SHARE-BASED COMPENSATION

2012 Incentive Plan

On May 17, 2012, our stockholders approved the 2012 Equity and Cash Incentive Plan (the “2012 Incentive Plan”). The 2012 Incentive Plan is administered by our board of directors or a committee designated by our board of directors (the “Committee”). Our board of directors or the Committee (the “Administrator”) will have the power and authority to select Participants (as defined below) in the 2012 Incentive Plan and grant Awards (as defined below) to such Participants pursuant to the terms of the 2012 Incentive Plan. The 2012 Incentive Plan expires May 17, 2022.

Subject to adjustment, the total number of shares of our common stock that will be available for the grant of Awards under the 2012 Incentive Plan may not exceed 4,000,000 shares; however, for purposes of this limitation, any stock subject to an Award that is canceled, forfeited, expires or otherwise terminates without the issuance of stock, is settled in cash, or is exchanged with the Administrator's permission, prior to the issuance of stock, for an Award not involving stock, will again become available for issuance under the 2012 Incentive Plan. However, the full number of SARs granted that are to be settled by the issuance of stock will count against the plan limit described above, regardless of the number of shares of stock actually issued upon settlement of the stock appreciation rights. Shares of stock surrendered or withheld in payment of the exercise price of an option and shares of stock withheld by the Company to satisfy tax withholding obligations will count against the plan limit described above. Subject to adjustment, no Participant will be granted, during any one year period, options to purchase common stock and/or SARs with respect to more than 500,000 shares of common stock. Stock available for distribution under the 2012 Incentive Plan will be authorized and unissued shares, treasury shares or shares we reacquire in any manner.

Awards may be in the form of stock options (incentive stock options and nonqualified stock options), restricted stock, restricted stock units, performance compensation awards and SARs (collectively, "Awards"). Awards may be granted to employees, directors and, in some cases, consultants and those individuals whom the Administrator determines are reasonably expected to become employees, directors or consultants following the grant date of the Award (“Participants”). However, incentive stock options may be granted only to employees.

Our board of directors at any time, and from time to time, may amend or terminate the 2012 Incentive Plan. However, except as provided otherwise in the 2012 Incentive Plan, no amendment will be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy any applicable law or securities exchange listing requirements. Further, if the exercise price of an option, including an incentive stock option, exceeds the fair market value of our common stock on a given date, the Committee has the authority to reduce the exercise price of such option to a new exercise price that is no less than the then-current fair market value of our common stock; provided that such action shall first have been approved by a vote of our stockholders. The Administrator at any time, and from time to time, may amend the terms of any one or more Awards; however, if the amendment would constitute an impairment of the rights under any Award, we must request the consent of the Participant and the Participant must consent in writing. It is expressly contemplated that the board may amend the 2012 Incentive Plan in any respect our board of directors deem necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder relating to incentive stock options and/or to bring the 2012 Incentive Plan and/or Awards granted under it into compliance therewith. As of December 31, 2013, there were 1.6 million shares available for grant under the 2012 Incentive Plan.

2009 Incentive Plan

On June 4, 2009, our stockholders approved the 2009 Equity and Cash Incentive Plan (the “2009 Incentive Plan”). The 2009 Incentive Plan is administered by our board of directors or the applicable Committee designated by the board. The Administrator will have the power and authority to select Participants in the 2009 Incentive Plan and to grant Awards to such Participants pursuant to the terms of the 2009 Incentive Plan. The 2009 Incentive Plan expires June 4, 2019.

Subject to adjustment, the total number of shares of our common stock available for the grant of Awards under the 2009 Incentive Plan may not exceed 4,000,000 shares; however, for purposes of this limitation, any stock subject to an Award that is canceled, forfeited or expires prior to exercise or realization will again become available for issuance under the 2009 Incentive Plan. Subject to adjustment, no Participant will be granted, during any one year period, options to purchase common stock and/or SARs with respect to more than 500,000 shares of common stock. Stock available for distribution under the 2009 Incentive Plan will come from authorized and unissued shares or shares we reacquire in any manner. All awards under the 2009 Incentive Plan are granted at fair market value on the date of issuance.

