, as the Board of Directors may from time to time
determine.
Subject to adjustment as provided in Section 13, the number of Common
Shares available for grant of Awards under the Plan shall be determined from
time to time as follows: (a) on the date of the 1994 Annual Meeting of
Shareholders of the Corporation (at which meeting an amendment and restatement
of the Plan was submitted for approval of the shareholders of the Corporation),
the number of Common Shares available for grant of Awards under the Plan shall
equal two percent of the total number of Common Shares outstanding on March 31,
1994, and (b) on January 2, 1995 and on each January 2 occurring thereafter
during the life of the Plan, the number of Common Shares available for grant of
Awards under the Plan shall be increased by adding to the number of Common
Shares then available for grant of Awards under the Plan, the number of Common
Shares of the Corporation that, when added to the number of Common Shares that
otherwise remain available for grant of additional Awards under the Plan on that
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<PAGE> 10
January 2, equals two percent of the total number of Common Shares of the
Corporation outstanding on December 31st of the next proceeding year.
The number of Common Shares remaining available for grants of
additional Awards under the Plan at any particular time during a calendar year
shall be reduced, upon the granting thereafter of any Award under the Plan, by
the full number of Common Shares subject to that Award except that, in the case
of any particular Tandem Award, the number of Common Shares counted as being
subject to such Tandem Award shall be the maximum number of Common Shares with
respect to which the Employee may receive value under such Tandem Award. If any
Award for any reason expires or is terminated, in whole or in part, without the
receipt by an Employee of Common Shares (or the equivalent thereof in cash or
other property), the Common Shares subject to that part of the Award that has so
expired or terminated shall again be available for the future grant of Awards
under the Plan.
Notwithstanding any other provision of the Plan, but subject to
adjustment under Section 13, (a) the maximum number of Common Shares that may be
issued under the Plan pursuant to Incentive Stock Options shall be 9,600,000
Common Shares, and (b) the maximum number of Common Shares that may be issued
under the Plan as Restricted Stock during any calendar year shall be that number
of Common Shares that is equal to five percent of the total number of Common
Shares available for grant of Awards under the Plan as of January 2 of that
calendar year.
6. STOCK OPTIONS.
6.1 TYPE AND DATE OF GRANT OF OPTIONS.
(a) The Award Instrument pursuant to which any Incentive Stock
Option is granted shall specify that the Option granted
thereby shall be treated as an Incentive Stock Option. The
Award Instrument pursuant to which any Nonqualified Option is
granted shall specify that the Option granted thereby shall
not be treated as an Incentive Stock Option.
(b) The day on which the Committee authorizes the grant of an
Incentive Stock Option shall be the date on which that Option
is granted. No Incentive Stock Option may be granted on any
date after the tenth anniversary of the date of adoption, on
March 17, 1994, by the Board of Directors of the Corporation,
of the Plan as amended and restated.
(c) The day on which the Committee authorizes the grant of a
Nonqualified Option shall be considered the date on which that
Option is granted, unless the Committee specifies a later
date.
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6.2 EXERCISE PRICE. The Exercise Price under any Option shall be not
less than the Fair Market Value of the Common Shares subject to the Option on
the date the Option is granted.
6.3 OPTION EXPIRATION DATE. The Option Expiration Date under any
Incentive Stock Option shall be not later than ten years from the date on which
the Option is granted. The Option Expiration Date under any Nonqualified Option
shall not be later than ten years and one month from the date on which the
Option is granted.
6.4 EXERCISE OF OPTIONS.
(a) Except as otherwise provided in Section 10, an Option may be
exercised only while the Employee to whom the Option was granted is
in the employ of the Corporation or of a Subsidiary. Subject to
this requirement, each Option shall become exercisable in one or
more installments at the time or times provided in the Award
Instrument evidencing the Option. Once any portion of an Option
becomes exercisable, that portion shall remain exercisable until
expiration or termination of the Option. An Employee to whom an
Option is granted or, with respect to Nonqualified Options, the
Employee's Transferee may exercise the Option from time to time, in
whole or in part, up to the total number of Common Shares with
respect to which the Option is then exercisable, except that no
fraction of a Common Share may be purchased upon the exercise of
any Option.
(b) An Employee or, with respect to Nonqualified Options, any
Transferee electing to exercise an Option shall deliver to the
Corporation (i) the Exercise Price payable in accordance with
Section 6.5 and (ii) written notice of the election that states the
number of whole Common Shares with respect to which the Employee is
exercising the Option.
6.5 PAYMENT FOR COMMON SHARES. Upon exercise of an Option by an
Employee or, with respect to Nonqualified Options, any Transferee, the Exercise
Price shall be payable by the Employee or Transferee in cash or in such other
form of consideration as the Committee determines may be accepted, including
without limitation, securities or other property, or any combination of cash,
securities or other property, or by delivery by the Employee or Transferee (with
the written notice of election to exercise) of irrevocable instructions to a
broker registered under the 1934 Act promptly to deliver to the Corporation the
amount of sale or loan proceeds to pay the Exercise Price. The Committee, in its
sole discretion, may grant to an Employee or, with respect to Nonqualified
Options, any Transferee the right to transfer Common Shares acquired upon the
exercise of a part of an Option in payment of the Exercise Price payable upon
immediate exercise of a further part of the Option.
6.6 CONVERSION OF INCENTIVE STOCK OPTIONS. The Committee may at any
time in its sole discretion take such actions as may be necessary to convert any
outstanding Incentive Stock Option (or any installments or portions of
installments thereof) into a Nonqualified Option with
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or without the consent of the Employee to whom that Incentive Stock Option was
granted and whether or not that Employee is an Employee at the time of the
conversion.
7. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
7.1 GRANT OF SARS AND LIMITED SARS. An SAR may be granted only in
connection with an Option. An SAR granted in connection with an Incentive Stock
Option may be granted only when the Incentive Stock Option is granted. An SAR
granted in connection with a Nonqualified Option may be granted either when the
related Nonqualified Option is granted or at any time thereafter including, in
the case of any Nonqualified Option resulting from the conversion of an
Incentive Stock Option, simultaneously with or after the conversion. Similarly,
a Limited SAR may be granted only in connection with an Option. A Limited SAR
granted in connection with an Incentive Stock Option may be granted only when
the Incentive Stock Option is granted. A Limited SAR granted in connection with
a Nonqualified Option may be granted either when the related Nonqualified Option
is granted or at any time thereafter including, in the case of any Nonqualified
Option resulting from the conversion of an Incentive Stock Option,
simultaneously with or after the conversion.
7.2 EXERCISE OF SARS AND LIMITED SARS.
(a) An Employee electing to exercise an SAR or a Limited SAR shall
deliver written notice to the Corporation of the election
identifying the SAR or Limited SAR and the related Option with
respect to which the SAR or Limited SAR was granted to the
Employee and specifying the number of whole Common Shares with
respect to which the Employee is exercising the SAR or Limited
SAR. Upon exercise of the SAR or Limited SAR, the related
Option shall be deemed to be surrendered to the extent that
the SAR or Limited SAR is exercised.
(b) SARs and Limited SARs may be exercised only (i) after the
expiration of six months from the date of grant of the SAR or
Limited SAR, (ii) on a date when the SAR or Limited SAR is "in
the money" (i.e., when there would be positive consideration
received upon exercise of the SAR or Limited SAR), (iii) at a
time and to the same extent as the related Option is
exercisable, (iv) unless otherwise provided in the relevant
Award Instrument, by surrender to the Corporation,
unexercised, of the related Option or any applicable portion
thereof, and (v) in compliance with all restrictions set forth
in or specified by the Committee pursuant to Section 7.2(c)
(in the case of SARs) or Section 7.2(d) (in the case of
Limited SARs).
(c) The Committee may specify in the Award Instrument pursuant to
which any SAR is granted waiting periods and restrictions on
permissible exercise periods in addition to the restrictions
on exercise set forth in
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Section 7.2(b), including, without limitation, any restriction
necessary to make applicable the Rule 16b-3 Exemption.
7.3 PAYMENT FOR SARS AND LIMITED SARS. The amount payable upon exercise
of an SAR or Limited SAR may be paid by the Corporation in cash, or, if the
Committee shall determine in its sole discretion, in whole Common Shares (taken
at their Fair Market Value at the time of exercise of the SAR or Limited SAR) or
in a combination of cash and whole Common Shares; provided, however, that in no
event shall the total number of Common Shares that may be paid to an Employee
pursuant to the exercise of an SAR or Limited SAR exceed the total number of
Common Shares subject to the related Option.
7.4 TERMINATION, AMENDMENT, OR SUSPENSION OF SARS AND LIMITED SARS.
SARs and Limited SARs shall terminate and may no longer by exercised upon the
first to occur of (a) exercise or termination of the related Option, (b) any
termination date specified by the Committee at the time of grant of the SAR or
Limited SAR, or (c) the transfer by the Employee of the related Option. In
addition, the Committee may in its sole discretion at any time before the
occurrence of a Change of Control amend, suspend, or terminate any SAR or
Limited SAR theretofore granted under the Plan without the holder's consent;
provided that, in the case of amendment, no provision of the SAR or Limited SAR,
as amended, shall be in conflict with any provision of the Plan.
8. RESTRICTED STOCK.
8.1 ADDITIONAL CONDITIONS ON RESTRICTED STOCK. In addition to the
restrictions on disposition of Restricted Stock during the Restriction Period
and the requirement to offer Restricted Stock to the Corporation if the
Employee's employment terminates during the Restriction Period, the Committee
may provide in the Award Instrument with respect to any Award of Restricted
Stock other restrictions, conditions, and contingencies, which other
restrictions, conditions, and contingencies, if any, may relate to, in addition
to such other matters as the Committee may deem appropriate, the Employee's
personal performance, corporate performance, or the performance of any subunit
of the Corporation or any Subsidiary, in each case measured in such manner as
may be specified by the Committee. The Committee may impose different
restrictions, conditions, and contingencies on separate Awards of Restricted
Stock granted to different Employees, whether at the same or different times,
and on separate Awards of Restricted Stock granted to the same Employee, whether
at the same or different times. The Committee may specify a single Restriction
Period for all of the Restricted Stock subject to any particular Award
Instrument or may specify multiple Restriction Periods so that the restrictions
with respect to the Restricted Stock subject to the Award will expire in stages
according to a schedule specified by the Committee and set forth in the Award
Instrument; provided, however, that no Restriction Period with respect to any
Restricted Stock shall end earlier than one year after the date on which that
Restricted Stock is granted.
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8.2 PAYMENT FOR RESTRICTED STOCK. Each Employee to whom an Award of
Restricted Stock is made shall pay the Acquisition Price with respect to that
Restricted Stock to the Corporation not later than 30 days after the delivery to
the Employee of the Award Instrument with respect to that Restricted Stock. If
any Employee fails to pay the Acquisition Price with respect to any Award of
Restricted Stock within that 30 day period, the Employee's right under that
Award shall be forfeited.
8.3 RIGHTS AS A SHAREHOLDER. Upon payment by an Employee in full of the
Acquisition Price for Restricted Stock under an Award, the Employee shall have
all of the rights of a shareholder with respect to the Restricted Stock,
including voting and dividend rights, subject only to such restrictions and
requirements referred to in Section 8.1 as may be incorporated in the Award
Instrument with respect to that Restricted Stock.
9. PERFORMANCE SHARES.
9.1 DISCRETION OF COMMITTEE WITH RESPECT TO PERFORMANCE SHARES. The
Committee shall have full discretion to select the Employees to whom Awards of
Performance Shares are made, the number of Performance Shares to be granted to
any Employee so selected, the kind and level of the Performance Goals and
whether those Performance Goals are to apply to the Corporation, a Subsidiary,
or any one or more subunits of the Corporation or of any Subsidiary, and the
dates on which each Performance Period shall begin and end, and to determine the
form and provisions of the Award Instrument to be used in connection with any
Award of Performance Shares.
9.2 CONDITIONS TO PAYMENT FOR PERFORMANCE SHARES.
(a) Unless otherwise provided in the relevant Award Instrument, an
Employee must be employed by the Corporation or a Subsidiary
on the last day of a Performance Period to be entitled to
payment for any Performance Shares.
(b) The Committee may establish, from time to time, one or more
formulas to be applied against the Performance Goals to
determine whether all, some portion but less than all, or none
of the Performance Shares granted with respect to a
Performance Period are treated as earned pursuant to any
Award. An Employee will be entitled to receive payments with
respect to any Performance Shares only to the extent that
those Performance Shares are treated as earned under one or
more such formulas.
9.3 PAYMENT FOR PERFORMANCE SHARES. The Corporation shall pay each
Employee who is entitled to payment for Performance Shares earned with respect
to any Performance Period an amount for those Performance Shares (a) in cash
(based upon the per share Fair Market Value of Common Shares on the last day of
the Performance Period), (b) in Common Shares (one Common Share for each
Performance Share earned), (c) in Restricted Stock (one Common Share of
Restricted Stock for each Performance Share earned), or (d) any combination of
the
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foregoing, in such proportions as the Committee may determine. Restricted Stock
issued by the Corporation in payment of Performance Shares shall be subject to
all the provisions of Section 8.
10. TERMINATION OF EMPLOYMENT. After an Employee's Employment
Termination Date, the rules set forth in this Section 10 shall apply. All
factual determinations with respect to the termination of an Employee's
employment that may be relevant under this Section 10 shall be made by the
Committee in its sole discretion.
10.1 TERMINATION OTHER THAN UPON DEATH, DISABILITY, OR CERTAIN
RETIREMENTS. Upon any termination of an Employee's employment for any reason
other than the Employee's retirement (under any retirement plan of the
Corporation or of a Subsidiary) as provided in Section 10.2, disability as
provided on Section 10.3, or death as provided in Section 10.4:
(a) Unless otherwise provided in the relevant Award Instrument,
the Employee or, with respect to Nonqualified Options, any
Transferee shall have the right (i) during the period ending
six months after the Employment Termination Date, but not
later than the Option Expiration Date, to exercise any
Nonqualified Options and related SARs that were outstanding on
the Employment Termination Date, if and to the same extent as
those Options and SARs were exercisable by the Employee or
Transferee (as the case may be) on the Employment Termination
Date, and (ii) during the period ending three months after the
Employment Termination Date, but not later that the Option
Expiration Date, to exercise any Incentive Stock Options and
related SARs that were outstanding on the Employment
Termination Date, if and to the same extent as those Options
and SARs were exercisable by the Employee on the Employment
Termination Date. Notwithstanding the preceding sentence, if
within two years after a Change of Control an Employee's
Employment Termination Date occurs other than as a result of a
Voluntary Resignation, unless otherwise provided in the
relevant Award Instrument, the Employee or, with respect to
Nonqualified Options, any Transferee shall have the right,
during the Extended Period, but not later than the Option
Expiration Date, to exercise any Options and related SARs that
were outstanding on the Employment Termination Date, if and to
the same extent as those Options and SARs were exercisable by
the Employee or Transferee (as the case may be) on the
Employment Termination Date (even though, in the case of
Incentive Stock Options, exercise of those Options more than
three months after the Employment Termination Date may cause
the Option to fail to qualify for Incentive Stock Option
treatment under the Internal Revenue Code of 1986, as
amended). As used in the immediately preceding sentence, the
term "Extended Period" means the longer of the period that the
Option or SAR would otherwise be exercisable in the absence of
the immediately preceding sentence or the period ending with
the second anniversary date of the Change of Control
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last occurring before the Employment Termination Date and the
term "Voluntary Resignation" means that the Employee shall
have terminated his or her employment with the Corporation and
its Subsidiaries by voluntarily resigning at his or her own
instance without having been requested to so resign by the
Corporation or its Subsidiaries except that any resignation by
the Employee will not be deemed to be a Voluntary Resignation
if, after the Change of Control, the Employee's base salary
was reduced or the Employee was required to relocate his or
her principal place of employment more than 35 miles,
(b) Unless otherwise provided in the relevant Award Instrument,
the Employee shall offer for resale at the Acquisition Price
to the Corporation each Common Share of Restricted Stock held
by the Employee at the Employment Termination Date with
respect to which, as of that date, any restrictions,
conditions, or contingencies have not lapsed, and
(c) Unless otherwise provided in the relevant Award Instrument,
the Employee shall forfeit each Performance Share with respect
to which, as of that date, any restrictions, conditions, or
contingencies have not lapsed.
10.2 TERMINATION DUE TO CERTAIN RETIREMENTS. Upon any termination of an
Employee's employment with the Corporation or any Subsidiary under circumstances
entitling the Employee to immediate payment of normal retirement or early
retirement benefits under any retirement plan of the Corporation or of a
Subsidiary (whether the Employee elects to commence or defer receipt of such
payment):
(a) Unless otherwise provided in the relevant Award Instrument,
the Employee or, with respect to Nonqualified Options, any
Transferee shall have the right (i) to exercise, from time to
time during the period ending two years after the Employment
Termination Date, but not later than the Option Expiration
Date, any Nonqualified Options and related SARs that were
outstanding on the Employment Termination Date, if and to the
same extent as those Options and SARs were exercisable by the
Employee or Transferee (as the case may be) on the Employment
Termination Date, and (ii) to exercise, from time to time
during the period ending two years after the Employment
Termination Date, but no later than the Option Expiration
Date, any Incentive Stock Options and related SARs that were
outstanding on the Employment Termination Date, if and to the
same extent as those Options and SARs were exercisable by the
Employee on the Employment Termination Date (even though
exercise of the Incentive Stock Option more than three months
after the Employment Termination Date may cause the Option to
fail to qualify for Incentive Stock Option treatment under the
Internal Revenue Code of 1986, as amended),
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(b) The relevant Award Instrument may provide that the Employee
or, with respect to Nonqualified Options, any Transferee will
have the right to exercise, from time to time until not later
than the Option Expiration Date, Nonqualified Stock Options
and SARs and Incentive Stock Options and SARs to the extent
such Options and SARs become exercisable by their terms prior
to the Option Expiration Date (or such earlier date as
specified in the relevant Award Instrument), notwithstanding
the fact that such Options and SARs were not exercisable in
whole or in part (whether because a condition to exercise had
not yet occurred or a specified time period had not yet
elapsed or otherwise) on the Employment Termination Date,
(c) Unless otherwise provided in the relevant Award Instrument,
the Employee shall offer for resale at the Acquisition Price
to the Corporation each Common Share of Restricted Stock held
by the Employee at the Employment Termination Date with
respect to which, as of that date, any restrictions,
conditions, or contingencies have not lapsed, and
(d) Unless otherwise provided in the relevant Award Instrument,
the Employee shall forfeit each Performance Share with respect
to which, as of that date, any restrictions, conditions, or
contingencies have not lapsed.
