EX-10.13 6 l86594aex10-13.txt EXHIBIT 10.13 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 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 -2- 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. -3- 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- 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- 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 -6- 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- 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- 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 -9- 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 -10- 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- 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- 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- 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- 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- 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- 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.] -17- 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-