Awards may be granted to employees, directors and, in some cases, consultants and those individuals whom the Administrator determines are reasonably expected to become employees, directors or consultants following the grant date of the Award (“Participants”). However, incentive stock options may be granted only to employees. Vesting periods may be set at the board’s discretion but are generally set at two to four years. Awards to our directors are generally not subject to vesting.

Our board of directors at any time, and from time to time, may amend or terminate the 2009 Incentive Plan. However, no repricing of stock options is permitted unless approved by our stockholders, and, except as provided otherwise in the 2009 Incentive Plan, no other amendment will be effective unless approved by our stockholders to the extent stockholder approval is necessary to satisfy any applicable law or securities exchange listing requirements. As of December 31, 2013, there were 0.6 million shares available for grant under the 2009 Incentive Plan.

2007 Incentive Plan

On December 6, 2007, our stockholders approved the 2007 Equity and Cash Incentive Plan (the “2007 Incentive Plan”). The 2007 Incentive Plan is substantially similar to the 2009 Incentive Plan except for certain differences related to treatment of Awards at retirement and transferability of Awards at death. The 2007 Incentive Plan expires December 6, 2017.

Subject to adjustment, the total number of shares of our common stock that are available for the grant of Awards under the 2007 Incentive Plan may not exceed 4,000,000 shares; however, for purposes of this limitation, any stock subject to an award that is canceled, forfeited or expires prior to exercise or realization will again become available for issuance under the 2007 Incentive Plan.

Our board of directors at any time, and from time to time, may amend or terminate the 2007 Incentive Plan. However, except as provided otherwise in the 2007 Incentive Plan, no amendment will be effective unless approved by our stockholders to the extent stockholder approval is necessary to satisfy any applicable law or securities exchange listing requirements. As of December 31, 2013, there were 0.3 million shares available for grant under the 2007 Incentive Plan.

Stock Option Awards

Stock option awards granted under our incentive plans have a maximum contractual term of ten years from the date of grant. Shares issuable upon exercise of a stock option are issued from authorized but unissued shares of our common stock. The following tables summarize the stock option activity (shares in thousands):



	Year Ended December 31, 2013
	Options		Weighted Average Exercise Price		Weighted Average Fair Value
Outstanding at beginning of period	1,820		$	14.04	$	5.91
Granted	—		$	—	$	—
Exercised	(4	)	$	3.87	$	1.67
Cancelled or expired	(444	)	$	13.93	$	5.65
Outstanding at end of period	1,372		$	14.10	$	6.00
Exercisable at end of period	1,372		$	14.10	$	6.00



	Year Ended December 31, 2012
	Options		Weighted Average Exercise Price		Weighted Average Fair Value
Outstanding at beginning of period	2,137		$	13.87	$	5.84
Granted	—		$	—	$	—
Exercised	(114	)	$	9.76	$	4.83
Cancelled or expired	(203	)	$	14.68	$	5.91
Outstanding at end of period	1,820		$	14.04	$	5.91
Exercisable at end of period	1,820		$	14.04	$	5.91



	Year Ended December 31, 2011
	Options		Weighted Average Exercise Price		Weighted Average Fair Value
Outstanding at beginning of period	2,816		$	13.52	$	5.72
Granted	—		$	—	$	—
Exercised	(647	)	$	12.29	$	5.31
Cancelled or expired	(32	)	$	13.89	$	5.86
Outstanding at end of period	2,137		$	13.87	$	5.84
Exercisable at end of period	2,126		$	13.92	$	5.87

The following tables summarize information about the stock options outstanding at December 31, 2013 (shares in thousands):



	Options Outstanding
	Weighted Average Remaining Contractual Life (Years)	Number of Options Outstanding		Weighted Average Exercise Price		Weighted Average Fair Value
Range of exercise prices:
$3.87 - $9.37	4.92	6		$	4.01	$	1.72
$9.38 - $13.10	1.48	335		$	11.92	$	5.95
$13.11 - $15.05	3.59	995		$	14.82	$	6.04
$15.06 - $19.42	4.47	36		$	16.18	$	6.07
		1,372		$	14.10	$	6.00
Aggregate intrinsic value (in thousands)		$	24