10.3 TERMINATION DUE TO DISABILITY. Upon any termination of an
Employee's employment due to disability:
(a) Unless otherwise provided in the relevant Award Instrument,
the Employee, the Employee's attorney in fact or legal
guardian or, with respect to Nonqualified Options, any
Transferee shall have the right (i) to exercise, from time to
time during the period ending two years after the Employment
Termination Date, but not later than the Option Expiration
Date, any Nonqualified Options and related SARs that were
outstanding on the Employment Termination Date, if and to the
same extent those Options and SARs were exercisable by the
Employee or Transferee (as the case may be) on the Employment
Termination Date, and (ii) to exercise, from time to time
during the period ending two years after the Employment
Termination Date, but no later than the Option Expiration
Date, any Incentive Stock Options and related SARs that were
outstanding on the employment Termination Date, if and to the
same extent as those Options and SARs were exercisable by the
Employee on the Employment Termination Date (even though
exercise of the Incentive Stock Option more than one year
after the Employment Termination Date may cause the Option to
fail to qualify for Incentive Stock Option treatment under the
Internal Revenue Code of 1986, as amended),
17
<PAGE> 18
(b) Unless otherwise provided in the relevant Award Instrument,
the Employee shall offer for resale at the Acquisition Price
to the Corporation each Common Share of Restricted Stock held
by the Employee at the Employment Termination Date with
respect to which, as of that date, any restrictions,
conditions, or contingencies have not lapsed, and
(c) Unless otherwise provided in the relevant Award Instrument,
the Employee shall forfeit each Performance Share with respect
to which, as of that date, any restrictions, conditions, or
contingencies have not lapsed.
10.4. DEATH OF AN EMPLOYEE. Upon the death of an Employee while
employed by the Corporation or any Subsidiary or within any of the periods
referred to in any Section 10.1, 10.2, or 10.3 during which any particular
Option or SAR remains potentially exercisable:
(a) Unless otherwise provided in the relevant Award Instrument, if
the Option Expiration Date of any Nonqualified Option that had
not expired before the Employee's death would otherwise expire
before the first anniversary of the Employee's death, that
Option Expiration Date shall automatically be extended to the
first anniversary of the Employee's death or such other date
as provided in the relevant Award Instrument,
(b) Unless otherwise provided in the relevant Award Instrument,
the Employee's executor or administrator, the person or
persons to whom the Employee's rights under any Option or SAR
are transferred by will or the laws of descent and
distribution or, with respect to Nonqualified Options, any
Transferee shall have the right to exercise, from time to time
during the period ending two years after the date of the
Employee's death, but not later than the Option Expiration
Date, any Options and related SARs that were outstanding on
the date of the Employee's death, if and to the same extent as
those Options and SARs were exercisable by the Employee or
Transferee (as the case may be) on the date of the Employee's
death,
(c) Unless otherwise provided in the relevant Award Instrument,
the Employee shall offer for resale at the Acquisition Price
to the Corporation each Common Share of Restricted Stock held
by the Employee at the Employment Termination Date with
respect to which, as of that date, any restrictions,
conditions, or contingencies have not lapsed, and
(d) Unless otherwise provided in the relevant Award Instrument,
the Employee shall forfeit each Performance Share with respect
to which, as of that date, any restrictions, conditions, or
contingencies have not lapsed.
18
<PAGE> 19
11. ACCELERATION UPON CHANGE OF CONTROL. Unless otherwise specified in
the relevant Award Instrument, upon the occurrence of a Change of Control of the
Corporation, each Award theretofore granted to any Employee that then remains
outstanding shall be automatically treated as follows: (a) any outstanding
Option shall become immediately exercisable in full, (b) SARs and Limited SARs
related to any such Options shall also become immediately exercisable in full,
(c) the Restriction Period with respect to all outstanding Awards of Restricted
Stock shall immediately terminate, and (d) the restrictions, conditions, or
contingencies on any Performance Shares shall be modified in such manner as the
Committee may specify to give the Employee the benefit of those Performance
Shares through the date of Change of Control.
12. ASSIGNABILITY. Nonqualified Options may not be assigned or
transferred (other than by will or by the laws of descent and distribution)
unless the Committee, in its sole discretion, determines to allow such
assignment or transfer and, if the Committee determines to allow any such
assignment or transfer, the Transferee shall have the power to exercise such
Nonqualified Option in accordance with the terms of the Award and the provisions
of this Plan. No Incentive Stock Option, SAR, Limited SAR, Restricted Stock
during the Restriction Period, or Performance Share may be transferred other
than by will or by the laws of descent and distribution. During an Employee's
lifetime, only the Employee (or in the case of incapacity of an Employee, the
Employee's attorney in fact or legal guardian) may exercise any Incentive Stock
Option, SAR, Limited SAR, Restricted Stock during the Restriction Period, or
Performance Share requiring or permitting exercise
13. ADJUSTMENT UPON CHANGES IN COMMON SHARES. Automatically and without
Committee action, in the event of any stock dividend, stock split, or share
combination of the Common Shares, or by appropriate Committee action in the
event of any reclassification, recapitalization, merger, consolidation, other
form of business combination, liquidation, or dissolution involving the
Corporation or any spin-off or other distribution to shareholders of the
Corporation (other than normal cash dividends), appropriate adjustments to (a)
the maximum number of Common Shares that may be issued under the Plan pursuant
to Section 5, the maximum number of Common Shares that may be issued under the
Plan pursuant to Incentive Stock Options as provided in Section 5, and the
maximum number of Common Shares with respect to which any Employee may receive
Awards during any calendar year as provided in Section 4, and (b) the number and
kind of shares subject to, the price per share under, and the terms and
conditions of each then outstanding Award shall be made to the extent necessary
and in such manner that the benefits of Employees under all then outstanding
Awards shall be maintained substantially as before the occurrence of such event.
Any such adjustment shall be conclusive and binding for all purposes of the Plan
and shall be effective, in the event of any stock dividend, stock split, or
share combination, as of the date of such stock dividend, stock split, or share
combination, and in all other cases, as of such date as the Committee may
determine.
19
<PAGE> 20
14. PURCHASE FOR INVESTMENT. Each person acquiring Common Shares
pursuant to any Award may be required by the Corporation to furnish a
representation that he or she is acquiring the Common Shares so acquired as an
investment and not with a view to distribution thereof if the Corporation, in
its sole discretion, determines that such representation is required to insure
that a resale or other disposition of the Common Shares would not involve a
violation of the Securities Act of 1933, as amended, or of applicable blue sky
laws. Any investment representation so furnished shall no longer be applicable
at any time such representation is no longer necessary for such purposes.
15. WITHHOLDING OF TAXES. The Corporation will withhold from any
payments of cash made pursuant to the Plan such amount as is necessary to
satisfy all applicable federal, state, and local withholding tax obligations.
The Committee may, in its discretion and subject to such rules as the Committee
may adopt from time to time, permit or require an Employee (or other person
exercising an Option with respect to withholding taxes upon exercise of such
Option) to satisfy, in whole or in part, any withholding tax obligation that may
arise in connection with the grant of an Award, the lapse of any restrictions
with respect to an Award, the acquisition of Common Shares pursuant to any
Award, or the disposition of any Common Shares received pursuant to any Award by
having the Corporation hold back some portion of the Common Shares that would
otherwise be delivered pursuant to the Award or by delivering to the Corporation
an amount equal to the withholding tax obligation arising with respect to such
grant, lapse, acquisition, or disposition in (a) cash, (b) Common Shares, or (c)
such combination of cash and Common Shares as the Committee may determine. The
Fair Market Value of the Common Shares to be so held back by the Company or
delivered by the Employee shall be determined as of the date on which the
obligation to withhold first arose.
16. HARMFUL ACTIVITY. If an Employee shall engage in any "harmful
activity" prior to or within six months after termination of employment with
Key, then any Profits realized upon the exercise of any Covered Option on or
after one year prior to the termination of employment with Key shall inure to
the Corporation. The aforementioned restriction shall not apply in the event
that employment with Key terminates within two years after a Change of Control
of the Corporation if any of the following have occurred: a relocation of an
Employee's principal place of employment more than 35 miles from an Employee's
principal place of employment immediately prior to the Change of Control, a
reduction in an Employee's base salary after a Change of Control, or termination
of employment under circumstances in which an Employee 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. If any
Profits realized upon the exercise of any Covered Option inure to the benefit of
the Corporation in accordance with the first sentence of this paragraph, an
Employee shall pay all such Profits to the Corporation within 30 days after
first engaging in any harmful activity and all unexercised Covered Options shall
immediately be forfeited and canceled. Consistent with the provisions of Section
3 of the Plan, the determination by the Committee as to whether an Employee
engaged in "harmful activity" prior to or within six months after termination of
employment with Key shall be final and conclusive.
20
<PAGE> 21
A "harmful activity" shall have occurred if an Employee shall do any one or more
of the following:
a. Use, publish, sell, trade or otherwise disclose Non-Public
Information of the Key unless such prohibited activity was inadvertent,
done in good faith and did not cause significant harm to Key.
b. After notice from the Corporation, fail to return to Key
any document, data, or thing in an Employee's possession or to which an
Employee has access that may involve Non-Public Information of Key.
c. After notice from the Corporation, fail to assign to Key
all right, title, and interest in and to any confidential or
non-confidential Intellectual Property which an Employee created, in
whole or in part, during employment with Key, including, without
limitation, copyrights, trademarks, service marks, and patents in or to
(or associated with) such Intellectual Property.
d. After notice from the Corporation, fail to agree to do any
acts and sign any document reasonably requested by Key to assign and
convey all right, title, and interest in and to any confidential or
non-confidential Intellectual Property which an Employee created, in
whole or in part, during employment with Key, including, without
limitation, the signing of patent applications and assignments thereof.
e. Upon an Employee's own behalf or upon behalf of any other
person or entity that competes or plans to compete with Key, solicit or
entice for employment or hire any Employee of Key.
f. Upon an Employee's own behalf or upon behalf of any other
person or entity that competes or plans to compete with Key, call upon,
solicit, or do business with (other than business which does not
compete with any business conducted by Key) any customer of Key an
Employee called upon, solicited, interacted with, or became acquainted
with, or learned of through access to information (whether or not such
information is or was non-public) while employed at Key unless such
prohibited activity was inadvertent, done in good faith, and did not
involve a customer whom an Employee should have reasonably known was a
customer of Key.
g. Upon an Employee's own behalf or upon behalf of any other
person or entity that competes or plans to compete with Key, engage in
any business activity in competition with Key in the same or a closely
related activity that an Employee was engaged in for Key during the one
year period prior to the termination of employment.
21
<PAGE> 22
For purposes of this Section 16:
"Covered Option" means any Option granted on or after January
1, 2001 unless the granting resolution expressly excludes the
Option from the provisions of this Section 16.
"Intellectual Property" shall mean any invention, idea,
product, method of doing business, market or business plan,
process, program, software, formula, method, work of
authorship, or other information, or thing.
"Key" shall mean the Corporation and its Subsidiaries
collectively.
"Non-Public Information" shall mean, but is not limited to,
trade secrets, confidential processes, programs, software,
formulas, methods, business information or plans, financial
information, and listings of names (e.g., employees,
customers, and suppliers) that are developed, owned, utilized,
or maintained by an employer such as Key, and that of its
customers or suppliers, and that are not generally known by
the public.
"Profit" shall mean, with respect to any Covered Option, the
spread between the Fair Market Value of a Common Share on the
date of exercise and the exercise price multiplied by the
number of shares exercised under the Covered Option.
17. AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER COMPANIES.
Awards, whether Incentive Stock Options, Nonqualified Options, SARs, Limited
SARs Restricted Stock, or Performance Shares, may be granted under the Plan in
substitution for awards held by employees of a company who become Employees of
the Corporation or a Subsidiary as a result of the merger or consolidation of
the employer company with the Corporation or a Subsidiary, or the acquisition by
the Corporation or a Subsidiary of the assets of the employer company, or the
acquisition by the Corporation or a Subsidiary of stock of the employer company
as a result of which it becomes a Subsidiary. The terms, provisions, and
benefits of the substitute Awards so granted may vary from the terms, provisions
and benefits set forth in or authorized by the Plan to such extent as the
Committee at the time of the grant may deem appropriate to conform, in whole or
in part, to the terms, provisions, and benefits of the awards in substitution
for which they are granted.
18. LEGAL REQUIREMENTS. No Awards shall be granted and the Corporation
shall have no obligation to make any payment under the Plan, whether in Common
Shares, cash, or any combination thereof, unless such payment is, without
further action by the Committee, in compliance with all applicable Federal and
state laws and regulations, including, without limitation, the United States
Internal Revenue Code and Federal and state securities laws.
22
<PAGE> 23
19. DURATION AND TERMINATION OF THE PLAN. The Plan shall become
effective and shall be deemed to have been adopted on the date on which it is
approved by the shareholders of the Corporation and shall remain in effect
thereafter until terminated by action of the Board of Directors. No termination
of the Plan shall adversely affect the rights of any Employee with respect to
any Award granted before the effective date of the termination.
20. AMENDMENTS. The Board of Directors, or a duly authorized committee
thereof, may alter or amend the Plan from time to time prior to its termination
in any manner the Board of Directors, or such duly authorized committee, may
deem to be in the best interests of the Corporation and its shareholders, except
that no amendment may be made without shareholder approval if shareholder
approval is required under Rule 16b-3 to qualify for the Rule 16b-3 Exemption,
is required by any applicable securities law or tax law, or is required by the
rules of any exchange on which the Common Shares of the Corporation are traded
or, if the Common Shares are not listed on an exchange, by the rules of the
registered national securities association through whose inter-dealer quotation
system the Common Shares are quoted. The Committee shall have the authority to
amend these terms and conditions applicable to outstanding Awards (a) in any
case where expressly permitted by the terms of the Plan or of the relevant Award
Instrument or (b) in any other case with the consent of the Employee to whom the
Award was granted. Except as expressly provided in the Plan or in the Award
Instrument evidencing the Award, the Committee may not, without the consent of
the holder of an Award granted under the Plan, amend the terms and conditions
applicable to that Award in a manner adverse to the interests of the Employee.
21. PLAN NONCONTRACTUAL. Nothing herein contained shall be construed as
a commitment to or agreement with any person employed by the Corporation or a
Subsidiary to continue such person's employment with the Corporation or the
Subsidiary, and nothing herein contained shall be construed as a commitment or
agreement on the part of the Corporation or any Subsidiary to continue the
employment or the annual rate of compensation of any such person for any period.
All Employees shall remain subject to discharge to the same extent as if the
Plan had never been put into effect.
22. INTEREST OF EMPLOYEES. Any obligation of the Corporation under the
Plan to make any payment at any future date merely constitutes the unsecured
promise of the Corporation to make such payment from its general assets in
accordance with the Plan, and no Employee shall have any interest in, or lien or
prior claim upon, any property of the Corporation or any Subsidiary by reason of
that obligation.
23. CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no
event be construed as giving any person, firm, or corporation any legal or
equitable right against the Corporation or any Subsidiary, their officers,
employees, agents, or directors, except any such rights as are specifically
provided for in the Plan or are hereafter created in accordance with the terms
and provisions of the Plan.
23
<PAGE> 24
24. ABSENCE OF LIABILITY. No member of the Board of Directors of the
Corporation or a Subsidiary, of the Committee, of any other committee of the
Board of Directors, or any officer or Employee of the Corporation or a
Subsidiary shall be liable for any act or action under the Plan, whether of
commission or omission, taken by any other member, or by any officer, agent, or
Employee, or except in circumstances involving his bad faith or willful
misconduct, for anything done or omitted to be done by himself.
25. SEVERABILITY. The invalidity or unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable provision
were omitted herefrom.
26. GOVERNING LAW. The provisions of the Plan shall be governed and
construed in accordance with the laws of the State of Ohio.
27. PLAN EFFECTIVE DATE. The Plan, originally named the Society
Corporation 1991 Equity Compensation Plan, was approved by the Corporation's
shareholders at the Annual Meeting of Shareholders held on April 16, 1991 and
became effective on that date. On March 17, 1994, the Corporation's Board of
Directors adopted, subject to shareholder approval, certain amendments to the
Plan, then renamed the KeyCorp Amended and Restated 1991 Equity Compensation
Plan. The shareholders approved these amendments at the Corporation's Annual
Meeting of Shareholders held on May 19, 1994. The Plan was further amended by
action of the Committee on July 17, 1996 to amend the definition of Change of
Control as set forth in Section 2.5 of the Plan, which amendment was effective
as of January 1, 1996. If the Corporation hereafter enters into a transaction
intended to be accounted for as a pooling of interests and the Committee
determines, based on the written advice of the Corporation's independent
accountants, that the July 17, 1996 amendment or the operation thereof would
conflict with or jeopardize the pooling of interests accounting treatment for
such transaction, then the July 17, 1996 amendment shall be inoperative and
shall be treated as if it had never been effected so that the definition of
Change of Control would be as in effect prior to such amendment. The Plan was
further amended and restated as of September 19, 1996, to provide for the
transferability of Options granted hereunder. The Plan was further amended by
action of the Equity Based Compensation Subcommittee of the Compensation and
Organization Committee on May 6, 1998 to amend Section 10.1(a) of the Plan to
extend the option exercise period for terminated employees upon a change of
control in certain circumstances. The amendment to Section 10.1(a) only applies
to Awards and Award Instruments granted or entered into on or after January 1,
1999. If the Corporation enters into a transaction intended to qualify as a
pooling of interests for accounting purposes prior to January 1, 1999, the
amendment to Section 10.1(a) shall become null and void. The Subcommittee also
amended the Plan to delete Section 17 of the Plan and all cross-references
thereto. References in the Plan to specific numbers of Common Shares have been
adjusted pursuant to Section 13 to reflect the two-for-one split in the Common
Shares effective March 6, 1998. With respect to clause (a) of the last paragraph
of Section 5, as of May 6, 1998, Incentive Stock Options covering 451,823 Common
Shares had been theretofore granted and not expired or terminated unexercised,
leaving 9,148,177 Common Shares then available for future grant of Incentive
Stock Options (subject to
24
<PAGE> 25
increase in the event that outstanding Incentive Stock Options expire or
terminate unexercised). The Plan was further amended by action of the
Compensation and Organization Committee on March 15, 2000 to amend Section 1 of
the Plan to clarify that Awards under the Plan may be made to any Employee of
the Corporation. The Plan was amended on January 17, 2001 to amend Section
6.4(a) to remove the requirement that an Option will not become exercisable
unless an Optionee has been continuously employed by the Corporation for at
least six months from the date of grant. The Plan was also amended to add a new
Section 16 entitled "Harmful Activity" which states that, if an Optionee engages
in a "harmful activity" prior to or within six months of termination of
employment, profits from the exercise of a Covered Option will inure to the
benefit of the Corporation in certain circumstances. Section 16 does not apply
to Options granted prior to January 1, 2001.
25
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.31
<SEQUENCE>8
<FILENAME>l86594aex10-31.txt
<DESCRIPTION>EXHIBIT 10.31
<TEXT>
<PAGE> 1
Exhibit 10.31
FIRST AMENDMENT
TO THE
KEYCORP AUTOMATIC DEFERRAL PLAN
WHEREAS, KeyCorp has established the KeyCorp Automatic Deferral Plan
("Plan") for the purpose of providing a tax favorable savings vehicle for those
key employees of KeyCorp, and
WHEREAS, KeyCorp has reserved the right to amend the Plan as it deems
necessary or desirable, and
WHEREAS, KeyCorp deems it desirable to amend the Plan to clarify
certain terms and conditions of the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2.1(e) of the Plan is amended to delete it in its entirety
and to substitute therefore the following:
""COMMON STOCK ACCOUNT" shall mean the investment account
established under the Plan for bookkeeping purposes in which the
Participant shall have his or her Participant Deferrals and
Corporate Contributions credited. Participant Deferrals and
Corporate Contributions 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) ("Common Shares")
which shall be equal to the amount of Participant Deferrals and
Corporate Contributions deferred. The Common Stock Account shall
also reflect on a bookkeeping basis all dividends, gains, and
losses attributable to such Common Shares. All Participant
Deferrals and all Corporate Contributions credited to the Common
Stock Account shall be based on a ten-day average of the New York
Stock Exchange's closing price for such Common Shares immediately
preceding, up to and including the date such Participant Deferrals
and Corporate Contributions are credited to the Participant's Plan
Account."
2. The Amendment set forth in paragraph 1 hereof shall be effective as
of November 1, 2000.
3. Except as specifically amended, the Plan shall remain in full force
and effect.
IN WITNESS WHEREOF, KeyCorp has caused this First Amendment to the Plan
to be executed by its duly authorized officer as of October 30, 2000.
KEYCORP
By:______________________________
Title:___________________________
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.37
<SEQUENCE>9
<FILENAME>l86594aex10-37.txt
<DESCRIPTION>EXHIBIT 10.37
<TEXT>
<PAGE> 1
Exhibit 10.37
SECOND AMENDMENT
TO THE
KEYCORP SUPPLEMENTAL RETIREMENT PLAN
WHEREAS, KeyCorp has established the KeyCorp Supplemental Retirement Plan
("Plan") to provide a supplemental retirement benefit to a selected group of
employees, and
WHEREAS, the Board of Directors of KeyCorp has authorized its
Compensation Committee to amend the Plan as it deems necessary or desirable, and
WHEREAS, the Compensation Committee of the Board of Directors of KeyCorp
has authorized the amendment of the Plan to clarify certain terms and conditions
of the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2.1(k) of the Plan is amended to delete it in its entirety and
to substitute therefore the following:
""INCENTIVE COMPENSATION AWARD" shall mean an incentive compensation
award (whether paid in cash, deferred, or a combination of both) granted
to a Grandfathered Employee under an Incentive Compensation Plan, as
follows:
- An incentive compensation award granted under the KeyCorp Annual
Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan,
the KeyCorp Management Incentive Compensation Plan, and/or such other
Employer-sponsored line of business Incentive Compensation Plan shall
constitute an incentive compensation award for the year in which the
award is earned (without regard to the actual time of payment).
- An incentive compensation award granted under the KeyCorp Long Term
Incentive Compensation Plan ("LTIC Plan") with respect to any
multi-year performance period shall be deemed to be for the last year
of the multi-year period without regard to the actual time of payment
of the award. Accordingly, an incentive compensation award granted
under the LTIC Plan with respect to the three-year performance period
of 1993, 1994, and 1995 will be deemed to be for 1995 (without regard
to the actual time of payment), and the entire Incentive Compensation
award under the LTIC Plan for that performance period will be a LTIC
Plan award for the year 1995.
- An incentive compensation award granted under the KeyCorp Long Term
Incentive Plan ("Long Term Plan") with respect to any multi-year
period shall be deemed to be for the last year of the multi-year
performance period and for the year immediately following such year
(without regard to the actual time of payment). Accordingly, an award
granted under the Long Term Plan with respect to the four-year
performance period of 1998, 1999, 2000, and 2001 shall be deemed to
be for the years 2001 and 2002, with one-half the award allocated to
the year 2001, and one-half the award allocated to the year 2002."
26
<PAGE> 2
2. Section 2.1(l) of the Plan is amended to delete it in its entirety and
to substitute therefore the following:
""INCENTIVE COMPENSATION PLAN" shall mean the KeyCorp Management
Incentive Compensation Plan, the KeyCorp Annual Incentive Plan, the
KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Long Term
Incentive Compensation Plan, the KeyCorp Long Term Incentive Plan, and/or
such other Employer-sponsored line of business incentive compensation
plan that KeyCorp in its sole discretion determines constitutes an
"Incentive Compensation Plan" for purposes of this Section 2.1(l), as may
be amended from time to time."
3. The Amendments set forth in paragraphs 1 and 2 hereof shall be
effective as of January 1, 2000.
4. Except as specifically amended, the Plan shall remain in full force
and effect.
IN WITNESS WHEREOF, KeyCorp has caused this Second Amendment to the Plan
to be executed by its duly authorized officer to be effective as of the above
stated date.
KEYCORP
By:_______________________________
Title:______________________________
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.42
<SEQUENCE>10
<FILENAME>l86594aex10-42.txt
<DESCRIPTION>EXHIBIT 10.42
<TEXT>
<PAGE> 1
Exhibit 10.42
THIRD AMENDMENT
TO THE
KEYCORP EXECUTIVE SUPPLEMENTAL PENSION PLAN
WHEREAS, KeyCorp has established the KeyCorp Executive Supplemental
Pension Plan ("Plan") to provide a supplemental retirement benefit to a selected
group of employees, and
WHEREAS, the Board of Directors of KeyCorp has authorized its
Compensation Committee to amend the Plan as it deems necessary or desirable, and
WHEREAS, the Compensation Committee of the Board of Directors of KeyCorp
has authorized the amendment of the Plan to clarify certain terms and conditions
of the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2.1(n) of the Plan is amended to delete it in its entirety and
to substitute therefore the following:
""INCENTIVE COMPENSATION AWARD" shall mean an incentive compensation
award (whether paid in cash, deferred, or a combination of both) granted
to a Participant under an Incentive Compensation Plan, as follows:
- An incentive compensation award granted under the KeyCorp Annual
Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan,
the KeyCorp Management Incentive Compensation Plan, and/or such other
Employer-sponsored line of business Incentive Compensation Plan shall
constitute an incentive compensation award for the year in which the
award is earned (without regard to the actual time of payment).
- An incentive compensation award granted under the KeyCorp Long Term
Incentive Compensation Plan ("LTIC Plan") with respect to any
multi-year performance period shall be deemed to be for the last year
of the multi-year period without regard to the actual time of payment
of the award. Accordingly, an incentive compensation award granted
under the LTIC Plan with respect to the three-year performance period
of 1993, 1994, and 1995 will be deemed to be for 1995 (without regard
to the actual time of payment), and the entire Incentive Compensation
award under the LTIC Plan for that performance period will be a LTIC
Plan award for the year 1995.
- An incentive compensation award granted under the KeyCorp Long Term
Incentive Plan ("Long Term Plan") with respect to any multi-year
period shall be deemed to be for the last year of the multi-year
performance period and for the year immediately following such year
(without regard to the actual time of payment). Accordingly, an award
granted under the Long Term Plan with respect to the four-year
performance period of 1998, 1999, 2000, and 2001 shall be deemed to
be for the years 2001 and 2002, with one-half the award allocated to
the year 2001, and one-half the award allocated to the year 2002."
<PAGE> 2
2. Section 2.1(o) of the Plan is amended to delete it in its entirety and
to substitute therefore the following:
""INCENTIVE COMPENSATION PLAN" shall mean the KeyCorp Management
Incentive Compensation Plan, the KeyCorp Annual Incentive Plan, the
KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Long Term
Incentive Compensation Plan, the KeyCorp Long Term Incentive Plan, and/or
such other Employer-sponsored line of business incentive compensation
plan that KeyCorp in its sole discretion determines constitutes an
"Incentive Compensation Plan" for purposes of this Section 2.1(l), as may
be amended from time to time."
3. The Amendments set forth in paragraphs 1 and 2 hereof shall be
effective as of January 1, 2000.
4. Except as specifically amended, the Plan shall remain in full force
and effect.
IN WITNESS WHEREOF, KeyCorp has caused this Third Amendment to the Plan
to be executed by its duly authorized officer to be effective as of the above
stated date.
KEYCORP
By:________________________________
Title:_____________________________
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>11
<FILENAME>l86594aex12.txt
<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,
------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF EARNINGS
Net income.................................................. $1,002 $1,107 $ 996 $ 919 $ 783
Add: Provision for income taxes............................. 515 577 483 426 360
------ ------ ------ ------ ------
Income before income taxes.............................. 1,517 1,684 1,479 1,345 1,143
Fixed charges, excluding interest on deposits............... 1,820 1,649 1,517 1,085 810
------ ------ ------ ------ ------
Total earnings for computation, excluding interest on
deposits............................................. 3,337 3,333 2,996 2,430 1,953
Interest on deposits........................................ 1,768 1,305 1,359 1,462 1,469
------ ------ ------ ------ ------
Total earnings for computation, including interest on
deposits............................................. $5,105 $4,638 $4,355 $3,892 $3,422
====== ====== ====== ====== ======
COMPUTATION OF FIXED CHARGES
Net rental expense.......................................... $ 146 $ 173 $ 139 $ 123 $ 126
====== ====== ====== ====== ======
Portion of net rental expense deemed representative of
interest.................................................. $ 41 $ 46 $ 35 $ 30 $ 42
Interest on short-term borrowed funds....................... 715 646 801 642 492
Interest on long-term debt, including capital securities.... 1,064 957 681 413 276
------ ------ ------ ------ ------
Total fixed charges, excluding interest on deposits..... 1,820 1,649 1,517 1,085 810
Interest on deposits........................................ 1,768 1,305 1,359 1,462 1,469
------ ------ ------ ------ ------
Total fixed charges, including interest on deposits..... $3,588 $2,954 $2,876 $2,547 $2,279
====== ====== ====== ====== ======
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Preferred stock dividend requirement on a pre-tax basis..... -- -- -- -- $ 12
Total fixed charges, excluding interest on deposits......... $1,820 $1,649 $1,517 $1,085 810
------ ------ ------ ------ ------
Combined fixed charges and preferred stock dividends,
excluding interest on deposits....................... 1,820 1,649 1,517 1,085 822
Interest on deposits........................................ 1,768 1,305 1,359 1,462 1,469
------ ------ ------ ------ ------
Combined fixed charges and preferred stock dividends,
including interest on deposits....................... $3,588 $2,954 $2,876 $2,547 $2,291
====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES
Excluding deposit interest.................................. 1.83X 2.02x 1.97x 2.24x 2.41x
Including deposit interest.................................. 1.42X 1.57x 1.51x 1.53x 1.50x
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Excluding deposit interest.................................. 1.83X 2.02x 1.97x 2.24x 2.38x
Including deposit interest.................................. 1.42X 1.57x 1.51x 1.53x 1.49x
</TABLE>
15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>12
<FILENAME>l86594aex13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE> 1
[OCEAN WAVES BACKGROUND GRAPHIC]
Exhibit 13
Key
2000 KEYCORP ANNUAL REPORT
Key.com(R)
Fulfilling
Our Promise
The Power of "PEG"
page 22
[KEY LOGO]
<PAGE> 2
FINANCIAL HIGHLIGHTS
[PHOTO OF BUILDING AND FLAG]
For the second consecutive year, Key, an integrated multiline financial services
company, produced more than $1 billion in net income. Equally important, the
company launched a comprehensive, corporate-wide competitiveness initiative that
is positioning it well for future growth and profitability. In 2000,
shareholders pushed up Key's stock price 27 percent.
<TABLE>
<CAPTION>
dollars in millions, except per share amounts 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Total revenue $ 4,924 $ 5,102 $ 4,284
Net income 1,002 1,107 996
- --------------------------------------------------------------------------------
PER COMMON SHARE
Net income $ 2.32 $ 2.47 $ 2.25
Net income - assuming dilution 2.30 2.45 2.23
Cash dividends 1.12 1.04 .94
Book value at year end 15.65 14.41 13.63
Weighted average common shares (000) 432,617 448,168 441,895
Weighted average common shares
and potential common shares (000) 435,573 452,363 447,437
- --------------------------------------------------------------------------------
AT DECEMBER 31,
Loans $ 66,905 $ 64,222 $ 62,012
Earning assets 77,316 73,733 70,240
Total assets 87,270 83,395 80,020
Deposits 48,649 43,233 42,583
Total shareholders' equity 6,623 6,389 6,167
Common shares outstanding (000) 423,254 443,427 452,452
- --------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.19% 1.37% 1.32%
Return on average total equity 15.39 17.68 17.97
Efficiency 59.75 59.61 58.74
- --------------------------------------------------------------------------------
</TABLE>
TRACKING KEY'S STOCK PRICE
[CHART]
12/31/99 1/31/00 2/29/00 3/31/00 4/28/00 5/31/00 6/30/00
22.13 22.00 16.94 19.00 18.50 21.00 17.63
7/31/00 8/31/00 9/29/00 10/31/00 11/30/00 12/29/00
17.56 20.20 25.31 24.68 24.94 28.00
[KEY LOGO] ACHIEVE ANYTHING
<PAGE> 3
COMMENTS FROM THE CHAIRMAN [PHOTO OF ROBERT W. GILLESPIE]
/s/ Bob
BY ROBERT W. GILLESPIE, Chairman of the Board
On February 1, I retired as chief executive officer of KeyCorp as part of a
planned transition of responsibilities from me to Henry Meyer. I plan to remain
as Board chairman until our Annual Shareholders Meeting on May 17. At that time,
the Board will name Henry as chairman, in addition to his current
responsibilities.
I have spent 33 years with Key. I have enjoyed working with the Board to
build our company from a regional, bricks-and-mortar bank, with assets of less
than $9 billion in 1987, when I first became CEO, into an international,
technologically driven, multiline financial services company with assets of $87
billion. Further, during my tenure as CEO, Key produced an annualized total
return to shareholders of 13.59 percent, a better return than the S&P's Regional
Bank Index for the same period. I feel privileged to have played a part in this
significant growth.
With Key's strategy clearly defined, a simplified organization structure in
place and the potential for improved financial performance strengthened as a
result of our comprehensive, corporate-wide competitiveness initiative, this was
an opportune time to complete the management transition.
Our 2000 results, capped by a record earnings per share performance in the
fourth quarter, bode well for Key's ability to achieve our longer-term financial
goals. Investors have begun to recognize the significance of these results as
Key's share price rose 27 percent in 2000, surpassing the results of the S&P's
Regional Bank Index by 13 percent.
BRIGHT FUTURE
Looking ahead, I am excited about the future, knowing that we have an
outstanding leader in Henry, who, at 51, is clearly capable of driving the
company toward our goals of superior financial results and creating value for
our shareholders for many years to come.
I have worked with Henry for nearly 30 years. He has been an important member
of the management team that built Key and set its future direction. As chief
operating officer for the past five years, he has demonstrated both a keen
understanding of the industry and our company and has exercised astute business
judgment. Most recently, he led the competitiveness initiative I noted earlier,
which we believe will have a dramatic impact on the company's performance. All
of this makes him the ideal choice to lead us into the next decade.
While my decision to retire was made much easier by having such a capable
successor available, it was difficult, nevertheless. It means leaving my
day-to-day involvement in an organization with which I have been associated for
my entire business career. Through it, I have worked with the finest group of
professionals imaginable. In good times and bad, I have marveled at the
extraordinary dedication of my fellow employees, and I will miss them very much.
I retire knowing that Key is a strong competitor, dedicated to service and
the delivery of high-quality products that are tailored to our clients'
increasingly sophisticated needs. Our people are bright, hard-working, ethical
and extraordinarily committed to what they do. Key's success is built on their
efforts, which leverage our technological and marketing capabilities and sound
financial resources.
I am extremely proud of what we have accomplished to date, and look forward
with great enthusiasm to the continued progress Henry, our new vice chairman,
Tom Stevens, and their team will make to build on that record of achievement.
I also would like to acknowledge and personally thank one of our long-term
directors, Thomas A. Commes, The Sherwin-Williams Company's retired president
and chief operating officer. Tom will retire from the Board after this year's
shareholders meeting. Since 1987, he has provided us with valuable counsel,
given freely of his time and contributed significantly to Key's development
through his thoughtful insight. His involvement in Key will be missed.
Finally, I would like to take this opportunity to thank our shareholders and
a very dedicated and talented Board of Directors for their support over the
years. They have stood courageously by the company during its strategic
transformation. I know they share my great optimism about Key's future under
Henry's guidance and leadership.
[Key Logo]
Key 2000 [] 1
<PAGE> 4
KEY
2000 KEYCORP ANNUAL REPORT
[Key Logo]
KEYCORP BOARD OF DIRECTORS
ROBERT W. GILLESPIE: Chairman, KeyCorp
HENRY L. MEYER III: President and Chief Executive Officer, KeyCorp
CECIL D. ANDRUS: Chairman, Andrus Center for Public Policy
WILLIAM G. BARES: Chairman, President and Chief Executive Officer,
The Lubrizol Corporation
ALBERT C. BERSTICKER: Retired Chairman, Ferro Corporation
EDWARD P. CAMPBELL: President and Chief Executive Officer, Nordson Corporation
DR. CAROL A. CARTWRIGHT: President, Kent State University
THOMAS A. COMMES: Retired President and Chief Operating Officer,
The Sherwin-Williams Company
KENNETH M. CURTIS: Principal; Curtis, Thaxter, Stevens, Broder & Micoleau LLC
ALEXANDER M. CUTLER: Chairman and Chief Executive Officer, Eaton Corporation
HENRY S. HEMINGWAY: President, Hemingway Enterprises, Inc.