	Options Exercisable
	Number of Options Exercisable		Weighted Average Exercise Price		Weighted Average Fair Value
Range of exercise prices:
$3.87 - $9.37	6		$	4.01	$	1.72
$9.38 - $13.10	335		$	11.92	$	5.95
$13.11 - $15.05	995		$	14.82	$	6.04
$15.06 - $19.42	36		$	16.18	$	6.07
	1,372		$	14.10	$	6.00
Aggregate intrinsic value (in thousands)	$	24

We did not grant any stock options during the years ended December 31, 2013, 2012 and 2011. No stock options vested during the year ended December 31, 2013. We recognized zero, less than $0.1 million and less than $0.1 million in pre-tax expense related to stock options for the years ended December 31, 2013, 2012 and 2011, respectively. We recognized tax benefits of zero, less than $0.1 million and less than $0.1 million, related to our stock options for the years ended December 31, 2013, 2012 and 2011, respectively. All of the stock option awards were vested as of December 31, 2012. The weighted average remaining contractual term for stock option awards exercisable as of December 31, 2013 is 3.1 years. The intrinsic value of the options exercised for the years ended December 31, 2013, 2012 and 2011 was less than $0.1 million, $0.6 million and $3.0 million, respectively. Cash received from the exercise of options for the year ended December 31, 2013, was less than $0.1 million with zero associated tax benefits.

Common Stock Awards

The total fair market value of all common stock awards granted during the years ended December 31, 2013, 2012 and 2011 was $15.7 million, $14.9 million and $18.4 million, respectively.

The following tables summarize information for the years ended December 31, 2013, 2012 and 2011 about the common share awards that we have issued (shares in thousands):



	Year Ended December 31, 2013
	Outstanding		Weighted Average Issuance Price		Vested		Weighted Average Issuance Price
Shares at beginning of period	6,160		$	8.87	4,383		$	6.12
Shares issued during period(1)	2,062		$	7.59	475		$	6.92
Previously issued shares vesting during period	—		$	—	1,094		$	12.13
Shares cancelled during period	(386	)	$	9.64	—		$	—
Shares repurchased during period	(416	)	$	7.51	(416	)	$	7.51
Shares at end of period	7,420		$	8.55	5,536		$	7.27



	Year Ended December 31, 2012
	Outstanding		Weighted Average Issuance Price		Vested		Weighted Average Issuance Price
Shares at beginning of period	5,874		$	8.78	2,876		$	6.27
Shares issued during period(1)	1,106		$	13.50	153		$	10.29
Previously issued shares vesting during period	—		$	—	1,837		$	7.98
Shares cancelled during period	(337	)	$	13.13	—		$	—
Shares repurchased during period	(483	)	$	15.42	(483	)	$	15.42
Shares at end of period	6,160		$	8.87	4,383		$	6.12



	Year Ended December 31, 2011
	Outstanding		Weighted Average Issuance Price		Vested		Weighted Average Issuance Price
Shares at beginning of period	5,027		$	7.98	1,913		$	8.41
Shares issued during period(1)	1,370		$	13.43	101		$	1.18
Previously issued shares vesting during period	—		$	—	1,246		$	5.99
Shares cancelled during period	(139	)	$	9.43	—		$	—
Shares repurchased during period	(384	)	$	14.68	(384	)	$	14.68
Shares at end of period	5,874		$	8.78	2,876		$	6.27


(1)	Includes 288,780 shares, 153,063 shares and 99,999 shares of common stock issued to our non-employee directors that vested immediately upon issuance during 2013, 2012 and 2011, respectively.

For common stock grants that vest immediately upon issuance, we record expense equal to the fair market value of the shares on the date of grant. For common stock awards that do not immediately vest, we recognize compensation expense ratably over the graded vesting period of the grant, net of estimated and actual forfeitures. For the years ended December 31, 2013, 2012 and 2011, we recognized $13.8 million, $13.3 million and $15.6 million, respectively, of pre-tax expense from continuing operations associated with common stock awards, including common stock grants to our outside directors. In connection with the expense related to common stock awards recognized during the year ended December 31, 2013, we recognized tax benefits of $5.2 million. Tax benefits for the years ended December 31, 2012 and 2011 were $4.2 million and $6.0 million, respectively. For the unvested common stock awards outstanding as of December 31, 2013, we anticipate that we will recognize $8.8 million of pre-tax expense over the next 0.9 years.

Performance Units

On January 21, 2013, the Compensation Committee of the board of directors adopted the Performance Unit Award Agreement (the “2012 PU Award Agreement”) under the 2012 Incentive Plan and the 2013 Performance Unit Plan (the “2013 PU Plan”). We believe that the 2013 PU Plan and 2012 PU Award Agreement will enable us to obtain and retain employees who will contribute to our long term success by aligning the interests of our executives with the interests of our stockholders by providing compensation that is linked directly to increases in share value.

In January 2013, we issued 0.4 million performance units to our executive officers under the 2012 Incentive Plan with such material terms as set forth in the 2012 PU Award Agreement. In February 2013, we issued 0.2 million performance units to certain other employees under the 2013 PU Plan. The performance units are measured based on two performance periods from January 1, 2013 to December 31, 2013 and from January 1, 2014 to December 31, 2014. One half of the performance units are measured based on the first performance period, and the other half are measured based on the second performance period. The number of performance units that may be earned by a participant is determined at the end of each performance period based on the relative placement of Key's total stockholder return for that period within the peer group, as follows:



Company Placement for the Performance Period	Percentile Ranking in Peer Group		Performance Units Earned as a Percentage of Target
First	100	%	200	%
Second	91	%	180	%
Third	82	%	160	%
Fourth	73	%	140	%
Fifth	64	%	120	%
Sixth	55	%	100	%
Seventh	45	%	75	%
Eighth	36	%	50	%
Ninth	27	%	25	%
Tenth	18	%	—	%
Eleventh	9	%	—	%
Twelfth	—	%	—	%

If any performance units vest for a given performance period, the award holder will be paid a cash amount equal to the vested percentage of the performance units multiplied by the closing stock price of our common stock on the last trading day of the performance period. We account for the performance units as a liability-type award as they are settled in cash. As of December 31, 2013, the fair value of outstanding performance units was $2.2 million, and is being accreted to compensation expense over the vesting terms of the awards. As of December 31, 2013, the unrecognized compensation cost related to our unvested performance units is estimated to be $1.1 million and is expected to be recognized over a weighted-average period of 1.0 years.

Phantom Share Plan

In December 2006, we announced the implementation of a “Phantom Share Plan,” in which certain of our employees were granted “Phantom Shares.” Phantom Shares vest ratably over a four-year period and convey the right to the grantee to receive a cash payment on the anniversary date of the grant equal to the fair market value of the Phantom Shares vesting on that date. Grantees are not permitted to defer this payment to a later date. The Phantom Shares are a “liability” type award and we account for these awards at fair value. We recognize compensation expense related to the Phantom Shares based on the change in the fair value of the awards during the period and the percentage of the service requirement that has been performed, net of estimated and actual forfeitures, with an offsetting liability recorded on our consolidated balance sheets. We recognized pre-tax compensation benefit from continuing operation, associated with the Phantom Shares of zero, less than $0.1 million and $0.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, no Phantom Shares were outstanding.

We recognized income tax benefit associated with the Phantom Shares of zero, less than $0.1 million and $0.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. During 2013, there were no cash payments related to the Phantom Shares.

Stock Appreciation Rights

In August 2007, we issued approximately 587,000 SARs to our executive officers. Each SAR has a ten-year term from the date of grant. The vesting of all outstanding SAR awards was accelerated during the fourth quarter of 2008. Upon the exercise of a SAR, the recipient will receive an amount equal to the difference between the exercise price and the fair market value of a share of our common stock on the date of exercise, multiplied by the number of shares of common stock for which the SAR was exercised. All payments will be made in shares of our common stock. Prior to exercise, the SAR does not entitle the recipient to receive any shares of our common stock and does not provide the recipient with any voting or other stockholders’ rights. We account for these SARs as equity awards and recognize compensation expense ratably over the vesting period of the SAR based on their fair value on the date of issuance, net of estimated and actual forfeitures. We did not recognize any expense associated with these awards during 2013, 2012 and 2011. We did not forfeit any SARs during 2013. As of December 31, 2013, 0.3 million SARs remained unexercised.