CHARLES R. HOGAN: President, Citation Management Group, Inc.
DOUGLAS J. MCGREGOR: President and Chief Operating Officer,
Burlington Industries
STEVEN A. MINTER: President and Executive Director, The Cleveland Foundation
BILL R. SANFORD: Chairman, SYMARK LLC
RONALD B. STAFFORD: Senior Partner; Stafford, Trombley, Owens & Curtin, P.C.;
Member New York State Senate
DENNIS W. SULLIVAN: Executive Vice President, Parker Hannifin Corporation
PETER G. TEN EYCK, II: President, Indian Ladder Farms
KEYCORP MANAGEMENT COMMITTEE
ROBERT W. GILLESPIE: Chairman
HENRY L. MEYER III: President and Chief Executive Officer
THOMAS C. STEVENS: Vice Chairman, Chief Administrative Officer and Secretary
PATRICK V. AULETTA: Executive Vice President, Commercial Banking
JAMES S. BINGAY: Senior Executive Vice President, Key Corporate Finance
KEVIN M. BLAKELY: Executive Vice President and Chief Risk Officer
ROBERT T. CLUTTERBUCK: Chairman, Key Capital Partners
GEORGE E. EMMONS, JR.: Executive Vice President, Commercial Real Estate
LINDA A. GRANDSTAFF: Executive Vice President, Corporate Electronic Services
KAREN R. HAEFLING: Executive Vice President and Chief Marketing Officer
ROBERT B. HEISLER, JR.: Executive Vice President, 1Key
THOMAS E. HELFRICH: Executive Vice President and Chief Human Resources Officer
ROBERT G. JONES: President, Key Capital Partners
JACK L. KOPNISKY: Senior Executive Vice President, Key Consumer Banking
ROBERT G. RICKERT: Executive Vice President and Chief Technology Officer
K. BRENT SOMERS: Senior Executive Vice President and Chief Financial Officer
- --------------------------------------------------------------------------------
CORPORATE HEADQUARTERS: 127 Public Square, Cleveland, OH 44114-1306; (216)
689-6300. KEYCORP INVESTOR RELATIONS: 127 Public Square, Cleveland, OH
44114-1306; (216) 689-4221. ONLINE: www.key.com for product, corporate and
financial information and news releases. TRANSFER AGENT/REGISTRAR AND
SHAREHOLDER SERVICES: Computershare Investor Services, Attn: Shareholder
Communications, P.O. Box A3504, Chicago, IL 60690-3504; (800) 539-7216.
CONTENTS
[PHOTO OF ROBERT W. GILLESPIE] 1 COMMENTS FROM
THE CHAIRMAN
Retiring Key Chairman Robert W. Gillespie reflects on the company's evolution
and strategic direction.
4 PERSPECTIVE [PHOTO OF HENRY L. MEYER III]
FROM THE CEO
Henry L. Meyer III, Gillespie's successor, looks ahead, describing why Key is
poised for success in the twenty-first century.
[REMODELING GRAPHIC] 6 REMODELED TO
SERVE YOU BETTER
Ever walk into a store that keeps its doors open while "remodeling to serve you
better"? Seems confusing, a bit unsettling. Inevitably, construction work
temporarily obscures the substantial benefits of the end result. Key, now
completing construction work undertaken during the mid-1990s, is no different.
It's taken time, but that's because Key isn't simply changing its facade,
it's altering the very way it does its business.
ROCKY MOUNTAIN HIGH 8
GETTING TO WOW! 10
Key's expansion is fueled in part by its emphasis on attractive, high-growth
businesses such as equipment leasing and asset management.
IT'S NOT JUST ADVERTISING! 9 [COMPUTER WITH DOLLAR SIGN ON SCREEN GRAPHIC]
HAVE YOU HUGGED YOUR
COMPUTER TODAY? 13
Excellence in branding and information technology is essential to success in
today's financial services industry. Key is putting these disciplines to work
for its shareholders.
2 [] Key 2000
<PAGE> 5
14 MAKING SIMPLICITY [SIMPLICITY GRAPHIC]
PAY OFF
Through thoughtful adaptation, Key's leaders believe they have created the right
operating structure. Their primary goal? To devise an organization that makes it
easy for clients to receive integrated financial services. An organization that
produces sound financial results for shareholders. An organization that's simple
and manageable. Their primary tool? Common sense.
WONDERFULLY SIMPLE 17
PLEASED TO MEET YOU 19
Each of Key's 12 lines of business is a strong competitor in its own right.
Collectively, though, they represent the "key" to the company's success.
KEY IN PERSPECTIVE:
OUR LINES OF BUSINESS 20
A quick, easy-to-read guide that describes Key's streamlined organization.
[OCEAN WAVE GRAPHIC]
22
FULFILLING
OUR PROMISE
As its construction dust settles, Key's true colors emerge. Here's how thousands
of Key employees enthusiastically took up management's challenge: "Come up with
ideas to grow revenues and reduce expenses. Refine them. Value them. Implement
them."
"PEGGED" FOR IMPROVEMENT 25
Key describes a few of the many ideas that will not only save its shareholders
millions of dollars, but also evidence its ability to take action.
NOW THAT'S CLIENT-FOCUSED! 26
Key focused firmly on clients during 2000, even as employees worked hard to
generate thousands of ideas for improving the company's competitiveness.
WAIT A MINUTE [MANUFACTURING GRAPHIC]
MR. POSTMAN 27
Ever wonder how cost-effectively companies produce statements? Key shareholders
can rest assured that, for Key at least, the answer is: Very cost-effectively.
[YARDSTICK GRAPHIC]
28 TRANSFORMATION YARDSTICK
But is it all working? The strategy. The structure. The focus on taking action.
Gauging financial success during a multi-year transformation can be tricky.
Investors want managers to squeeze maximum performance out of the old business
model, while ushering in the new. Key is measuring up.
FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS
Introduction 32
Highlights of Key's 2000 Performance 32
Cash Basis Financial Data 35
Line of Business Results 36
Results of Operations
Net Interest Income 38
Market Risk Management 39
Noninterest Income 44
Noninterest Expense 46
Income Taxes 48
Financial Condition
Loans 48
Securities 51
Asset Quality 52
Deposits and Other Sources of Funds 55
Liquidity 56
Capital and Dividends 57
Fourth Quarter Results 58
REPORT OF MANAGEMENT 60
REPORT OF ERNST & YOUNG, LLP,
INDEPENDENT AUDITORS 60
CONSOLIDATED FINANCIAL STATEMENTS 61
Throughout this report, Key discusses its future performance. While management
strives to be as accurate as possible, its projections are not foolproof. Please
refer to Key's forward-looking statement disclosure on page 32. It identifies
factors that could cause actual results to differ materially from those
discussed.
Key 2000 [] 3
<PAGE> 6
PERSPECTIVE FROM THE CEO [PICTURE OF HENRY L. MEYER III]
/s/ Henry
BY HENRY L. MEYER III, President and Chief Executive Officer
The first year of the new millennium was pivotal for Key. We made considerable
progress in achieving our longer-term strategic objectives, while continuing to
produce solid earnings. These results, along with a shift in investor attitudes
towards value stocks such as Key, contributed significantly to improved
shareholder returns, our highest and most immediate priority during 2000.
Key earned $2.32 per diluted common share on core net income of $1.01
billion, compared with $2.33 per share on earnings of $1.05 billion in 1999. If
you were to exclude the financial effects of divested businesses and Champion
Mortgage loan securitization gains, which would better reflect the underlying
strength of our core operations, earnings per diluted common share grew nearly
10 percent, from $2.10 in 1999 to $2.30 in 2000. Key's core return on average
equity was 15.49 percent and core return on average total assets was 1.20
percent.
Key Retail Banking, including our business banking unit, generated 2000 net
income of $387 million, nearly 16 percent above its prior-year results. This
group provides branch-based deposit, investment and credit services to
individuals and small businesses. The group enjoyed double-digit loan growth and
solid growth in fee income, while continuing to reduce its expenses. In
addition, deposit growth, which was a priority for us, totaled nearly 6 percent.
I am pleased that this group is clearly sustaining the performance improvements
it began in 1998.
Key Corporate and Specialty Finance earned $465 million for the year,
compared with $514 million for 1999. Within the group, Key Corporate Capital,
which offers financing, transaction processing and advisory services to
corporations, earned $398 million, up slightly from its performance in 1999. Its
solid loan growth was substantially offset by an increased loan loss provision.
Key Specialty Finance, which offers non-branch-based financing solutions to
consumers, earned $67 million, compared with $123 million in 1999. This change
also was driven by a higher loan loss provision and significantly lower
securitization activity. Most of the latter was due to our decision to retain
Champion home equity loans on our balance sheet to help replenish earnings
associated with our divested credit card business and Long Island retail
franchise.
Key Capital Partners, which provides asset management, brokerage, investment
banking and capital markets expertise to individuals, businesses and
institutions, earned $179 million in 2000. This compares favorably with 1999
earnings of $143 million. The group's performance was the result of strong
growth in dealer trading and derivatives income, equity capital gains and higher
demand for trust and investment advisory services.
Reflecting the year's favorable results and management's conviction of
continued future success, the Board in January 2001 increased our cash dividend
by more than 5 percent, for a compounded annual 10-year growth rate of nearly 10
percent. This action marked the 36th consecutive year we have increased our
dividend. In addition, the company repurchased more than 20 million shares of
KeyCorp stock in 2000, demonstrating the flexibility made possible by our
ability to generate capital.
STRATEGIC INITIATIVES
During 2000, we acted on several fronts to advance toward our broader
strategic goals. The most important of these include increasing the difference
between our revenue and expense growth rates; further redeploying resources to
our higher-growth, fee-based businesses; and maximizing the earnings potential
of lower-growth operations.
In this regard, we continued to acquire businesses that expand our
non-banking, fee-based activities. Our purchase of Kansas City-based National
Realty Funding L.C. and Dallas-based Newport Mortgage Company, L.P. supplemented
the already broad spectrum of products and services we offer to our commercial
real estate clients. Our purchase of The Wallach Company, a regional investment
banking firm located in Denver, complements and extends the offering of our
McDonald Investments subsidiary.
We also began implementing the second phase of a comprehensive,
corporate-wide competitiveness initiative, called PEG - or Perform, Excel, Grow.
PEG is dramatically reducing our expense base and enhancing our ability to
generate revenue. The initiative
4 [] Key 2000
<PAGE> 7
[TWO MEN HOLDING LARGE KEY GRAPHIC IN CENTER OF PAGE]
identified more than $260 million in annual savings, $200 million of which will
fall to the bottom line. The remaining $60 million will fund projects that
invest in our technology and operations infrastructure so as to develop further
our higher-growth businesses and increase revenue generation. As of this
report's publication, over half of the projects that will produce these benefits
have been implemented.
In addition, the knowledge we gained from PEG led us to develop a set of
internal operating guidelines. Using them, we are moving forward aggressively to
cultivate an even more client-focused, relationship-based and service-centered
environment through which clients can fully appreciate and take advantage of our
diversified array of products and services.
Many of the activities I've mentioned are described in more detail throughout
this report, which sports a new format. Our objective is to convey, through
easy-to-read articles, a sense of the dramatic changes at Key and our excitement
for the future.
CREDIT QUALITY
As optimistic as we are, we recognize that the business climate of 2001 is
far more challenging than last year's, particularly because of industry-wide
credit quality issues triggered by a slowing U.S. economy.
Key, like virtually every financial services firm, is feeling the impact. In
2000, our ratio of net charge-offs to average loans increased, driven primarily
by the economic slowdown. While the ratio is high by Key's standards, our
performance is comparable to the industry's.
Further, we have tightened our underwriting standards. While credit quality
is the industry's "wild card" in 2001, we remain confident in our ability to
manage effectively this critically important aspect of our business through this
new phase of the business cycle.
MANAGEMENT CHANGES
I would like to acknowledge and personally thank Bob Gillespie, whom I have
worked for and with all of my career. During that time, I have been continually
impressed by his innovation, leadership and personal energy. Bob has been the
driving force behind this company's transformation and growth, all the while
demonstrating an extraordinary sensitivity to the needs of our customers and
communities. In every sense, today's KeyCorp is a testament to his strategic
vision.
It has been a pleasure, a privilege and a tremendous learning experience to
have worked with him, and I am proud that he and the Board of Directors have
demonstrated their confidence in my ability to continue to build our
organization.
At the time of Bob's retirement, we also announced the election of Thomas C.
Stevens, Key's general counsel and secretary, as vice chairman and chief
administrative officer. Tom's demonstrated skill in resolving complex issues and
his comprehensive understanding of our staff operations made him the ideal
candidate for his new position. Deputy General Counsel John H. Mancuso succeeds
Tom as our general counsel. John has a profound knowledge of Key's legal issues
and our organization, which has made for a seamless transition.
During the year, James E. Bennett, senior executive vice president, left Key
to pursue an opportunity to run an electronic commerce business. We thank Jim
for his strategic insight and business acumen, which have had a significant
effect on our company.
OUTLOOK
Looking ahead, Key expects to do business in a challenging economic
environment. How rapid, steep or long the slowdown will be is unknown.
Undoubtedly, it will affect everyone in our industry. However, we have a long
history of successfully managing our credit quality through all phases of a
business cycle. We have a broad array of products and services available to meet
our clients' varied needs. We enjoy diversified revenue streams and are not
overly dependent on any one business. Our outstanding professionals, using our
new internal operating guidelines, will be pulling together as never before to
deliver value to clients and, by extension, to our shareholders.
I thank those shareholders who have stood by us faithfully as we repositioned
Key for success in the twenty-first century. It is our objective and commitment
to reward that allegiance with superior financial performance in the years to
come.
[Key Logo]
Key 2000 [] 5
<PAGE> 8
[MAN ON LADDER REMODELING BACKGROUND GRAPHIC]
Rocky Mountain High 8
It's Not Just Advertising 9
Getting to Wow! 10
Have You Hugged Your
Computer Today? 13
<PAGE> 9
[REMODELED GRAPHIC]
REMODELED TO SERVE YOU BETTER
EVER WALK INTO A STORE THAT KEEPS ITS DOORS OPEN WHILE "REMODELING TO SERVE YOU
BETTER?" SEEMS CONFUSING, A BIT UNSETTLING. INEVITABLY, CONSTRUCTION WORK
TEMPORARILY OBSCURES THE SUBSTANTIAL BENEFITS OF THE END RESULT.
Key, now completing construction work undertaken during the mid-1990s, is no
different. It's taken time, but that's because Key isn't simply changing its
facade, it's altering the very way it does its business.
Meaning what? The basic concept is to create a new kind of industry player -
one capable of responding to all of a client's financial needs in a distinctive
way. It involves bringing together, at the right times, all the products and
services required to meet the multiple, and often complex, financial needs of an
individual, company or other institution. Key is among a relatively small group
of established industry players attempting to unlock the value of the concept:
higher-growth and diversified revenue streams that should lead to higher returns
to shareholders.
(Continued on page 8)
Key 2000 [] 7
<PAGE> 10
[GRAPHIC OF MAN STANDING WITH ARMS UP, ON TOP OF A MOUNTAIN]
ROCKY MOUNTAIN HIGH
For the members of Key Equipment Finance (KEF), one of the company's 12 business
lines, the notion of scaling mountains to success is as real as the Rockies,
which soar majestically above its Boulder, CO, headquarters. This high-growth,
high-margin line, which boasts more than $7 billion in assets and originates in
excess of $3 billion of leases annually, is one of the world's largest
bank-affiliated leasing firms.
KEF comprises four units. Its Commercial (corporate) and Express (small
ticket) Leasing units meet the needs of growing firms that wish to preserve
their cash flow, rather than use it to purchase equipment. Think printing
presses, machine tools and photocopiers.
KEF's Municipal and Federal unit does the same for the public sector, e.g.,
cities, school systems, hospitals and not-for-profit organizations. Think school
buses and snow removal equipment.
Another portion of KEF's double-digit growth in both revenues and profits has
come from its Global Vendor Services unit. In 1997, Key acquired Leasetec, which
specialized in serving high-tech firms - think networking equipment and computer
systems. Specifically, Leasetec, recently renamed Global Vendor Services,
provided these clients with well-run vendor leasing programs - a rapidly
expanding field. Through such programs, companies can attract clients of their
own by making their products available without insisting on an associated
commitment of capital. The unit's continued success brought the Key name to more
than two dozen countries in the Americas, Europe, Asia and the Pacific Rim.
KEF's next frontier lies in offering its proven vendor leasing programs to
firms outside of the high-tech sector. It's a far larger market segment,
representing assets of about $100 billion in the U.S. - and it's been growing at
a compounded annual rate of 10 percent over the past few years.
"We feel we've conquered many summits involving leasing in the high-tech
world," says Paul Larkins, KEF's president and chief executive officer. "Now,
our experienced team intends to quickly scale a much larger peak." Bet they'll
lease their climbing gear.
[Key Logo]
- --------------------------------------------------------------------------------
Remodeled
(Continued from page 7)
Of course, what some people call one-stop shopping isn't for everyone. "But
people, in both their personal and professional capacities, often tell us that
they're looking for a better way to purchase financial services," explains Henry
Meyer, Key's newly appointed chief executive officer. "They find it tough and
time-consuming to sort through an ever-expanding and sometimes confusing array
of financial options. The marketplace needs a branded, approachable and
trustworthy company to help people cut through the clutter, purchase what they
need and get on with their lives. This is the void Key intends to fill." In
short, Key's strategy is to deliver to clients integrated financial services.
The void itself is a legacy of Depression-era legislation that separated the
activities of banking, securities and insurance firms. While boundaries among
such firms have blurred over the years, no company has achieved the complete
integration made possible formally in March 2000 when the Gramm-Leach-Bliley law
became effective. But far-sighted players, Key among them, have been
restructuring, or transforming, in anticipation of this important legislative
freedom.
Remodeling jobs of this sort are complicated affairs that take years. "Years
during which the imperfect process of restructuring can obscure the underlying
strength of your company," says Meyer. "But a lot of our shareholders recognize
that the industry is changing forever. They know there's a void in the
marketplace, and that the first few companies to fill it will have a competitive
advantage and generate substantial shareholder wealth. It's a race to the
finish. Moving too slowly or quickly can be deadly. We think we've pursued the
right combination of marathon and sprint."
(Continued on page 12)
8 [] Key 2000
<PAGE> 11
IT'S NOT JUST ADVERTISING!
[PHOTO OF KAREN HAEFLING]
Karen Haefling is tireless. Good thing too, because, as Key's chief marketing
officer, she wages a seemingly endless campaign. Her goal is to help people
grasp the power of marketing - especially of branding. "It's not just
advertising!" says Haefling.
(CONTINUED ON PAGE 11)
Key 2000 [] 9
<PAGE> 12
[GRAPHIC OF MAN TALKING ON TELEPHONE]
GETTING TO
WOW!
"My goal is to get people to say `Wow!' when they hear about Key Asset
Management (KAM)," says the unit's President and Chief Executive Officer Rick
Buoncore. "If I can do that, I'll be able to grow the business' contribution to
Key's net income substantially from its 2000 level of 10 percent. The market
currently places a high premium on asset management companies. We want to expand
our asset management business to enhance the value of Key's shares."
Though "substantial growth" is a tall order, Buoncore is confident that he
and his team are up to the challenge. First, earnings of large cap investment
management companies are expected to grow at an annual clip of 17 percent over
the next five years. Driving that growth are the rise of newly affluent and
savvy individual investors, an aging population with a propensity to live longer
and an increase in economic productivity, underwritten in large part by the
ongoing revolution in technology.
A second promising development is an emerging preference for value, as
opposed to growth, investing. A slowing economy and a retreat from speculative
"new economy" stocks have triggered the rediscovery of tried-and-true methods
for making sound investments.
Tony Aveni, KAM partner and chief investment officer, notes, "This new
sentiment is showing up loud and clear in market performance data. Two Thousand
is the first year since 1993 that value has outperformed growth in a meaningful
way. The shift is important because we are a value shop. The market is about to
hit our sweet spot."
A third factor working in Buoncore's favor is KAM's product portfolio. Assets
managed in KAM's Large Cap Value style are a good example. He explains, "Two of
the most important measures of performance quality are total return and alpha -
the latter tells investors how much reward was generated by its manager given
the risk assumed. Over the five years ending December 31, 2000, Large Cap Value
produced an annualized total return of 20 percent, compared with the S&P 500
Index, which produced 18 percent, and the S&P Barra Value Index, which produced
17
10 [] Key 2000
<PAGE> 13
percent. And our alpha was off the charts - meaning that we delivered
outstanding risk-adjusted returns."
Other KAM investment products sport a similar pedigree. Pointing to a
dog-eared chart (pictured at right), Buoncore continues, "Eighty percent of our
equity products have outperformed their respective industry benchmarks over the
last five years - a fact all the more remarkable because it occurred while
investors were passionate about growth stocks."
Buoncore also believes that Key's streamlined operating structure will help
his business grow. Specifically, "The company's simplified organization (see
"Making Simplicity Pay Off," page 14) makes it much easier for me to communicate
KAM's value," he notes. "I can now have discussions with 11 business heads
instead of 21."
While KAM itself has sales professionals, it both leverages and benefits from
those in other lines. Given their own lofty sales goals, they'll want to be
certain from the outset that they're offering clients outstanding asset
management products. Fortunately, Buoncore's got just what they need. But first?
Getting 11 people to say "Wow!"
[Key Logo]
[KEY-MANAGED FUND PERFORMANCE RELATIVE TO BENCHMARK GRAPH]
Performance relative to zero basis point benchmark, expressed in basis points
(bp)
Style 1-Year 3-Year 5-Year
- -------------------------- ------------ ------------------ -------------
1. SBSF Value Greater than 0-250 bp 0-250 bp
500 bp above above below
2. Large Cap Growth Greater than Greater than 0-250 bp
500 bp above 250-500 bp above above
3. Diversified Equity Greater than Greater than 0-250 bp
500 bp above 250-500 bp above above
4. Deep Value Greater than 0-250 bp above 0-250 bp
500 bp above above
5. Mid Cap Value Greater than Greater than Greater than
500 bp above 500 bp below 500 bp below
6. Balanced Greater than 0-250 bp above 0-250 bp above
500 bp above
7. Convertible Securities Greater than 0-250 bp below 0-250 bp above
250-500 bp
above
8. Large Cap Value 0-250 bp above Greater than Greater than
250-500 bp 250-500 bp
above above
9. International Greater than 0-250 bp above 0-250 bp above
500 bp below
10. Gradison Small Cap 0-250 bp above 0-250 bp above 0-250 bp above
ADVERTISING
(continued from page 9)
"It's about staking a claim. Great companies use their brands to tell people
what they stand for. They also use their brands to establish bonds with their
clients that competitors cannot break." Examples of meaningful brands abound.
Maytag(R) - dependable. Timex(R) - indestructible. Volvo(R) - safe.
Moreover, companies that make good on their brand promises do more than just
please their clients. They please their shareholders. Numerous studies bear this
out. Cap Gemini Ernst & Young, a leading information technology and professional
services consulting firm, says that effective branding can increase stock prices
in the financial services industry by as much as 7 percent. In other words,
brands are golden.
"Branding has become increasingly important in our industry," Haefling notes.
"When you have thousands of firms competing in an industry that has undergone -
and continues to experience - tremendous change, brands matter. A strong one can
serve as a beacon for bewildered and time-pressed people. It can help them make
sound decisions with minimum hassle."
The challenge for most financial services firms, or for those in any industry
that's undergone substantial deregulation, for that matter, is that they have to
learn how to market. They have to determine which needs they'll meet and how
best to communicate their value. Above all, they must stick with it. Strong
brands take years and deep pockets to create, so getting it right the first time
is important.
Key has come a long way since 1996, when it began brand-building in earnest.
"Key's logo - the red key - is now widely recognized in states where we have
a branch-based presence," continues Haefling. "Our focus going forward is to
infuse the symbol with meaning. Specifically, we want people to know that Key
now is much more than a bank - it's a full-fledged provider of INTEGRATED
financial services. Further, we want people to know that when they select Key,
they'll find a partner that will unlock the power of their resources, whatever
their aspirations. How so? By coordinating the delivery of a broad range of
top-notch financial products and services in a timely fashion."
In January 2001, Key launched its new brand line, "Achieve anything." Several
months of testing with clients throughout the company's markets revealed that it
captured the essence of Key's promise. (Examples of three print advertisements
appear in this report.)
Says Haefling, "The brand line conveys unlimited possibilities - a `swing for
the fence' kind of attitude. It suggests flexibility, creativity and
innovation."
Clients who participated in focus groups had this to say: "`Things out of
reach can become reachable.' `When we win, they win.' `Determined to get you
what you need.' `Proactive - very progressive'."
Haefling, understandably pleased, concludes, "In short, there's nothing
people can't do when they put their minds to it. The good news is, Key can help
them get there."
[Key Logo]
Key 2000 [] 11
<PAGE> 14
REMODELED
(Continued from page 8)
Since 1994, when Key arose out of the combination of Cleveland-based Society
Corporation and Albany, NY-based KeyCorp, the company's strategic transformation
has been relentless.
An important thrust has been to emphasize businesses with higher growth
potential, such as equipment finance and asset management (see "Rocky Mountain
High," page 8, and "Getting to Wow!," page 10).
To build its presence more rapidly, Key has turned frequently to
acquisitions. For example, the company purchased McDonald & Company Investments,
Inc. in late 1998. This union allows Key to offer its retail and institutional
clients access to a broad array of capital markets and investment expertise.
At the same time, the company has been divesting less attractive operations.
It sold its credit card business in 2000, for example, earning one of the
highest premiums ever paid. In doing so, it eliminated its need to feed this
scale-intensive business and reduced its exposure to credit risk. It also put
itself in a position to be paid by external, best-in-class card suppliers for
distributing their product to its clients.
Additionally, it has formed a large number of strategic alliances with
respected vendors. Through them, Key has been able to extend the reach of its
distribution channels - its arrangement with Costco, a national membership
warehouse club, is a good example. It also has used them to enrich its product
and service mix quickly and cost-effectively - witness the alliance with
InsLogic, a leader in online insurance services.
The chart to the left highlights Key's makeover through its strategic
acquisitions, divestitures and alliances.
Key also has been building corporate-wide capabilities to achieve a
competitive lead. Specifically, it's been emphasizing the development of
superior marketing, technology and sales expertise. "It's Not Just
Advertising!," page 9, and "Have You Hugged Your Computer Today?," page 13,
illustrate Key's commitment to two of these important disciplines.
Clearly, Key's strategy will benefit clients and shareholders.
Key's basic transformation is largely complete. "At this point, we can offer
our clients just about any financial product or service they need, anytime they
need it," emphasizes Meyer. "Our focus now is on executing our strategy
flawlessly."
[Key Logo]
REPRESENTATIVE MILESTONES IN KEY'S EVOLUTION
ACQUIRING HIGH-GROWTH BUSINESSES
[Chart]
1995 - Spears, Benzak, Salomon & Farrell (asset management)
1996 - Carleton, McCreary, Holmes & Co. (investment banking)
1996 - Knight Insurance Agency (education financing programs)
1997 - Leasetec Corporation (equipment leasing)
1997 - Champion Mortgage (home equity financing)
1998 - McDonald & Company Investments (investment banking and brokerage)
2000 - Newport Mortgage Company (commercial real estate)
2000 - National Realty Funding (commercial real estate)
2001 - The Wallach Company (investment banking)
DIVESTING LOW-GROWTH OR LOW-RETURN
OPERATIONS OR SELECTED SCALE-DRIVEN BUSINESSES
1995 - Bond servicing
1995 - Residential mortgage loan servicing
1996 - Shareholder services
1997 and 1998 - 150 branches, including Wyoming franchise
1999 - Long Island retail banking franchise
2000 - Credit card
FORMING STRATEGIC ALLIANCES
1998 - ARCO (deployment of ATMs at many of this leading gasoline
retailer's sites)
1998 - Costco (sales of banking products to this national membership
warehouse club's small business customers)
2000 - Ariba and Xerox Connect (use of the Internet to help middle
market clients buy and sell more effectively)
2000 - ABN AMRO (provision of enhanced international trade services)
2000 - InsLogic Corporation (provision of online insurance products
and services)
12 [] Key 2000
<PAGE> 15
HAVE YOU HUGGED YOUR COMPUTER TODAY?
[GRAPHIC OF COMPUTER-MAN]
"The Internet is a huge vacuum sucking all the friction out of the economy,"
Michael Dell, chief executive officer of Dell Computer, told a USA TODAY
reporter earlier this year. "Companies that use this to their advantage will be
the ones that survive and thrive."
Obviously, the improvement opportunities Dell sees go beyond the marginal
variety; they're fundamental, like harnessing electricity. Coupled with abundant
evidence that correlates a well-equipped labor force with a lot of high-quality
output, it's no wonder that companies intent on creating value for their
shareholders want workers who embrace technology.
Key has a history of applying technology to create value. It was the first -
and remains the only - bank-based financial services company to offer clients
real-time access to account information across all channels. Make a deposit at
an ATM, then pick up the phone immediately to check the account's balance and it
will reflect the deposit - even if you made the deposit in Portland, ME, and
your spouse placed the call from Portland, OR.
The foresight that made this possible - creating a single national computing
platform - is the same foresight that allowed Key to save its shareholders an
estimated $10 million when it prepared for Y2K. Compared with peers that had to
process the same Y2K modifications to several platforms, Key's job was
relatively easy. In addition, Key's simpler computing environment positions it
well to administer clients' privacy preferences cost-effectively.
Key also offers its clients a terrific business-to-consumer, or B2C, Internet
offering through Key.com.
Recognized repeatedly by external site-evaluation firms, Key.com reflects the
company's commitment to be at the forefront of the technology revolution. In
addition to attracting new clients to Key - 8 percent of online applicants are
new - B2C users, as compared with their off-line counterparts, are four times
more loyal to Key, maintain investment balances that are 1.5 times higher and
loan balances that are three times higher.
The company also is actively applying its experience with B2C applications to
the business-to-business - or B2B - arena. Companies are managing their cash
flows through Key's comprehensive Internet-based Key Total Treasury(SM),
controlling their purchase of products for their offices through KeyProcure, an
electronic marketplace, and are automating fully their invoicing and receivables
process through Key Total Invoice(SM), which delivers electronic bill
presentment and payment.
Beyond serving clients, the next frontier is Key's business-to-employee, or
B2E, applications. Many ideas for promoting the further use of technology by
employees are scheduled or under way. It should help that every Key employee
will have access to a web-enabled computer by mid-2001.
Ideas focus on eliminating manual operations, such as processing expense
reimbursements, and placing online much of the documentation that helps
employees do everything from learn how to send e-mails to enroll in benefits
programs.
In all, Key estimates that intranet-based B2E ideas will generate annual
savings of $16 million and substantially reduce paper use and manual processing.
Makes you want to hug your computer, doesn't it?
[Key Logo]
Key 2000 [] 13
<PAGE> 16
[LINES OF BUSINESS COLUMN CHART GRAPHIC]
2 Plot Points--22 and 12
MAKING SIMPLICITY PAY OFF
LESS IS MORE: KEY LEVERAGES SIMPLIFIED ORGANIZATIONAL STRUCTURE
Organizational structure. It's a two-edged sword that can either help or hinder
employees as they work to implement a company's strategy. Perhaps that's why so
many companies tinker with their organizational design. Getting it right can
make a big difference in a company's performance. But getting it right is tough.
Customer preferences evolve. Managers come and go. Laws and regulations change.
Technologies emerge. Strategies shift. Sometimes all at once. And companies are
expected to anticipate and adapt to it all at a moment's notice.
Combining companies makes it even tougher. So Key's leaders knew that they
had their work cut out for them after the 1994 union of Society and Key. After
all, Society was an organization that emphasized lines of business; Key focused
on geographies. In addition, company leaders were actively working to alter
Key's business mix. This added a bit of zest to their task as they worked
thoughtfully through the structural implications of the company's many
acquisitions and divestitures (see page 12 for a partial list).
Since 1994, they've come a long way toward creating the right structure.
Their vision: To devise something simple and manageable. Something that makes it
easy for employees to deliver integrated financial services to clients in a
manner that also produces superior financial results for shareholders. Their
primary tool? Common sense.
In a nutshell, Key is structured around lines of business. The lines develop
business strategy, source top-notch products and services, and sell them to
clients. Some lines produce their own products and services; the checking
accounts offered by Consumer Banking are a good example. Some lines offer both
proprietary and purchased products. For instance, Key Asset Management offers
Key's proprietary mutual funds and those from several other leading fund
companies. On the other hand, Key's insurance operation sources nearly all of
its products externally.
KEY IN PERSPECTIVE: OUR LINES OF BUSINESS, on the following pages, describes
Key's 12 lines, down from 22, thanks to the company's competitiveness initiative
(see "Fulfilling Our Promise," page 22). Collectively, the businesses are able
to meet the full range of targeted clients' financial needs. Though many of the
lines are product-oriented, all are managed with the needs of specific client
segments in mind. It's a way of making sure that product sets remain fresh,
relevant and profitable. And fewer lines of business make for a simpler
management task. It also improves accountability for financial results.
The company's recent creation of a single Consumer Banking organization (see
"Wonderfully Simple," page 17) illustrates how clients and shareholders will
benefit from Key's simplified structure.
While each line of business is a strong performer in its own right, Key
recognizes that the company's full power to serve can be unleashed when line
talents are combined. Among its most promising efforts to marshal its collective
resources and create value for clients and shareholders is its 1Key BusinessLink
Rewards program (see "Pleased to Meet You," page 19). Common sense, indeed.
[Key Logo]
14 [] Key 2000
<PAGE> 17
[PAY OFF BACKGROUND GRAPHIC]
Wonderfully Simple 17
Pleased to Meet You 19
Key in Perspective:
Our Lines of Business 20
Key 2000 [] 15
<PAGE> 18
[GRAPHIC OF JACK KOPNISKY STANDING AMONG ADVERTISEMENTS]
[16]
<PAGE> 19
SOMETIMES, LIFE'S BEST IDEAS ARE THE SIMPLEST.
Think: Ziploc(R) plastic bags, Post-it(R) Notes
and keyless remote entry.
WONDERFULLY
SIMPLE
Key's corporate-wide competitiveness initiative, also known as PEG - or
Perform, Excel, Grow - gave employees a chance to offer up some of their best
ideas. Obvious to many was an opportunity to simplify Key by combining the
company's Retail Banking and Specialty Finance businesses into a single unit
called Consumer Banking. Their idea was to apply to Specialty Finance the
winning strategy already at work in Retail.
Retail Banking is Key's largest business, producing 38 percent of the
company's earnings in 2000. It currently serves nearly two million households
with a wide range of deposit, credit and investment products. Branches, or
KeyCenters, located in 13 states, are the most visible of its four major
delivery channels - the others being the Internet, ATMs and the telephone.
Retail also plays a crucial role in gathering deposits, the company's least
expensive form of funding.
Because of its size and importance, Key decided in 1998 that Retail needed to
overcome years of sluggish growth. Enter Jack Kopnisky (pictured at left), under
whose leadership Retail's net income, excluding divestitures, grew at a
compounded annual rate of 16 percent between 1998 and 2000. Deposits, again
excluding divestitures, grew by 6 percent over the same period. Such performance
is rare in the industry. His strategy?
- - Develop enduring relationships with clients by bringing to them, at the right
times, all the products and services needed to meet their financial needs.
Lifecycle packages play an important role by supplying a suite of products
appropriate for various life stages.
- - Always deliver a positive service experience - the "Key Difference" - in a
profitable manner. The Key Difference is all about bringing a positive,
professional, service-oriented attitude to every relationship and striking
the right balance between high-touch and high-tech delivery for each client.
- - Adapt marketing approaches to the needs of local communities, or
"micro-markets" - after all, neighborhoods with lots of young families have
different needs than those with many retirees.
- - Make performance expectations clear, measure results and hold people
accountable.
The other piece of Consumer Banking, Specialty Finance, offers clients loan
products through dealers, brokers and various Key channels. More than a quarter
of the 1.7 million households it serves are located in areas not served by
KeyCenters. In 2000, the business delivered 7 percent of Key's earnings.
Kopnisky, leader of the combined unit, now has two priorities. One, as noted,
is to apply Retail's strategy to Key's consumer finance operations. Granted,
clients living far from a KeyCenter won't likely use all of the company's
products and services. But they, for instance, may enjoy hearing about
attractively priced car insurance, sourced by Key, when they're looking for an
auto loan. Or, when buying the boat of their dreams, they may be interested in
hearing about a home equity line of credit.
Currently, the typical consumer finance customer uses a single product, while
retail banking clients use an average of three. Just getting one in four
consumer finance clients to buy an additional product could generate incremental
earnings of more than $35 million over five years.
Kopnisky's other priority is to simplify many behind-the-scenes activities.
For instance, he's uniting several underwriting departments. He also is pooling
the two businesses' marketing and technology resources and focusing them on
where they can have the greatest impact. He expects that the union's benefits
will begin to materialize in a year's time. Simply wonderful.
[Key Logo]
Key 2000 [] 17
<PAGE> 20
[ADVERTISEMENT-WOMAN REMODELING BACKGROUND GRAPHIC]
once upon a time
she made up stories sitting on her parents' porch
she was a princess who lived in a castle
now with an investment plan
a bookshelf in every room
a home equity loan
and a porch of her own
she still believes in fairy tales
ACHIEVE INSPIRATION.
[KEY LOGO] ACHIEVE ANYTHING.
No matter the shape, size or scope of your dreams, Key can help you reach them.
By combining our resources with yours, they'll not only work harder, but work
smarter. Maybe you're ready to make some home improvements. Or you need
financial planning to save for college or your retirement. Whatever your
financial goal, Key can help you achieve anything. To find out more about what
Key can do for you, call 1-800-KEY2YOU(R) or visit us at Key.com.
FINANCIAL PLANNING. INVESTMENTS. LOANS.
KeyBank is:
Member FDIC [LENDER GRAPHIC]
Securities offered through McDonald Investments Inc., A KeyCorp Company and
member NASD/NYSE/SIPC.
Investments and insurance available through affiliates of KeyBank:
- NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
(C) 2001 KeyCorp
<PAGE> 21
PLEASED TO MEET YOU
[PHOTO OF SUSAN STEINER AND ERNIE VALLORZ]
Joanne Colley never thought she'd grow up to be a matchmaker. But as the
director of Key's 1Key BusinessLink Rewards program, she and her crack team find
themselves facilitating successful introductions all the time. Getting better
acquainted are members of the company's extensive team of sales professionals.
The sparks resulting from the introductions generated new revenues of $42
million for Key during 2000, up from $26 million in 1999, the program's
inaugural year. Moreover, the program emphasizes fee-based products and
services, which helps Key boost the percentage of noninterest income comprising
its revenue mix, an important strategic goal.
The company launched 1Key BusinessLink Rewards as a pilot soon after its
acquisition of McDonald & Company Investments in late 1998. The program
essentially pays referral fees to people who identify opportunities beyond their
normal scope of responsibility that result in new booked business.
The idea was to ensure that commercial, institutional and affluent clients
were exposed to the full range of capabilities made possible by the union. And,
while blessed with sales professionals who prided themselves on having deep
product and industry expertise, Key wanted to ensure that they were conversant
about products and services outside of their immediate professional experience -
and were using that knowledge to cross-sell. Key's lines of business are glad to
fund the fees, since they are credited with the associated revenues. In 1999,
they shelled out $2.3 million for 355 successful referrals; in 2000, $3.7
million for 752.
Top performers are inducted into the program's Black Turtleneck Club. Typical
are folks such as Susan Steiner and Ernie Vallorz (pictured at right). Steiner,
a commercial banker, was approached by her long-term client, a rapidly growing
consulting firm. Its founder needed advice on taking his firm to the next level
- - specifically, to achieve a top position in its market niche. Vallorz, an
investment banker, got involved. He listened carefully to the founder's criteria
for screening potential merger partners. Vallorz soon returned with a merger
candidate list containing a perfect match, which led to a happy marriage. The
revenues generated for Key shareholders totaled $750,000. Later, Steiner also
introduced her client to the professionals in Key Asset Management, resulting in
a $9 million investment management account.
And the role of Colley's team? In a nutshell, team members screen incoming
referrals for eligible opportunities. Promising leads are then supplied to sales
professionals with the appropriate expertise. They, in turn, follow up with the
referral sources for more detail. After confirming that the right players are
involved, clients or prospects are contacted. New booked business that meets
certain size and profitability hurdles, as set by the lines of business,
triggers a payout.
Having proved its value to shareholders, clients and employees alike, 1Key
BusinessLink Rewards was rolled out corporate-wide in February 2001. Now, every
Key employee is eligible to earn referral fees. As before, they can access the
program conveniently through the company's intranet or by telephone. As before,
they needn't be a product or industry expert to sense an opportunity and take
action. And as before, they can, like Colley, add matchmaker to their list of
professional qualifications.
[Key Logo]
Key 2000 [] 19
<PAGE> 22
KEY IN PERSPECTIVE:
KEY CORPORATE FINANCE JAMES S. BINGAY
[Line of Business Graphic]
COMMERCIAL
BANKING
COMMERCIAL
REAL ESTATE
EQUIPMENT
FINANCE
SPECIALIZED
INDUSTRIES
GLOBAL TREASURY
MANAGEMENT
KEY CORPORATE FINANCE offers a complete range of financing, transaction
processing and financial advisory services to corporations nationwide. It ranks
nationally among the top 10 banks in providing financial services to the media
and telecommunications, commercial real estate and healthcare industries. Across
Key's 13-state franchise, its commercial banking unit has a dominant market
share with middle market and small business segment companies. It operates one
of the world's largest bank-affiliated equipment leasing companies, with
operations in the Americas, Europe, Asia and the Pacific Rim. Based on total
transaction volume, the group is also one of the nation's leading providers of
cash management services.
Companies of all sizes partner with Key to fuel their business success. For
instance, small businesses needing funds look to Key for loans. Rapidly growing
firms use its leasing products to finance their equipment needs. Companies
wanting to establish a presence and transact business on the Internet benefit
from Key's electronic commerce services. Privately held firms turn to Key for
advice when considering a change in ownership. Both small and large firms make
their cash work hard every day using Key's treasury management services.
- - COMMERCIAL BANKING provides financing, cash management and advisory services
to four principal segments: Micro Business serves new and small companies,
including home-based firms. Business Banking serves businesses with revenues
between $1 million-$10 million. Middle Market serves companies with revenues
between $10 million-$250 million. Large Corporate serves some of America's
largest and best-known companies.
- - COMMERCIAL REAL ESTATE provides one-stop shopping for developers, mortgage
brokers and owner-investors seeking construction and interim lending,
permanent debt placements and servicing, and equity and investment banking
services.
- - EQUIPMENT FINANCE leases equipment to growing businesses across the country
and internationally. Through its popular vendor leasing program, Key also
helps its corporate clients establish leasing options for their customers.
- - SPECIALIZED INDUSTRIES professionals cater to the unique financial needs of
firms operating in the media and telecommunications, healthcare and
technology industries. They also provide financing and advisory services to
private equity buyout groups and asset-specific structured financing on a
cross-border basis. Additionally, loan syndications are arranged with other
lenders to reduce Key's risk while providing one-stop financing as an Agent
bank.
- - GLOBAL TREASURY MANAGEMENT helps clients efficiently manage their corporate
funds by providing a wide array of cash management products. Complementing
these more traditional products, Key has established a leadership position in
the rapidly growing electronic commerce market through its KeyNext
business-to-business product unit.
<TABLE>
<CAPTION>
in millions
<S> <C>
REVENUE
Net interest income (taxable equivalent) $ 1,071
Noninterest income 385
Total revenue (taxable equivalent) 1,456
NET INCOME $ 398
AVERAGE BALANCES
Loans $31,564
Total assets 33,112
Deposits 3,047
</TABLE>
Note: Key Corporate Finance, formerly Key Corporate Capital, now also serves
smaller businesses; formerly, they were served by Key Retail Banking. The 2000
financial results displayed here exclude Key's relationships with smaller
businesses.
KEY'S PRODUCT LINE-UP
- - Asset management
- - Brokerage
- - Cash management
- - Checking, savings and CDs
- - Credit cards
- - Electronic commerce
- - Employee benefits
- - Equity investments
- - Estate planning
- - Financial planning
- - Insurance and annuities
- - International services
- - Investment banking
- - Leases
- - Loans and lines of credit
- - Mergers and acquisitions
- - Mutual funds
- - Online banking and investing
- - Payment processing
- - Retirement planning
- - Safekeeping
- - Trust services
20 [] Key 2000
<PAGE> 23
OUR LINES OF BUSINESS
KEY CONSUMER BANKING JACK L. KOPNISKY
[Line of Business Graphic]
RETAIL
BANKING
HOME
EQUITY
CONSUMER
FINANCE
KEY CONSUMER BANKING is a national organization that offers consumers a full
array of deposit, investment, credit and personal finance services. Newly
created, it combines the company's retail banking and consumer finance
activities. Its focus is on building deep and enduring relationships with
clients. Services are delivered through KeyCenters, third-party marketing
alliances, call centers and electronic commerce platforms.
INDIVIDUALS work with relationship managers who help them buy or remodel a
home, lease a new car, finance their children's education, plan for retirement,
insure property, keep valuables safe and efficiently manage routine financial
activities, such as paying bills. AUTO, MARINE AND RECREATION VEHICLE DEALERS
benefit from the group's inventory financing capabilities, while COLLEGES AND
UNIVERSITIES enjoy financing resources that can help them attract and assist
students.
- - RETAIL BANKING operates 922 KeyCenters with a team of relationship managers,
supported by more than 2,400 ATMs, a state-of-the-art telephone call center
and a leading-edge Internet banking service, Key.com. Its comprehensive
deposit, investment and credit products and personal finance services;
distribution channels; and enhanced sales and relationship management systems
are the foundation for continued marketplace and financial growth.
- - HOME EQUITY offers prime and less-than-prime mortgage and home equity loan
products, refinancings and jumbo mortgages. For individuals who prefer not to
refinance with a traditional bank or who cannot qualify for a standard bank
loan, Champion Mortgage can refinance a first mortgage or supply a home
equity loan. Key Funding works with dealers and home improvement contractors
to provide indirect home equity and home improvement loans.
- - CONSUMER FINANCE encompasses several business activities. Education Resources
provides Federal and private loans and payment plan education guidance to
families nationwide for private K-12, undergraduate and continuing education
programs. Personal Finance offers consumers secured and unsecured loans,
including credit card products through a relationship with The Associates.
Recreation Lending serves consumers, brokers and more than 1,440 marine and
RV dealers in 48 states with prime retail and inventory financing options.
AutoFinance provides lending services to car dealers and their customers.
<TABLE>
<CAPTION>
in millions
<S> <C>
REVENUE
Net interest income (taxable equivalent) $ 1,737
Noninterest income 472
Total revenue (taxable equivalent) 2,209
NET INCOME $ 454
AVERAGE BALANCES
Loans $25,844
Total assets 28,515
Deposits 35,117
</TABLE>
Note: Key Consumer Banking represents the combination of Key Retail Banking and
Key Specialty Finance. Until recently, Key Retail Banking served the needs of
smaller businesses; they are now served by Key Corporate Finance. The 2000
financial results displayed here reflect Key's relationships with smaller
businesses.
KEY CAPITAL PARTNERS ROBERT T. CLUTTERBUCK
[Line of Business Graphic]
ASSET
MANAGEMENT
HIGH
NET WORTH
EQUITY
CAPITAL MARKETS
[Line of Business Graphic]
BANK
CAPITAL MARKETS
KEY CAPITAL PARTNERS provides asset management, investment banking, capital
markets, insurance and brokerage expertise to clients throughout the U.S. and
internationally. It employs a range of distribution outlets, including those of
Key's other lines of business. It strives to engineer custom solutions for
clients, so that they can adapt to and benefit from today's fast-moving
financial markets.
COMPANIES AND INSTITUTIONS look to this group's professionals for advice and
execution when they wish to raise funds in the stock and bond markets, acquire
companies, sell parts or all of their businesses, offer competitive pension
plans to attract talented employees and manage interest-rate risk. AFFLUENT
INDIVIDUALS AND FAMILIES rely on the group's advisors to help them build and
protect accumulated wealth and navigate often complex administrative issues.
- - ASSET MANAGEMENT professionals manage almost $70 billion of assets for
individuals, companies, not-for-profit organizations and governments,
including retirement plans, trusts and foundations. They also manage and sell
31 proprietary mutual funds - the Victory family of funds - ranking Key among
the largest of bank-based asset managers.
- - HIGH NET WORTH comprises Key's private banking, private client and insurance
activities. Its professionals offer banking, estate planning, financial
planning, retirement planning, brokerage and insurance advice and services,
and charitable giving counsel to high-net-worth clients.
- - EQUITY CAPITAL MARKETS provides investment banking advice and access to
global equity and bond markets for major corporations, institutions and
privately held companies through a growing network of offices in major U.S.
cities and in London. Its professionals supply advice on mergers and
acquisitions, initial public offerings, private placements of securities,
syndications, and sales and research.
- - BANK CAPITAL MARKETS provides financial risk-management products in the form
of derivatives, fixed income and foreign exchange to companies and
institutions. It also offers a full range of financial products and advice to
public entities, such as city and state governments and educational
institutions.
<TABLE>
<CAPTION>
in millions
<S> <C>
TOTAL TRUST AND BROKERAGE ASSETS $160,000
REVENUE
Net interest income (taxable equivalent) $ 215
Noninterest income 1,045
Total revenue (taxable equivalent) 1,260
NET INCOME $ 179
AVERAGE BALANCES
Loans $ 5,316
Total assets 9,507
Deposits 3,453
</TABLE>
Note: Key Capital Partners' net income represents earnings prior to assigning
income and expense to other business lines.
Key 2000 [] 21
<PAGE> 24
[OCEAN WAVE BACKGROUND GRAPHIC]
FULFILLING
OUR PROMISE TO
A sound strategy is critical to a company's success. But possessing the will and
discipline to bring it to life and sustain its momentum is just as important. In
the end, in fact, it all comes down to execution. That's what will ultimately
distinguish the winners from the losers.
Enter PEG - or Perform, Excel, Grow. PEG represented phase two of Key's
competitiveness improvement initiative, announced in November 1999. The
initiative was designed to permanently and significantly improve the company's
long-term performance. During phase one, the company consolidated sites,
outsourced activities and reduced management positions - typical restructuring
activities. These actions have produced $100 million in annual savings.
PEG, however, was anything but typical, with process designers insisting that
it:
- Question how work gets done, particularly across units,
- involve Key's top executives,
- emphasize revenue growth as well as cost reduction,
- engage every employee in generating and refining improvement ideas,
- hold nothing sacred and
- track implementation to ensure accountability.
To Key's employees - including Bob Gillespie, Key's chairman and, at the
time, chief executive officer - the difference was palpable, material and
refreshing. Addressing senior managers at a PEG kick-off meeting, Gillespie
noted: "As I look back over my many years with this company, two events stand
out in my mind. One is Society Corporation's 1979 purchase of Harter Bank in
Canton, OH. That transaction marked the beginning of our growth through the
acquisition of both bank and non-bank firms.
(Continued on page 24)
<PAGE> 25
[OCEAN WAVE BACKGROUND GRAPHIC]
PERFORM,
EXCEL, GROW.
"Pegged" for Improvement 25
Now That's Client-Focused! 26
Wait a Minute Mr. Postman 27
<PAGE> 26
Fulfilling Our Promise
(Continued from page 22)
"The other event that stands out is PEG. All of our energies, until now, have
focused on carefully piecing together product and delivery capabilities that
would position us to provide integrated financial services to our clients. Those
building blocks are now in place. Our business transformation is essentially
complete. PEG simply asks us whether we want success badly enough? Do we want to
pay the price, to do the things that great companies do to ensure their
competitiveness?"
A resounding "yes" was the answer. On September 21, after six months of
grueling work, Key announced the results of PEG: More than 2,000 viable ideas
representing $260 million in annual savings (see "`Pegged' for Improvement" on
the following page). Approximately $200 million of the savings will fall to the
bottom line. Managers will reinvest the remaining $60 million to enhance the
company's competitive position, fuel higher growth and improve customer service.
PEG also generated ideas representing millions of dollars in revenue growth -
some represent pricing refinements, while others involve new or improved product
and service features or innovative cross-selling practices.
As of this report's publication, over half of the projects that will produce
these benefits have been implemented.
Moreover, Key executives resolved at the initiative's start that they would
not let PEG distract from employees' day-to-day efforts to focus on clients and
continue driving sales. A review of Key's many non-PEG accomplishments
throughout the year indicate that they kept their promise (see "Now That's
Client-Focused!," page 26). In addition, the company conducted two successful
sales blitzes in May and September. In each, sales professionals paired up in
teams and called on clients and prospects, generating millions of dollars in
sales.
As important, Key leaders sought to perpetuate PEG's bias for promoting
decisive action among employees. Fortunately, as they sifted through the nearly
8,000 ideas submitted by employees, project team members noted several recurring
themes for change.
[Quote Graphic]
"All of our energies, until now, have focused on
carefully piecing together product and delivery
capabilities that would position us to provide
integrated financial services to our clients.
Those building blocks are now in place."
Expressed as operating guidelines, the themes, taken together, represent a great
playbook.
Two of the guidelines can be applied by every employee, whether or not they
have direct contact with clients. One employee explained them this way:
PUT CLIENTS FIRST. "This is Key's version of the Golden Rule. Simple.
Obvious. Powerful. It asks us to consider matters from the client's
perspective. It asks us to be service-oriented. It asks us to build lasting
relationships. Employees who provide super service often remark on how good
it makes THEM feel."
DEEPEN CLIENT RELATIONSHIPS. "This is cross-selling, plain and simple - but
doing so with the client's needs at the forefront. Cross-selling is our Holy
Grail. It asks us to act as if clients of any part of the company are clients
of every part of the company. If I'm a relationship manager opening a deposit
account, I should assume automatically that my client has other needs that
Key can address - and do something about it."
The remaining guidelines are primarily the responsibility of company
managers. A manager explained them this way:
PAY FOR PERFORMANCE. "Not for tenure. Not for activity. Not for effort. Not
for allegiance. But for performance."
EMBRACE TECHNOLOGY. "Abacus, calculator. Candle, lamp. Horse, car. LP, CD.
Town hall, chat room. Technology makes a difference. Always has. Always will.
Put it to work for you. Don't be left behind."
KEEP IT SIMPLE. "How many times should a client provide Key with her Social
Security number? Once. So don't ask her for it repeatedly. Get it right. Keep
it simple."
FOCUS ON GROWTH. "Growth ensures continued existence. It makes for happy
shareholders, clients, employees and communities. Don't be afraid to redeploy
resources, to change. Ask always if you're contributing to the status quo. If
you are, stop. Make something happen. Make something better. It's an
obligation and a privilege."
CONSOLIDATE STAFF FUNCTIONS. "Key is one company, not 12 separate businesses.
Delivering integrated financial services requires that all businesses draw on
common strengths. Like a strong brand. Shared resources. Universal
performance measures."
"Wait a Minute Mr. Postman," page 27, describes how one group of employees is
applying several of these guidelines to generate additional value for
shareholders.
[Key Logo]
24 [] Key 2000
<PAGE> 27
"PEGGED" FOR IMPROVEMENT
Capturing PEG's annual savings of $260 million is critical to Key's
improvement. But unlike some firms that bet the ranch on a few grand slams,
Key's approach was to hit a lot of singles. And in fact, 80 percent of all PEG
ideas are worth $300,000 or less. Most represent plain common sense.
For example: People who sign up for Key's online banking service receive a
debit card that serves, in part, as a means of identity verification. Used to be
that a service disclosure statement accompanied all cards mailed to clients. As
the online industry matured, regulations governing disclosures changed and the
company may now deliver such information electronically. That means mailing
19,000 fewer pieces of paper per month. Good for clients, good for shareholders
- - to the tune of $172,000 each year.
Another example. Key's Loan Services Group found itself handling more than
5,000 calls per month from commercial lending clients. Although it's a
back-office function designed to book and service loans and process payments,
the group, by tradition, had made itself available to help clients in need. Now,
more than half - and climbing - of those calls are being redirected to the
company's Business Resource Center. Its professionals are trained not only to
address clients' loan-related questions, but also to cross-sell. Good for
clients, and good for $83,000 in annual savings - before cross-selling.
In addition, PEG inspired Key to examine its use of contract computer
programmers. Like most companies, Key has occasionally used contractors for
short-term access to specialized skills or to help its own busy staff meet the
expanding demands of the information age. Often, though, short-term assignments
become drawn out as contractors are asked to stay on and help with other
projects - like preparing for Y2K. And in an era where strong technical skills
are often in short supply, it can make good sense to keep such staff on board.
But it's also expensive. So Key has begun replacing many contractors with
permanent staff. Savings to date? More than $130,000.
[Key Logo]
ANNUAL REPORT PRODUCTION EXPENSE
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
1999 2000
ACTIVITY (ACTUAL) (BUDGETED) % CHANGE METHOD
====================================================================================================================================
<S> <C> <C> <C> <C>
DESIGN $144 $109 (24) - Competitively bid design firms
- Use stock art, Key advertisements and economical
approaches to photography
- ------------------------------------------------------------------------------------------------------------------------------------
WRITING 31 0 (100) - Bring in-house
- ------------------------------------------------------------------------------------------------------------------------------------
PRINTING 335 255 (24) - Competitively bid printing firms
- Use lighter-weight paper
- Reduce quantity printed
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION 284 164 (42) - Package with proxy
- Use lighter-weight paper
- Reduce quantity printed
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER 40 45 13
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $834 $573 (31)
====================================================================================================================================
</TABLE>
PEG challenged the annual report production team to generate the document more
cost-effectively, which it did, shaving expenses by more than 30 percent.
Naturally, those same folks wondered if they might not also make it better. More
informative. More personal. And fully reflective of the promise inherent in the
company's transformation. Is it better? You be the judge. Let them know what you
think. Simply go to Key.com and click on "Contact Us." Please reference "Key's
2000 Annual Report" in your comments.
Key 2000 [] 25
<PAGE> 28
[CLIENT FOCUSED BACKGROUND GRAPHIC]
Key has worked hard to keep its eye on the client, even as it successfully
completed its internally focused competitiveness initiative. Contributing to the
company's continued growth were a wide range of business activities, examples of
which appear below. A quick trip to Key's Investor Relations website at Key.com
gives you access to the complete story.
NOW
THAT'S
CLIENT-
FOCUSED!
1Q 2000
Key.com Earns Top-Five Position among Online Banks (SMART MONEY)
Victory National Municipal Bond Fund (Class A) Awarded Certificate for #1
Ranking (Lipper)
Key Introduces Comprehensive Electronic Commerce Program for Middle Market
Clients
Key to Expand and Diversify Principal Investing Capabilities
2Q 2000
Key to Enhance Capabilities of Cash Management Website
Key to Ally with ABN AMRO to Enhance International Trade Services
Key AutoFinance and CarDay Join Forces to Offer Auto Financing on the Web
3Q 2000
Key Selects InsLogic Corporation to Provide Online Insurance Products
Key Partners with MasterCard to Offer Debit Card Processing, Nationwide ATM
Network
Key Opens Phoenix Commercial Real Estate Office
Key to Introduce Wireless Retail Banking Services
Key Completes First Real Estate Project Compliant with Islamic Precepts
Key Small Business to Launch Online Solution Center
Key to Acquire Newport Mortgage Company
McDonald Investments among Best for Investment Research by U.S. Fund Managers
Key Asset Management Launches Victory Nasdaq 100 Index(R) Fund
McDonald Investments Ranked among "Best on The Street" for Investment Research
Key Participates in First Securitization of Commercial Mortgage Loans
Key among Top 5 Financial Services Companies on the Internet (Speer &
Associates)
4Q 2000
Key Completes Second Securitization of Commercial Mortgage Loans
Key to Implement e-Marketing Initiative Using MarketSoft
Key to Introduce Aggregation and Notification Services
The Wallach Company Joins Key's McDonald Investments
Key to Offer Customized Retirement Planning in All KeyCenters
1Q 2001
Key Introduces New Equity Product Called "Table Pounders"
Key and TD Waterhouse Create Alliance to Market Home Equity Products Online
Key Introduces "529 Savings" Plans
Key Launches "Achieve Anything" as New Brand Line
Key Asset Management to Manage $800 Million for Two Prudential Mutual Funds
Victory National Municipal Bond Fund (Class A) Ranked #1 for Year 2000 (Lipper)
Key's McDonald Investments Completes Strong Year of Deal-Making
Key to Use DealForce for Merger and Acquisition Services
[Key Logo]
26 [] Key 2000
<PAGE> 29
WAIT A MINUTE
MR. POSTMAN
[PHOTO OF ALLYN PYTEL WITH STATEMENT-PROCESSING MACHINE]
[CAPTION]
The statement production group's latest acquisition is a machine that can
process 24,000 statements per hour. Its predecessor managed just 2,500. In
addition, over half of all statements are now printed on both sides - a practice
called duplexing. By the end of 2001, all of them will be. That means $2 million
in annual savings for shareholders.
In a world awash in paper, few people ever stop to think about what it takes to
land any particular piece in their mailbox. Or what it costs. A few of those who
do, work in Key's statement production area. Led by Allyn Pytel (pictured at
left), a team of 200 produces everything from one-page brokerage confirmations
to customized trust statements 2,000 pages long. Like other groups in Key's
banking services division, Pytel's used the PEG process to explore lots of
options for producing a better product at a lower cost.
The team works fast and accurately, while complying with a swarm of
complicated disclosure regulations. But just as important, its members
continually work smarter: their average cost to print and mail an item keeps
falling. In 1999, the average was $.3949 - even then, an industry leading
performance. In 2000, it was $.3824. In 2001, it's expected to be $.3769.
While timely, informative statements remain important ways for companies to
communicate with clients, just about everything else in the statement production
profession is changing. Like regulations. It used to be that companies were
required to deliver all information through hard copy. Now these regulations are
being relaxed to permit electronic statements. And client preferences. It used
to be that the prospect of not receiving a canceled check in physical form was
unthinkable. Now, more than 60 percent of Key's consumer banking clients opt for
check safekeeping, which allows the company to store check images. And
technology. The advent of imaging as a presentation and storage tool - and the
Internet as a delivery channel - is making traditional mail-borne statements
obsolete for many people.
Key's assault on statement production efficiency has taken three forms.
First, the product itself. As an example, Pytel's team has worked with Key's
lines of business to reduce paper stock variety by a factor of 10 in just one
year. After all, a statement printed on cream-colored paper says everything that
one printed on white paper says. A second advance has been on the people side -
namely, on providing incentives for high-throughput and low error rates.
Finally, recent upgrades in technology are expected to fuel even greater
productivity gains.
These efforts have saved shareholders more than $3.7 million over the last
two years alone - with $1.1 million more scheduled for 2001. Such progress is
possible only because excellence in statement production is personal - very
personal - to team members. In fact, Pytel has taken to reading regularly Key's
Securities and Exchange Commission filing Form 10-Q to examine his team's effect
on the company's postage expense. His action reflects the group's bias for
thinking of statement production as a business. So much so that the group
intends to explore selling printing and mailing services to outside firms as
capacity becomes available. Something to think about next time you head for your
mailbox.
[Key Logo]
Key 2000 [] 27
<PAGE> 30
TRANSFORMATION
YARDSTICK
[YARDSTICK GRAPHIC]
COMPOUNDED ANNUAL GROWTH RATE
<TABLE>
<CAPTION>
1997-2000
<S> <C>
EPS GROWTH 10%
PRODUCTIVITY 10%
REVENUE GROWTH 6%
</TABLE>
NOTES:
Adjusted core EPS excludes significant nonrecurring items, earnings from
divested businesses and Champion mortgage loan securitization gains
Productivity = Revenue/Full-time equivalent employees
Core revenues exclude significant nonrecurring items
A look at some performance measures shows that Key's transformation from a
regional bricks-and-mortar bank into an international, technologically driven,
multiline firm is working.
DIVIDENDS JUST KEEP ON GROWING!
<TABLE>
<S> <C>
1990 ($ .44)
1992 ($ .49)
1994 ($ .64)
1996 ($ .76)
1998 ($ .94)
2000 ($1.12)
</TABLE>
28 [] Key 2000
<PAGE> 31
TRACKING CHANGES IN KEY'S
REVENUE MIX
[PIE CHART]
<TABLE>
<CAPTION>
1997
<S> <C>
FEE INCOME 30%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
2000
<S> <C>
FEE INCOME 41%
</TABLE>
Take Key's earnings growth. Between 1997 and 2000, the company's earnings per
diluted common share grew at a compounded annual rate of nearly 10 percent, when
you exclude the financial effects of divested businesses and the gains
from Champion Mortgage loan securitizations, which Key no longer uses.
Key employees also have become considerably more productive. In 1997, each
Key employee supported approximately $165,000 in revenues. In 2000, that figure
had climbed to more than $222,000, a compounded annual increase of more than 10
percent. The improvement was fueled both by revenue growth and a steady decline
in headcount, the latter of which has dropped by 10 percent since the end of
1997.
Of course, Key realizes that it can't save its way to prosperity. It
recognizes investors' appropriate focus on revenue growth. Between 1997 and
2000, Key grew core revenues at a compounded annual rate of nearly 6 percent -
no small feat in a rapidly changing industry burdened with overcapacity.
Key also has altered its revenue mix significantly. In 1997, noninterest
income comprised only 30 percent of core revenues. By the end of 2000, that
figure stood at 41 percent. Management's objective is to continue diversifying
Key's earnings stream for shareholders and reducing the company's reliance on
income from slower-growth, margin-dependent products.
And to top it all off, Key has an enviable record of dividend growth.
Thirty-six consecutive years of dividend increases - all the while adapting to
meet clients' changing needs and the demands of a deregulating marketplace -
place Key in an elite group.
[Key Logo]
Key 2000 [] 29
<PAGE> 32
[ADVERTISEMENT-HOLDING HANDS BACKGROUND GRAPHIC]
One day, being together will be your full-time job.
At Key PrivateBank, we can help you build the retirement you want. We offer an
objective, comprehensive, customized approach to financial planning, which draws
upon the best of investment strategy, trust and estate planning, insurance, and
more. Be prepared to enjoy the years when your work seems a lot like play. Call
us.
TO LEARN MORE, CONTACT YOUR KEY PRIVATEBANK OFFICE, CALL 1-888-539-7200 OR VISIT
KEY.COM/PRIVATEBANK.
Investments - Financial & Estate Planning - Private Banking
[KEY LOGO] ACHIEVE ANYTHING.
Securities offered through McDonald Investments are:
Not FDIC Insured - No Bank Guarantee - May Lose Value
McDonald Investments Inc., A KeyCorp Company and member NASD/NYSE/SIPC.
Insurance offered through licensed KeyBank subsidiaries and affiliates.
<PAGE> 33
[CELLULAR PHONE BACKGROUND GRAPHIC]
KeyConnections
Key is committed to communicating swiftly, accurately and cost-effectively with
the investment community and offers a variety of convenient channels to this
end.
One of these channels - the Internet - exemplifies how technology is changing
the way people live and enhancing value for Key shareholders. Those who choose
electronic access help Key reduce printing and postage costs, thereby adding
more value to their shares. They also receive information faster.
Key's Investor Relations website at Key.com provides access to an expanding
array of useful information and services. Most exciting during 2000 was the
initiation of live webcasts, which allow universal access to management's
quarterly earnings discussions. The site also provides the slides used during
these webcasts and, for several days following the discussion, an audio
recording of the proceedings.
In addition, shareholders can now check their accounts online. At
www.key.com/IR, clicking on "Computershare" will link Key shareholders to the
company's shareholder services provider, which offers share balance and the
latest dividend information.
In 2002, shareholders will be able to conduct dividend reinvestment plan (DRIP)
transactions, change their addresses and communicate with customer service
representatives online. They also will have an opportunity to receive Key's
Proxy Statement and Annual Report electronically over the Internet instead of
receiving a paper copy. Key again this year encourages shareholders to vote
their proxies over the Internet - or by phone - instead of using the paper proxy
card.
ONLINE
www.key.com
For product, corporate and financial information
and news releases
BY PHONE
Corporate Headquarters (216) 689-6300
KeyCorp Investor Relations (216) 689-4221
Annual Report, Form 10-K
and other financial reports (888) 539-3322
Transfer Agent/Registrar
and Shareholder Services (800) 539-7216
BY MAIL
CORPORATE HEADQUARTERS
KeyCorp
127 Public Square
Cleveland, OH 44114-1306
KEYCORP INVESTOR RELATIONS
127 Public Square; OH-01-27-1113
Cleveland, OH 44114-1306
TRANSFER AGENT/REGISTRAR
AND SHAREHOLDER SERVICES
Computershare Investor Services
Attn: Shareholder Communications
P.O. Box A3504
Chicago, IL 60690-3504
ANNUAL
SHAREHOLDERS MEETING
May 17, 2001, 8:30 a.m.,
Eastern Daylight Savings Time
The Forum Conference Center
1375 East Ninth Street
Cleveland, OH 44114
COMMON SHARES
KeyCorp Common Shares
are listed on the
New York Stock Exchange
under the symbol KEY.
Anticipated dividend
payable dates are the
15th of March, June,
September and December.
QUARTERLY
FINANCIAL RELEASES
KeyCorp expects to announce
quarterly earnings on the
third Tuesday of April, July and
October 2001 and January 2002.
Any investor desiring a copy
of an earnings announcement
can obtain one by calling the
Financial Report Request Line
at (888) 539-3322 or by
visiting www.key.com/IR.
[OWN YOUR SHARE OF AMERICA - EAGLE LOGO]
KeyCorp supports the National Association of Investors Corporation's (NAIC) "Own
Your Share of America" campaign, which encourages individuals to invest in
common stock. NAIC is a non-profit organization dedicated to providing
individual investors with investment information and education. Please call toll
free (877) ASK-NAIC for membership information.
<PAGE> 34
FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Introduction 32
Highlights of Key's 2000 Performance 32
Cash Basis Financial Data 35
Line of Business Results 36
Results of Operations
Net Interest Income 38
Market Risk Management 39
Noninterest Income 44
Noninterest Expense 46
Income Taxes 48
Financial Condition
Loans 48
Securities 51
Asset Quality 52
Deposits and Other Sources of Funds 55
Liquidity 56
Capital and Dividends 57
Fourth Quarter Results 58
REPORT OF MANAGEMENT 60
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 60
CONSOLIDATED FINANCIAL STATEMENTS 61
31
<PAGE> 35
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
INTRODUCTION
This Management's Discussion and Analysis reviews the financial condition and
results of operations of KeyCorp and its subsidiaries for each of the past three
years. Some tables may cover more than three years to comply with Securities and
Exchange Commission disclosure requirements or to illustrate trends over a
longer period of time. When you read this discussion, you should also look at
the consolidated financial statements and related notes that appear on pages 61
through 88.
Terminology
This report contains some shortened names and industry-specific terms. We want
to explain some of these terms at the outset so you can better understand the
discussion that follows.
- - KEYCORP refers solely to the parent company.
- - KEY refers to the consolidated entity consisting of KeyCorp and its
subsidiaries.
- - MCDONALD is McDonald & Company Investments, Inc., a full-service investment
banking and securities brokerage company that Key acquired in October 1998.
- - A KEYCENTER is one of Key's full-service retail banking facilities or
branches.
- - Key engages in CAPITAL MARKETS ACTIVITIES, primarily through the Key
Capital Partners line of business. These activities encompass a variety of
services. Among other things, we trade securities as a dealer, enter into
derivative contracts (both to accommodate clients' financing needs and for
proprietary trading purposes), invest in privately held companies and
conduct transactions in foreign currencies (both to accommodate clients'
needs and to benefit from fluctuations in exchange rates).
- - CORE FINANCIAL RESULTS exclude the effects of significant nonrecurring
items such as gains from divestitures and restructuring charges.
- - When we want to draw your attention to a particular item in Key's Notes to
Consolidated Financial Statements, we refer to NOTE ___, giving the
particular number, name and starting page number.
- - All earnings per share data included in this discussion are presented on a
DILUTED basis, which takes into account all common shares outstanding and
potential common shares that could result from the exercise of outstanding
stock options. Some of the financial information tables also include BASIC
earnings per share, which takes into account only common shares
outstanding.
- - For regulatory purposes, capital is divided into several classes. Federal
regulations prescribe that at least half of a bank or bank holding
company's TOTAL RISK-ADJUSTED CAPITAL must qualify as TIER 1. Both total
and Tier 1 capital serve as bases for several measures of capital adequacy,
which is an important indicator of financial stability and condition. You
will find a more detailed explanation of total and Tier 1 capital and how
they are calculated in the section entitled "Capital and dividends," which
begins on page 57.
Our projections are not foolproof
This report contains "forward-looking statements" about issues like anticipated
cost savings and revenue growth, and the anticipated reduction in Key's
employment base. Forward-looking statements by their nature are subject to
assumptions, risks and uncertainties. For a variety of reasons, including the
following, actual results could differ materially from those contained in or
implied by the forward-looking statements.
- - Interest rates could change more quickly or more significantly than we
expect.
- - If the economy or segments of the economy continue to slow, the demand for
new loans and the ability of borrowers to repay outstanding loans may
decline.
- - The stock and bond markets could suffer a disruption, which may have a
negative effect on our financial condition and that of our borrowers, and
on our ability to raise money by issuing new securities.
- - It could take us longer than we anticipate to implement strategic
initiatives designed to increase revenues or manage expenses, or we may be
unable to implement those initiatives at all.
- - Acquisitions and dispositions of assets, business units or affiliates could
affect us in ways that management has not anticipated.
- - We may become subject to new legal obligations, or the resolution of
pending litigation may have a negative effect on our financial condition.
- - We may become subject to new and unanticipated accounting, tax, or
regulatory practices or requirements.
HIGHLIGHTS OF KEY'S 2000 PERFORMANCE
Financial performance
Some of the highlights of Key's core financial performance for 2000 are
discussed below.
- - We exceeded $1.0 billion in both core and reported net income for the
second year in a row. Core net income was $1.009 billion, or $2.32 per
common share, compared with $1.051 billion, or $2.33 per common share, in
1999, and $948 million, or $2.12 per common share, in 1998.
- - Key's core return on average equity was 15.49%, compared with 16.79% in
1999 and 17.10% in 1998.
- - Key's core return on average total assets was 1.20%, compared with 1.30% in
1999 and 1.26% in 1998.
In each of the past three years, Key's financial results have been affected by
various nonrecurring items. The most significant of these items and their impact
on both earnings and primary financial ratios are summarized in Figure 1. Each
of these items is discussed in greater detail elsewhere in this report.
32
<PAGE> 36
FIGURE 1 SIGNIFICANT NONRECURRING ITEMS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
dollars in millions, except per share amounts 2000 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $ 1,002 $ 1,107 $ 996
Nonrecurring items (net of tax):
Gain from sale of credit card portfolio (207) -- --
Additional provisions for loan losses 101 19 --
Restructuring and other special charges 78 96 --
Net losses from reconfiguration of securities portfolio 32 -- --
Gains from branch divestitures -- (122) (22)
Gain from sale of Electronic Payment Services, Inc. -- (85) --
Gains from sale of Key Merchant Services, LLC -- (9) (31)
Other nonrecurring items 3 45 5
- -----------------------------------------------------------------------------------------------
Net income -- core $ 1,009 $ 1,051 $ 948
======= ======= =======
Net income per diluted common share $ 2.30 $ 2.45 $ 2.23
Net income per diluted common share -- core 2.32 2.33 2.12
Return on average total assets 1.19% 1.37% 1.32%
Return on average total assets -- core 1.20 1.30 1.26
Return on average equity 15.39 17.68 17.97
Return on average equity -- core 15.49 16.79 17.10
- -----------------------------------------------------------------------------------------------
</TABLE>
Key's core net income declined from 1999 to 2000, in part because of the October
1999 sale of Key's Long Island district branches and the January 2000 sale of
Key's credit card business. Key divested these businesses because management
determined we could not generate sufficient growth to be competitive. The
decline in core earnings also reflects the impact of our decision to
de-emphasize the securitization and sale of home equity loans originated by our
home equity finance affiliate. By retaining these loans on the balance sheet, we
intend to replace over time the earnings formerly generated by the credit card
business.
Management estimates that after excluding earnings from the divested businesses
and net gains from the securitization and sale of home equity loans, Key's 2000
core net income rose to $1.001 billion, or $2.30 per common share, from adjusted
core earnings of $947 million, or $2.10, in 1999. On a per share basis, this
represents an increase of 10%. The primary reasons that Key's revenue and
expense components changed over the past two years are reviewed in detail in the
remainder of this discussion.
Figure 2 summarizes Key's financial performance on a reported basis for each of
the past six years.
Corporate strategy
Key's management reviews Key's business lines on an ongoing basis to identify
opportunities to improve earnings by shifting capital from low-growth to
high-growth businesses. We continue to focus on acquiring or developing
businesses that we believe are capable of achieving double-digit earnings growth
rates, and selling portfolios and business units that have low anticipated
growth rates or do not have a competitive advantage or significant market share.
This long-standing strategy was supplemented in the fourth quarter of 1999 by a
new three-year competitiveness initiative to improve profitability by reducing
the costs of doing business, sharpening the focus on the most profitable growth
businesses and enhancing revenues. More specific information on the status of
this initiative is provided in the section entitled "Status of three-year
competitiveness initiative," on page 35.
Key's corporate strategy also reflects the growing importance of the Internet
and related information technologies to all daily activities. In particular, the
strategy calls for the continual and thoughtful application of such technologies
to enhance Key's product and service offerings and to streamline our internal
business practices.
Principal strategic actions during 2000
On January 31, we sold our $1.3 billion credit card portfolio as part of an
overall effort to redeploy resources to faster growing businesses, such as the
home equity lending business. Key's credit card lending business was not large
enough to compete with the volume of lending conducted by the major institutions
in this business. The sale of the credit card portfolio is described in Note 3
("Acquisitions and Divestitures") which begins on page 69.
In addition, throughout the year, Key has continued to take actions to increase
the potential for additional growth in fee income.
DURING THE FIRST QUARTER, we introduced an electronic commerce program for our
middle market corporate clients and launched a retirement services campaign. We
also announced the acquisition of certain net assets of National Realty Funding
L.C., a commercial finance company headquartered in Kansas City, Missouri.
Through this acquisition we expect to expand our capabilities in originating and
servicing loans in the commercial real estate market. For example, in 2000 Key
participated in two securitizations involving the nonrecourse sale of commercial
mortgage loans, including Key loans totaling $850 million. Key continues to
generate fee income as the primary servicer for all of its loans sold in these
transactions.
33
<PAGE> 37
FIGURE 2 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Compound
Annual Rate
of Change
dollars in millions, except per share amounts 2000 1999 1998 1997 1996 1995 (1995-2000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Interest income $ 6,277 $ 5,695 $ 5,525 $ 5,262 $ 4,951 $ 5,121 4.2%
Interest expense 3,547 2,908 2,841 2,517 2,237 2,485 7.4
Net interest income 2,730 2,787 2,684 2,745 2,714 2,636 .7
Provision for loan losses 490 348 297 320 197 100 37.4
Noninterest income 2,194 2,315 1,600 1,315 1,090 936 18.6
Noninterest expense 2,917 3,070 2,508 2,395 2,464 2,315 4.7
Income before income taxes
and extraordinary item 1,517 1,684 1,479 1,345 1,143 1,157 5.6
Income before extraordinary item 1,002 1,107 996 919 783 789 4.9
Net income 1,002 1,107 996 919 783 825 4.0
Net income applicable to common shares 1,002 1,107 996 919 775 809 4.4
- --------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Income before extraordinary item $ 2.32 $ 2.47 $ 2.25 $ 2.09 $ 1.69 $ 1.65 7.1%
Income before extraordinary item
-- assuming dilution 2.30 2.45 2.23 2.07 1.67 1.63 7.1
Net income 2.32 2.47 2.25 2.09 1.69 1.73 6.0
Net income -- assuming dilution 2.30 2.45 2.23 2.07 1.67 1.71 6.1
Cash dividends 1.12 1.04 .94 .84 .76 .72 9.2
Book value at year end 15.65 14.41 13.63 11.83 10.92 10.68 7.9
Market price at year end 28.00 22.13 32.00 35.41 25.25 18.13 9.1
Dividend payout ratio 48.28% 42.11% 41.78% 40.19% 45.10% 41.74% 3.0
Weighted average common shares (000) 432,617 448,168 441,895 439,042 459,810 469,574 (1.6)
Weighted average common shares and
potential common shares (000) 435,573 452,363 447,437 444,544 464,282 472,882 (1.6)
- --------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31,
Loans $ 66,905 $ 64,222 $ 62,012 $ 53,380 $ 49,235 $ 48,332 6.7%
Earning assets 77,316 73,733 70,240 64,246 59,260 58,762 5.6
Total assets 87,270 83,395 80,020 73,699 67,621 66,339 5.6
Deposits 48,649 43,233 42,583 45,073 45,317 47,282 .6
Long-term debt 14,161 15,881 12,967 7,446 4,213 4,003 28.7
Common shareholders' equity 6,623 6,389 6,167 5,181 4,881 4,993 5.8
Total shareholders' equity 6,623 6,389 6,167 5,181 4,881 5,153 5.1
Full-time equivalent employees 22,142 24,568 25,862 24,595 27,689 29,563 (5.6)
Branches 922 936 968 1,015 1,205 1,284 (6.4)
- --------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.19% 1.37% 1.32% 1.33% 1.21% 1.24% N/A
Return on average common equity 15.39 17.68 17.97 18.89 15.73 17.35 N/A
Return on average total equity 15.39 17.68 17.97 18.89 15.64 17.10 N/A
Efficiency(a) 59.75 59.61 58.74 58.31 60.91 63.06 N/A
Overhead(b) 31.74 31.52 35.17 40.34 45.51 49.67 N/A
Net interest margin (taxable equivalent) 3.69 3.93 4.08 4.54 4.78 4.47 N/A
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS AT DECEMBER 31,
Equity to assets 7.59% 7.66% 7.71% 7.03% 7.22% 7.77% N/A
Tangible equity to tangible assets 6.12 6.03 5.93 5.52 5.88 6.25 N/A
Tier 1 risk-adjusted capital 7.72 7.68 7.21 6.65 7.98 7.53 N/A
Total risk-adjusted capital 11.48 11.66 11.69 10.83 13.01 10.85 N/A
Leverage 7.71 7.77 6.95 6.40 6.93 6.20 N/A
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Key completed several acquisitions and divestitures during the six-year period
shown in this table. One or more of these transactions may have had a
significant effect on Key's results, making it difficult to compare results from
one year to the next. Note 3 ("Acquisitions and Divestitures"), which begins on
page 69, has specific information about the business combinations and
divestitures that Key completed in the past three years to help you understand
how those transactions may have impacted Key's financial condition and results
of operations.
(a) This ratio measures the extent to which recurring revenues are absorbed by
operating expenses and is calculated as follows: noninterest expense
(excluding significant nonrecurring items) divided by the sum of
taxable-equivalent net interest income and noninterest income (excluding
significant nonrecurring items).
(b) This ratio is the difference between noninterest expense (excluding
significant nonrecurring items) and noninterest income (excluding
significant nonrecurring items) divided by taxable-equivalent net interest
income.
N/A = Not Applicable
34
<PAGE> 38
DURING THE SECOND QUARTER, we announced our intent to form a strategic alliance
that will enhance and expand the trade products and services that Key offers its
international clients. Under this alliance, ABN AMRO, the world's sixth-largest
bank, will process international trade transactions for Key's clients through a
variety of channels, including the Internet. We expect the alliance to begin
serving Key's clients by the end of the second quarter of 2001.
DURING THE THIRD QUARTER, we acquired certain net assets of Newport Mortgage
Company, L.P., a commercial mortgage company headquartered in Dallas, Texas. We
expect this acquisition will expand the breadth of our lending capabilities. We
also reached an agreement with InsLogic, a leader in online insurance services,
which allowed us to begin offering various insurance products and services on
the Key web site during the fourth quarter of 2000. Finally, we entered into an
agreement with MasterCard International to provide MasterCard-branded debit card
processing services to other financial institutions that have limited or no
access to an ATM network.
IN THE FOURTH QUARTER, we announced that our corporate electronic commerce
program, which allows our middle market clients to buy and sell products online,
moved from its pilot phase to a fully functioning operation. We also reached an
agreement to acquire The Wallach Company, Inc., an investment banking firm based
in Denver, Colorado. We expect this acquisition to enhance our position in this
fast-growth region and to provide additional expertise in the information
technology and financial institutions sectors. We completed this transaction at
the beginning of 2001.
Status of three-year competitiveness initiative
During the third quarter, we entered the second and final phase of our
three-year competitiveness initiative. Management expects that Key will achieve
an annual savings rate of approximately $360 million from the overall initiative
when actions are fully implemented by the end of 2002. In the initial phase,
which began in November 1999, Key reduced its operating expenses by
approximately $100 million by outsourcing certain nonstrategic support
functions, consolidating sites in a number of our businesses and reducing
management layers. The final phase will focus on:
- - simplifying Key's business structure by consolidating 22 business lines
into 12;
- - streamlining and automating business operations and processes;
- - standardizing product offerings and internal processes;
- - consolidating operating facilities and service centers; and
- - outsourcing additional noncore activities.
Management expects these efforts will reduce Key's workforce by approximately
2,300 positions by the end of 2001. This will bring workforce reductions to
approximately 4,000 positions for the entire three-year initiative. In 2000, we
recorded $127 million of restructuring and other special charges in connection
with the competitiveness initiative, bringing the cumulative charges recorded
for this initiative to a net $279 million. The section entitled "Noninterest
expense," which begins on page 46, and Note 14 ("Restructuring Charges"), which
begins on page 79, provide more information about Key's restructuring charges.
CASH BASIS FINANCIAL DATA
The selected financial data presented in Figure 3 highlight Key's performance on
a cash basis for each of the past three years. We provide cash basis financial
data because we believe it offers a useful tool for measuring Key's ability to
support future growth, evaluating liquidity and assessing Key's ability to pay
dividends and repurchase shares.
FIGURE 3 CASH BASIS SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
dollars in millions, except per share amounts 2000 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Noninterest expense $ 2,817 $ 2,968 $ 2,422
Income before income taxes 1,617 1,786 1,565
Net income 1,093 1,199 1,072
- -------------------------------------------------------------------------------------
PER COMMON SHARE
Net income $ 2.53 $ 2.68 $ 2.43
Net income -- assuming dilution 2.51 2.65 2.40
Weighted average common shares (000) 432,617 448,168 441,895
Weighted average common shares and potential
common shares (000) 435,573 452,363 447,437
- -------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.32% 1.51% 1.45%
Return on average total equity 21.43 25.14 24.71
Efficiency(a) 57.61 57.48 55.20
- -------------------------------------------------------------------------------------
GOODWILL AND NONQUALIFYING INTANGIBLES
Goodwill average balance $ 1,359 $ 1,424 $ 1,113
Nonqualifying intangibles average balance 52 68 91
Goodwill amortization (after tax) 82 81 65
Nonqualifying intangibles amortization (after tax) 9 11 11
- -------------------------------------------------------------------------------------
</TABLE>
Key completed several acquisitions and divestitures during the three-year period
shown in this table. One or more of these transactions may have had a
significant effect on Key's results, making it difficult to compare results from
one year to the next. Note 3 ("Acquisitions and Divestitures"), which begins on
page 69, has specific information about the business combinations and
divestitures that Key completed in the past three years to help you understand
how those transactions may have impacted Key's financial condition and results
of operations.
(a) This ratio measures the extent to which recurring revenues are absorbed by
operating expenses and is calculated as follows: noninterest expense
(excluding significant nonrecurring items and the amortization of goodwill
and non-qualifying intangibles) divided by the sum of taxable-equivalent net
interest income and noninterest income (excluding significant nonrecurring
items).
35
<PAGE> 39
"Cash basis" accounting can mean different things. When we apply "cash basis"
accounting, the only adjustments that we make to get from the information in
Figure 2 (which is presented on an accrual basis) to the comparable line items
in Figure 3 are to exclude goodwill and other intangibles that do not qualify as
Tier 1 capital, and to exclude the amortization of those assets. Figure 3 does
not exclude the impact of other noncash items (such as depreciation and deferred
taxes) and significant nonrecurring items.
Key's goodwill and other intangibles that do not qualify as Tier 1 capital are
the result of business combinations that Key recorded using the "purchase"
method of accounting. Under the purchase method, assets and liabilities of
acquired companies are recorded at their fair values and any amount paid in
excess of the fair value of the net assets acquired is recorded as goodwill. (If
the same transactions had qualified for accounting using the "pooling of
interests" method, the acquired company's financial statements would simply have
been combined with Key's.) After a combination using purchase accounting, Key
must amortize goodwill and other intangibles by taking periodic charges against
income, but those charges are only accounting entries, not actual cash expenses.
Thus, from an investor's perspective, the economic effect of a transaction is
the same whether we account for it as a purchase or a pooling. For the same
reason, the amortization of intangibles does not impact Key's liquidity and
funds management activities.
This is the only section of this Financial Review that discusses Key's financial
results on a cash basis.
LINE OF BUSINESS RESULTS
Key has four major lines of business:
KEY RETAIL BANKING offers branch-based financial products and services to small
businesses and consumers.
KEY SPECIALTY FINANCE offers non-branch-based consumer loan products, such as
education loans, home equity loans, automobile loans and leases, and marine and
recreational vehicle loans.
KEY CORPORATE CAPITAL offers financing and specialized services related to,
among other things, transaction processing, corporate electronic commerce,
financial advice and equipment leasing.
KEY CAPITAL PARTNERS offers asset management, brokerage services, investment
banking, capital markets activities, and insurance products and services. It
also provides specialized services to high-net-worth clients through the wealth
management and private banking businesses.
This section summarizes the financial performance of each line of business and
its most recent strategic developments. To better understand this discussion,
see Note 4 ("Line of Business Results"), which begins on page 70 and describes
the activities and financial results of each line of business in greater detail.
Figure 4 shows Key's net income (loss) by line of business for each of the past
three years.
FIGURE 4 NET INCOME (LOSS) BY LINE OF BUSINESS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, Change 2000 vs 1999
------------------------
dollars in millions 2000 1999 1998 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Key Retail Banking $ 387 $ 334 $305 $ 53 15.9%
Key Specialty Finance 67 123 92 (56) (45.5)
Key Corporate Capital 398 391 339 7 1.8
Key Capital Partners(a) 139 110 89 29 26.4
Treasury and Other (24) (4) 54 (20) (500.0)
- -----------------------------------------------------------------------------------------------------------------------------------
Total segments 967 954 879 13 1.4
Reconciling items 35 153 117 (118) (77.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Total net income $1,002 $1,107 $996 $(105) (9.5)%
====== ====== ==== =====
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Noninterest income and expense attributable to Key Capital Partners is
assigned to either Key Corporate Capital or Key Retail Banking if one of
those lines is principally responsible for maintaining the relationship with
the client that used Key Capital Partners' products and services. Key
Capital Partners had net income of $179 million in 2000, $143 million in
1999 and $122 million in 1998 before its income and expense were reassigned.
Key Retail Banking
Net income for Key Retail Banking was $387 million in 2000, or approximately 38%
of Key's consolidated earnings. In comparison, net income was $334 million in
1999, or approximately 30% of consolidated earnings. The increase in net income
is primarily attributable to a $57 million increase in total revenue and a $60
million decline in noninterest expense. These positive factors were